-----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, DnQSnH5Pw0E9SDuifz+foKg9qTn9akrzmfYbNP4cpiY23mMVfSWf8uYmzFDsc4pJ zeEAMiMtOdutBmdNo2LN/w== 0001047469-98-030703.txt : 19980813 0001047469-98-030703.hdr.sgml : 19980813 ACCESSION NUMBER: 0001047469-98-030703 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980812 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 14D1 SEC ACT: SEC FILE NUMBER: 005-43785 FILM NUMBER: 98683548 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: MENTOR GRAPHICS CORP CENTRAL INDEX KEY: 0000701811 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930786033 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 8005 SW BOECKMAN RD CITY: WILSONVILLE STATE: OR ZIP: 97070 BUSINESS PHONE: 5036857000 SC 14D1 1 SC 14D1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT (PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) QUICKTURN DESIGN SYSTEMS, INC. (Name of Subject Company) MENTOR GRAPHICS CORPORATION MGZ CORP. (Bidders) COMMON STOCK, PAR VALUE $.001 PER SHARE (including the Associated Rights) (Title of Class of Securities) 74838E102 (CUSIP Number of Class of Securities) ------------------------ WALDEN C. RHINES PRESIDENT AND CHIEF EXECUTIVE OFFICER MENTOR GRAPHICS CORPORATION 8005 S.W. BOECKMAN ROAD WILSONVILLE, OREGON 97070-7777 (503) 685-1200 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Bidders) COPY TO: JOHN J. HUBER, ESQ. CHRISTOPHER L. KAUFMAN, ESQ. LATHAM & WATKINS LATHAM & WATKINS 1001 PENNSYLVANIA AVENUE, N.W. 75 WILLOW ROAD WASHINGTON, DC 20004 MENLO PARK, CALIFORNIA 94025 (202) 637-2200 (650) 328-4600 CALCULATION OF FILING FEE:
TRANSACTION VALUATION* AMOUNT OF FILING FEE** $261,503,803.50 $52,300.76
* For the purpose of calculating the filing fee only, this amount assumes the purchase of 21,567,324 shares of Common Stock, par value $.001 per share, of Quickturn Design Systems, Inc. (the "Company"), including the associated preferred stock purchase rights, at $12.125 per share. Such number of shares consists of (i) 17,809,342 shares issued and outstanding as of April 30, 1998 and (ii) 4,349,482 shares reserved for issuance upon the exercise of outstanding options and warrants as of March 31, 1998 (each according to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998), less 591,500 shares owned by Bidders. ** The amount of the filing fee calculated in accordance with Regulation 240.0-11 of the Securities Exchange Act of 1934 equals 1/50th of 1% of the value of the shares to be purchased. / / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: Not applicable. Filing Party: Not applicable. Form or Registration No.: Not applicable. Date Filed: Not applicable.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (CONTINUED ON FOLLOWING PAGE(S)) (PAGE 1 OF 7 PAGES) SCHEDULE 14D-1 CUSIP NO. 74838E102 PAGE 2 OF 7 PAGES ________________________________________________________________________________ (1) Name of reporting persons: Mentor Graphics Corporation I.R.S. Identification No. of above person (entities only): 93-0786033 ________________________________________________________________________________ (2) Check the appropriate box if a member of a group (see instructions): (a) / / (b) / / ________________________________________________________________________________ (3) SEC use only ________________________________________________________________________________ (4) Source of funds (see instructions): BK, WC ________________________________________________________________________________ (5) Check box if disclosure of legal proceedings is required pursuant to Items 2(e) or 2(f) / / ________________________________________________________________________________ (6) Citizenship or place of organization: Oregon ________________________________________________________________________________ (7) Aggregate amount beneficially owned by each reporting person: 591,500 shares of common stock ________________________________________________________________________________ (8) Check box if the aggregate amount in Row (7) excludes certain shares (see instructions): / / ________________________________________________________________________________ (9) Percent of class represented by amount in Row (7): 3.3% ________________________________________________________________________________ (10) Type of reporting person (see instructions): CO ________________________________________________________________________________ 2 SCHEDULE 14D-1 CUSIP NO. 74838E102 PAGE 3 OF 7 PAGES ________________________________________________________________________________ (1) Name of reporting persons: MGZ Corp. I.R.S. Identification No. of above person (entities only): 51-0383140 ________________________________________________________________________________ (2) Check the appropriate box if a member of a group (see instructions): (a) / / (b) / / ________________________________________________________________________________ (3) SEC use only ________________________________________________________________________________ (4) Source of funds (see instructions): AF ________________________________________________________________________________ (5) Check box if disclosure of legal proceedings is required pursuant to Items 2(e) or 2(f) / / ________________________________________________________________________________ (6) Citizenship or place of organization: Delaware ________________________________________________________________________________ (7) Aggregate amount beneficially owned by each reporting person: 100 shares of common stock ________________________________________________________________________________ (8) Check box if the aggregate amount in Row (7) excludes certain shares (see instructions): / / ________________________________________________________________________________ (9) Percent of class represented by amount in Row (7): 0.0% ________________________________________________________________________________ (10) Type of reporting person (see instructions): CO ________________________________________________________________________________ 3 TENDER OFFER This Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") relates to a tender offer by MGZ Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, a Delaware corporation ("Parent"), to purchase all outstanding shares of common stock, par value $.001 per share (the "Company Common Stock"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement dated January 10, 1996 between the Company and The First National Bank of Boston (the "Rights" and, together with the Company Common Stock, the "Shares") not currently directly or indirectly owned by Parent and its subsidiaries, including Purchaser, for a purchase 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 the Offer to Purchase dated August 12, 1998 (the "Offer to Purchase") and in the related Letter of Transmittal (the "Letter of Transmittal" which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer"), and is intended to satisfy the reporting requirements of Section 14(d) of the Securities Exchange Act of 1934, as amended. Copies of the Offer to Purchase and the related Letter of Transmittal are filed with this Schedule 14D-1 as Exhibits (a)(1), and (a)(2) hereto, respectively. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Quickturn Design Systems, Inc., a Delaware corporation, which has its principal executive and operating offices at 55 West Trimble Road, San Jose, California 95131. (b) The title of the securities which are the subject of the Offer is the Company's Common Stock, $.001 par value per share, including the associated Rights (together, the "Shares"), and the Offer is for all outstanding Shares at a price of $12.125 per Share, net to the seller in cash, without interest thereon. The information set forth in the "INTRODUCTION" to the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 to the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) The information set forth in the "INTRODUCTION" to the Offer to Purchase, in Section 8 to the Offer to Purchase and in Schedule I to the Offer to Purchase is incorporated herein by reference. (e)-(f) During the last five (5) years, neither Parent nor Purchaser nor, to the best of knowledge of Parent or Purchaser, any executive officer or director of Parent or Purchaser has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or, prohibiting or mandating activities subject to Federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth in the "INTRODUCTION" to the Offer to Purchase and in Sections 8, 10 and 11 of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(c) The information set forth in Section 9 to the Offer to Purchase is incorporated herein by reference. 4 ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(g) The information set forth in the "INTRODUCTION" to the Offer to Purchase and in Sections 11 and 13 to the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a)-(b) The information set forth in the "INTRODUCTION" to the Offer to Purchase, in Section 8 to the Offer to Purchase and Schedule II to the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the "INTRODUCTION" to the Offer to Purchase and in Sections 8 and 10 to the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the "INTRODUCTION" to the Offer to Purchase and in Section 16 to the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 to the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) Not applicable. (b)-(c) The information set forth in Section 15 to the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 12 to the Offer to Purchase is incorporated herein by reference. (e) The information set forth in the "INTRODUCTION" to the Offer to Purchase and Sections 10 and 17 to the Offer to Purchase is incorporated herein by reference. See Exhibit (g). (f) The information set forth in the entire Offer to Purchase and the Letter of Transmittal, copies of which are filed with this Schedule 14D-1 as Exhibits (a)(1) and (a)(2), respectively, is incorporated herein by reference. 5 ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) -- Offer to Purchase. (a)(2) -- Letter of Transmittal. (a)(3) -- Notice of Guaranteed Delivery. (a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Companies and Other Nominees. (a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Press Release issued by Mentor Graphics Corporation on August 12, 1998. (a)(8) -- Summary Advertisement, dated August 12, 1998. (b) -- Commitment Letter, dated August 11, 1998, among Mentor Graphics Corporation, Bank of America National Trust and Savings Association and BancAmerica Robertson Stephens with attached (i) Summary of Terms and Conditions and (ii) Form of Credit Agreement among Mentor Graphics Corporation, Bank of America National Trust and Savings Association, as Agent, and the Financial Institutions Party thereto, as Lenders. (c) -- None. (d) -- None. (e) -- None. (f) -- None. (g)(1) -- Complaint in Mentor Graphics Corporation and MGZ Corp. v. Quickturn Design Systems, Inc., et. al., filed in the Court of Chancery of the State of Delaware on August 12, 1998. (g)(2) -- Complaint in Mentor Graphics Corporation and MGZ Corp. v. Quickturn Design Systems, Inc., filed in the U.S. District Court for the District of Delaware on August 12, 1998.
6 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 12, 1998 MENTOR GRAPHICS CORPORATION By: /s/ Walden C. Rhines Name: Walden C. Rhines Title: President and Chief Executive Officer MGZ CORP. By: /s/ Walden C. Rhines Name: Walden C. Rhines Title: President and Chief Executive Officer
7 EXHIBIT INDEX (a)(1) -- Offer to Purchase. (a)(2) -- Letter of Transmittal. (a)(3) -- Notice of Guaranteed Delivery. (a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Companies and Other Nominees. (a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Press Release issued by Mentor Graphics Corporation on August 12, 1998. (a)(8) -- Summary Advertisement, dated August 12, 1998. (b) -- Commitment Letter, dated August 11, 1998, among Mentor Graphics Corporation, Bank of America National Trust and Savings Association and BancAmerica Robertson Stephens with attached (i) Summary of Terms and Conditions and (ii) Form of Credit Agreement among Mentor Graphics Corporation, Bank of America National Trust and Savings Association, as Agent, and the Financial Institutions Party thereto, as Lenders. (c) -- None. (d) -- None. (e) -- None. (f) -- None. (g)(1) -- Complaint in Mentor Graphics Corporation and MGZ Corp. v. Quickturn Design Systems, Inc., et. al., filed in the Court of Chancery of the State of Delaware on August 12, 1998. (g)(2) -- Complaint in Mentor Graphics Corporation and MGZ Corp. v. Quickturn Design Systems, Inc., filed in the U.S. District Court for the District of Delaware on August 12, 1998.
EX-99.(A)(1) 2 OFFER TO PURCHASE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. AT $12.125 NET PER SHARE BY MGZ CORP. A WHOLLY OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, SEPTEMBER 9, 1998 UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE (THE "COMPANY COMMON STOCK"), OF QUICKTURN DESIGN SYSTEMS, INC. (THE "COMPANY"), INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS ISSUED PURSUANT TO THE RIGHTS AGREEMENT, DATED JANUARY 10, 1996, BETWEEN THE COMPANY AND THE FIRST NATIONAL BANK OF BOSTON, AS RIGHTS AGENT (THE "RIGHTS" AND, TOGETHER WITH THE COMPANY COMMON STOCK, THE "SHARES"), WHICH, TOGETHER WITH THE SHARES OWNED BY MENTOR GRAPHICS CORPORATION ("PARENT") AND ITS SUBSIDIARIES, INCLUDING MGZ CORP. ("PURCHASER"), WOULD REPRESENT A MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE, (2) THE RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF THE COMPANY OR PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS HAVE BEEN INVALIDATED OR ARE OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER DESCRIBED HEREIN (THE "PROPOSED MERGER"), (3) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT, AFTER CONSUMMATION OF THE OFFER, THE PROVISIONS OF SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW WOULD NOT PROHIBIT FOR ANY PERIOD OF TIME, OR IMPOSE ANY VOTING REQUIREMENT IN EXCESS OF MAJORITY STOCKHOLDER APPROVAL WITH RESPECT TO, THE PROPOSED MERGER OR OTHER BUSINESS COMBINATION WITH PURCHASER OR ANY AFFILIATE OF PURCHASER AND (4) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THIS OFFER TO PURCHASE. SEE "SECTION 14. CERTAIN CONDITIONS OF THE OFFER." THE OFFER IS NOT CONDITIONED ON PURCHASER OBTAINING FINANCING. IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should either (1) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver it, together with the certificate(s) evidencing tendered Shares and, if separate, the certificates representing the Rights, and any other required documents, to the Depositary (as defined herein) or tender such Shares pursuant to the procedures for book-entry transfer set forth in "Section 3. Procedure for Tendering Shares" or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Shares. Unless and until Purchaser declares that the Rights Condition (as defined herein) is satisfied, stockholders will be required to tender one Right for each share of Company Common Stock tendered in order to effect a valid tender of such share of Company Common Stock. A stockholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedure for guaranteed delivery set forth in "Section 3. Procedure for Tendering Shares." Questions or requests for assistance may be directed to the Information Agent (as defined herein) or to the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. THE DEALER MANAGER FOR THE OFFER IS: SALOMON SMITH BARNEY August 12, 1998 TABLE OF CONTENTS INTRODUCTION.............................................................................. 1 THE TENDER OFFER.......................................................................... 5 1. Terms of the Offer............................................................. 5 2. Acceptance for Payment and Payment for Shares.................................. 6 3. Procedure for Tendering Shares................................................. 8 4. Withdrawal Rights.............................................................. 11 5. Certain United States Federal Income Tax Consequences.......................... 11 6. Price Range of Shares.......................................................... 12 7. Certain Information Concerning the Company..................................... 13 8. Certain Information Concerning Parent and Purchaser............................ 15 9. Source and Amount of Funds..................................................... 17 10. Background of the Offer........................................................ 18 11. Purpose of the Offer and the Proposed Merger; Plans for the Company............ 20 12. Dividends and Distributions.................................................... 23 13. Effect of the Offer on the Market for the Shares, Exchange Listing and Exchange Act Registration............................................................... 23 14. Certain Conditions of the Offer................................................ 24 15. Certain Regulatory and Legal Matters........................................... 27 16. Fees and Expenses.............................................................. 30 17. Legal Proceedings.............................................................. 31 18. Miscellaneous.................................................................. 33 SCHEDULE I--Directors and Executive Officers of Parent and Purchaser...................... I-1 SCHEDULE II--Transactions in Shares....................................................... II-1
i To the Holders of Common Stock (including the Associated Preferred Stock Purchase Rights) of Quickturn Design Systems, Inc.: INTRODUCTION MGZ Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Parent"), hereby offers to purchase all outstanding shares of common stock, par value $.001 per share (the "Company Common Stock"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights" and, together with the Company Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of January 10, 1996 (the "Rights Agreement"), between the Company and The First National Bank of Boston, as Rights Agent (the "Rights Agent"), at a price of $12.125 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase (the "Offer to Purchase") and in the related Letter of Transmittal (the "Letter of Transmittal," which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer"). All references to the Rights shall include the benefits that may inure to holders of the Rights pursuant to the Rights Agreement and, unless the context requires otherwise, all references herein to Shares shall include the Rights. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of Salomon Brothers Inc doing business as Salomon Smith Barney ("Salomon Smith Barney"), which is acting as the Dealer Manager for the Offer (in such capacity, the "Dealer Manager"), IBJ Schroder Bank & Trust Company (the "Depositary") and MacKenzie Partners, Inc. (the "Information Agent") incurred in connection with the Offer. See "Section 16. Fees and Expenses." PURPOSE The purpose of the Offer and the Proposed Merger (as defined below) is to acquire control of, and ultimately the entire equity interest in, the Company. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all outstanding Shares. Parent intends, as soon as practicable following consummation of the Offer, to propose and seek to have the Company consummate a merger or similar business combination with Purchaser or another direct or indirect subsidiary of Parent (the "Proposed Merger"). The purpose of the Proposed Merger is to acquire all Shares not tendered and purchased pursuant to the Offer or otherwise. At the effective time of the Proposed Merger (the "Effective Time"), it is anticipated that each then outstanding Share (other than Shares owned by Parent and its subsidiaries, including Purchaser, Shares held in the treasury of the Company and Shares held by stockholders of the Company who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights under the Delaware General Corporation Law (the "DGCL")) would be converted into the right to receive an amount in cash equal to the Offer Price. See "Section 11. Purpose of the Offer and the Proposed Merger; Plans for the Company." PARENT BELIEVES THAT BY TENDERING SHARES IN THE OFFER, THE COMPANY'S STOCKHOLDERS EFFECTIVELY WILL EXPRESS TO THE COMPANY BOARD THAT THEY WISH TO BE ABLE TO ACCEPT THE OFFER AND TO APPROVE THE PROPOSED MERGER OR A SIMILAR TRANSACTION WITH PARENT AND ITS AFFILIATES. Parent stands ready to negotiate with the Company with respect to Parent's offer of August 11, 1998 to acquire the Company (the "Proposed Acquisition"). See "Section 10. Background of the Offer." Accordingly, Purchaser reserves the right to amend the Offer (including amending the number of Shares to be purchased and the Offer Price) at any time, including upon Parent entering into a merger agreement with the Company, or Parent negotiating a merger agreement with the Company not involving a tender offer pursuant to which Purchaser would terminate the Offer and the Shares would, upon consummation of such merger, be converted into cash. 1 AGENT AND PROXY SOLICITATION On August 11, 1998, Parent offered to acquire of all the outstanding Shares for $12.125 in cash per Share. The Company was unwilling to accept the offer regarding the Proposed Acquisition. On August 12, 1998, Parent filed preliminary agent designation materials with the Securities and Exchange Commission (the "Commission"), which, in definitive form, will be mailed to stockholders of the Company upon the completion of review by the staff of the Commission and receipt from the Company of a current stockholder list. The solicitation (the "Solicitation") requests agent designations ("Agent Designations") to provide for the call of a special meeting of the Company's stockholders (the "Special Meeting"), in order to, among other things, remove the entire Board of Directors of the Company (the "Company Board"), reduce the size of the Company Board to five members and fill the newly created vacancies on the Company Board by electing five persons nominated by Parent (the "Nominees"). If the Nominees are elected, Parent expects that, subject to their fiduciary duties as directors of the Company under applicable law, the Nominees would redeem the Rights (or amend the Rights Agreement to make the Rights inapplicable to the Offer and the Proposed Merger) and approve the Offer and the Proposed Merger under Section 203 of the DGCL, which would satisfy the Rights Condition (as defined herein) and the Section 203 Condition (as defined herein), and take such other actions as may be required to expedite the prompt consummation of the Offer and the Proposed Merger. The Solicitation will be made pursuant to separate agent designation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the applicable rules and regulations thereunder. THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT, AUTHORIZATION OR AGENT DESIGNATION FOR OR WITH RESPECT TO ANY SPECIAL MEETING OF THE COMPANY'S STOCKHOLDERS. THE SOLICITATION OF AGENT DESIGNATIONS TO CALL THE SPECIAL MEETING AND OF PROXIES TO REMOVE THE COMPANY BOARD, REDUCE THE AUTHORIZED NUMBER OF DIRECTORS, ELECT THE NOMINEES AND TAKE OTHER ACTION AT THE SPECIAL MEETING WILL BE MADE ONLY PURSUANT TO SEPARATE SOLICITATION MATERIALS COMPLYING WITH ALL APPLICABLE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT. The timing of consummation of the Offer and the Proposed Merger will depend on a variety of factors and legal requirements, the actions of the Company Board and whether the conditions to the Offer and the Proposed Merger are satisfied or waived. Consummation of the Offer is subject to the fulfillment of a number of conditions, including, without limitation, the following: CERTAIN CONDITIONS THE MINIMUM CONDITION. Consummation of the Offer is conditioned upon there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which, together with the Shares owned by Parent and its subsidiaries, including Purchaser, would represent a majority of the outstanding Shares on a fully diluted basis on the date of purchase (the "Minimum Number of Shares") (the "Minimum Condition"). Purchaser reserves the right (subject to the applicable rules and regulations of the Commission), which it currently has no intention of exercising, to waive or reduce the Minimum Condition and to elect to purchase, pursuant to the Offer, fewer than the Minimum Number of Shares. See "Section 1. Terms of the Offer" and "Section 14. Certain Conditions of the Offer." According to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998 (the "Company Form 10-Q"), as of April 30, 1998, there were 17,809,342 shares of Company Common Stock issued and outstanding. In addition, according to the Company Form 10-Q, as of March 31, 1998, there were 4,349,482 Shares issuable upon exercise of outstanding stock options and warrants (the "Option Shares"). Based on the foregoing and assuming that (i) no shares of Company Common Stock have been issued or acquired by the Company after April 30, 1998 (other than as described in clause (iii) below), (ii) no options have been granted or have expired since March 31, 1998, and (iii) all 2 Option Shares have been issued at or prior to the consummation of the Offer, there would be 22,158,824 Shares outstanding immediately following the consummation of the Offer and the Minimum Number of Shares would be 11,079,413 Shares. Parent currently owns 591,400 Shares and Purchaser currently owns 100 Shares which Parent and Purchaser recently acquired in open market transactions. See "Schedule II. Schedule of Transactions in Shares." Therefore, 10,487,913 Shares need to be tendered and not withdrawn prior to the expiration of the Offer to satisfy the Minimum Condition. THE RIGHTS CONDITION. Consummation of the Offer is conditioned upon Purchaser being satisfied, in its sole discretion, that the Rights have been redeemed or invalidated or are otherwise inapplicable to the Offer and the Proposed Merger (the "Rights Condition"). Under the Rights Agreement, each Right will entitle the holder to buy one one-thousandth of a share of the Company's Series A Participating Preferred Stock at a price of $50 per one-thousandth of a share, subject to adjustment (the "Purchase Price") under certain conditions. According to the Rights Agreement, until the close of business on the Distribution Date (as defined below), the Rights will be represented by and transferred with, and only with, the Shares, and the surrender for transfer of any of the certificates representing Shares (the "Share Certificates") will also constitute the transfer of the Rights associated with the Shares represented by such Share Certificate. According to the Rights Agreement, as soon as practicable following the Distribution Date, separate certificates representing Rights (the "Rights Certificates") will be mailed to holders of record of Shares as of the close of business on the Distribution Date, and thereafter the Rights Certificates alone will evidence the Rights. The Rights will be distributed and become exercisable (i) on the tenth business day after the date (or such later date as may be determined by a majority of the Company Board, excluding directors affiliated with the Acquiring Person (as defined below) (the "Continuing Directors")) following the public announcement that a person has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Shares (an "Acquiring Person") or (ii) on the tenth business day (or such later date as may be determined by a majority of the Continuing Directors) after the commencement of, or first public disclosure of the intent to commence, a tender offer or exchange offer for outstanding Shares that would result in the offeror becoming the beneficial owner of 15% or more of the outstanding Shares (the earlier of (i) and (ii) being referred to as the "Distribution Date"). Unless the Rights Agreement is amended or the Company Board extends the ten-business-day period referred to in clause (i) or (ii) above, the Offer will (following the expiration of such ten-business-day period) cause the Rights to be distributed and become exercisable unless the Company Board redeems the Rights or amends the terms thereof or the Rights are invalidated by a court of competent jurisdiction. Upon any person (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company or any subsidiary of the Company) becoming the beneficial owner of 15% or more of the Shares then outstanding (an "Acquiring Person"), the Rights will entitle each holder of a Right (except the Acquiring Person and its affiliates) to purchase newly issued Shares or equity interests of any successor of the Company or Acquiring Person at a price equal to one-half of the then-current market price. Purchaser does not intend to become an Acquiring Person until the Rights are redeemed or their terms are amended to permit the Offer or the Rights are invalidated by a court of competent jurisdiction. The Company may, at its option and with the approval of the Company Board, at any time prior to the close of business on the earlier of (i) the tenth day following a person or group becoming an Acquiring Person (or such later date as may be determined by action of a majority of the Continuing Directors then in office and publicly announced by the Company) and (ii) January 10, 2006, redeem all but not less than all the then outstanding Rights at a redemption price of $0.01 per Right, subject to adjustment. If the Nominees are elected, it is expected that, subject to their fiduciary duties under applicable law, the Nominees would cause the Company Board to amend the Rights Agreement or redeem the Rights, or otherwise act to ensure that the Rights Condition is satisfied. 3 THE SECTION 203 CONDITION. Consummation of the Offer is conditioned upon Purchaser being satisfied, in its sole discretion, that, after consummation of the Offer, the provisions of Section 203 of the DGCL ("Section 203") would not prohibit for any period of time, or impose any voting requirement in excess of majority stockholder approval with respect to, the Proposed Merger or any other business combination with Purchaser or any affiliate of Purchaser (the "Section 203 Condition"). Section 203 of the DGCL regulates certain business combinations involving a Delaware corporation and persons beneficially owning, directly or through an affiliate or associate, 15% or more of such corporation's voting stock (an "Interested Stockholder"). Absent approval by the Company Board of the Offer or the Proposed Merger prior to consummation of the Offer, Section 203 would prohibit, among other things, consummation of the Proposed Merger (or any other business combination with Purchaser or any affiliate of Purchaser) for a period of three years following consummation of the Offer unless (i) Purchaser acquires that number of Shares which equals, when added to the Shares currently owned, directly or indirectly, by Purchaser, 85% of the Shares outstanding as of the commencement of the Offer (excluding certain Shares as described in "Section 11. Purpose of the Offer and the Proposed Merger; Plans for the Company--Section 203"), or (ii) the Proposed Merger (or any other business combination) is approved by the Company Board and authorized at a meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the Company not beneficially owned, directly or indirectly, by Purchaser or its affiliates. If the Nominees are elected before the Offer is consummated, the Nominees are expected to, subject to their fiduciary duties as directors of the Company, grant Section 203 approval to Purchaser immediately prior to the consummation of the Offer. The Nominees will be unable to grant such Section 203 approval to Purchaser if Purchaser becomes an Interested Stockholder prior to the installation of the Nominees as directors. Purchaser does not intend to become an Interested Stockholder prior to the installation of the Nominees as directors of the Company unless (assuming all other conditions to the Offer are satisfied or waived) Purchaser is granted Section 203 approval by the current Company Board and the Minimum Condition to the Offer is satisfied, or Purchaser acquires beneficial ownership of 85% or more of the outstanding Shares (excluding certain Shares described in "Section 11. Purpose of the Offer and the Proposed Merger; Plans for the Company--Section 203") in which event it will no longer be necessary to obtain such Company Board approval. THE HSR CONDITION. Consummation of the Offer is conditioned upon the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") (the "HSR Condition"). Following commencement of the Offer, Parent intends to file with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") Premerger Notification and Report Forms under the HSR Act with respect to the Offer. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following the applicable filings by Parent, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting period. See "Section 15. Certain Regulatory and Legal Matters." PURCHASER EXPRESSLY RESERVES THE RIGHT TO WAIVE ANY ONE OR MORE OF THE CONDITIONS TO THE OFFER. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THIS OFFER TO PURCHASE. SEE "SECTION 14. CERTAIN CONDITIONS OF THE OFFER," WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 4 THE TENDER OFFER 1. TERMS OF THE OFFER Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date, and not theretofore withdrawn in accordance with "Section 4. Withdrawal Rights" of this Offer to Purchase, as soon as legally permitted and practicable after the commencement of the Offer. The term "Expiration Date" means 12:00 Midnight, New York City time, on Wednesday, September 9, 1998, unless Purchaser shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date as of which the Offer, as so extended by Purchaser, shall expire. UNDER NO CIRCUMSTANCES WILL ANY INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. The Offer is conditioned upon, among other things, satisfaction of the Minimum Condition, the Rights Condition, the Section 203 Condition and the HSR Condition. If any or all of such conditions are not satisfied, or if any or all of the other events set forth in "Section 14. Certain Conditions of the Offer" shall have occurred prior to the Expiration Date, Purchaser reserves the right (but shall not be obligated) to (i) decline to purchase any of the Shares tendered in the Offer and terminate the Offer and return all tendered Shares to the tendering stockholders or (ii) waive or reduce the Minimum Condition, or waive or amend any or all other conditions to the Offer to the extent permitted by applicable law and, (iii) subject to complying with applicable rules and regulations of the Commission, purchase all Shares validly tendered, or extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares which have been tendered during the period or periods for which the Offer is extended. Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any of the conditions specified in "Section 14. Certain Conditions of the Offer," by giving oral or written notice of such extension to the Depositary. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of tendering stockholders to withdraw their Shares. See "Section 4. Withdrawal Rights." Subject to the applicable rules and regulations of the Commission, Purchaser also expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, payment for any Shares pending receipt of any regulatory approval specified in "Section 15. Certain Regulatory and Legal Matters," (ii) to terminate the Offer and not accept for payment any Shares upon the occurrence of any of the conditions specified in "Section 14. Certain Conditions of the Offer" and (iii) to waive any condition or otherwise amend the Offer in any respect, by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary and by making a public announcement thereof. Purchaser acknowledges that (i) Rule 14e-l(c) under the Exchange Act requires Purchaser to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer and (ii) Purchaser may not delay acceptance for payment of, or payment for (except as provided in clause (i) of the first sentence of this paragraph), any Shares upon the occurrence of any of the conditions specified in "Section 14. Certain Conditions of the Offer" without extending the period of time during which the Offer is open. Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable rules and regulations (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser shall have no obligation to publish, 5 advertise or otherwise communicate any such public announcement, other than by issuing a press release to the Dow Jones News Service. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer if and to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which a tender offer must remain open following material changes in the terms thereof or the information concerning such tender offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information changes. In the Commission's view, an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to stockholders, and, if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of ten business days may be required to allow for adequate dissemination and investor response. With respect to a change in price or a change in percentage of securities sought, a minimum ten business day period is generally required to allow for adequate dissemination to stockholders and investor response. If, prior to the Expiration Date, Purchaser should decide to decrease the number of Shares being sought or to increase or decrease the consideration being offered in the Offer, such decrease in the number of Shares being sought or such increase or decrease in the consideration being offered will be applicable to all stockholders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any such decrease in the number of Shares being sought or such increase or decrease in the consideration being offered is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended at least until the expiration of such ten business day period. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. As of the date of this Offer to Purchase, the Rights are evidenced by the Share Certificates evidencing the Shares and do not trade separately. Accordingly, by tendering a Share Certificate evidencing Shares, a stockholder is automatically tendering a similar number of associated Rights. If, however, pursuant to the Rights Agreement or for any other reason, the Rights detach and separate Rights Certificates are issued, stockholders will be required to tender one Right for each share of Company Common Stock tendered in order to effect a valid tender of such share of Company Common Stock. A request is being made to the Company for use of its stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. Upon compliance by the Company with such request, this Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date, and not theretofore withdrawn in accordance with "Section 4. Withdrawal Rights" of this Offer to Purchase, promptly after the later to occur of (a) the Expiration Date and (b) subject to compliance with the applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act, the satisfaction or waiver of the conditions set forth in "Section 14. Certain Conditions of the Offer" of this Offer to Purchase. 6 Notwithstanding the immediately preceding sentence and subject to applicable rules and regulations of the Commission, Purchaser expressly reserves the right to delay acceptance for payment of, or payment for, Shares pending receipt of any regulatory approvals specified in "Section 15. Certain Regulatory and Legal Matters" or in order to comply in whole or in part with applicable laws. Any such delay will be effected in compliance with Rule 14e-l(c) under the Exchange Act (which requires a bidder to pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer). In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the Share Certificates and, if the Rights are at such time separately traded, the Rights Certificates or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares (and Rights, if applicable) into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "Section 3. Procedure for Tendering Shares," (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or, an Agent's Message (as defined below) in the case of a book-entry transfer (as defined below) and (iii) any other documents required under the Letter of Transmittal. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for all tendering stockholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest be paid on the purchase price for Shares, regardless of any delay in making such payment. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates are submitted evidencing more Shares than are tendered or accepted for payment, Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedure set forth in "Section 3. Procedure for Tendering Shares," such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. If, prior to the Expiration Date, Purchaser increases the consideration to be paid per Share pursuant to the Offer, Purchaser will pay such increased consideration for all such Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in consideration. Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 7 3. PROCEDURE FOR TENDERING SHARES VALID TENDER OF SHARES AND RIGHTS. Except as set forth below, in order for Shares and (prior to the Distribution Date) Rights to be validly tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares and (prior to the Distribution Date) Rights, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date and either (i) Share Certificates and Rights Certificates, if applicable, representing tendered Shares and Rights must be received by the Depositary, or such Shares and Rights must be tendered pursuant to the procedure for book-entry transfer set forth below and a Book-Entry Confirmation must be received by the Depositary, in each case on or prior to the Expiration Date, or (ii) the guaranteed delivery procedures set forth below must be complied with. SEPARATE DELIVERY OF RIGHTS CERTIFICATES. If the Distribution Date does not occur prior to the Expiration Date, a tender of Shares will also constitute a tender of the associated Rights. If the Distribution Date occurs and Rights Certificates are distributed by the Company to holders of Shares prior to the time a holder's Shares are tendered pursuant to the Offer, in order for Rights (and the corresponding Shares) to be validly tendered, Rights Certificates representing a number of Rights equal to the number of Shares tendered must be delivered to the Depositary or, if book-entry delivery is available with respect to Rights, a Book-Entry Confirmation received by the Depositary with respect thereto. If the Distribution Date occurs and Rights Certificates are not distributed prior to the time Shares are tendered pursuant to the Offer, Rights may be tendered prior to a stockholder receiving Rights Certificates by use of the guaranteed delivery procedure described below. In any case, a tender of Shares constitutes an agreement by the tendering stockholder to deliver Rights Certificates representing a number of Rights equal to the number of Shares tendered pursuant to the Offer to the Depositary within three Nasdaq National Market trading days of the date Rights Certificates are distributed. Purchaser reserves the right to require that the Depositary receive Rights Certificates, or a Book-Entry Confirmation, if available, with respect to such Rights prior to accepting the related Shares for payment pursuant to the Offer if the Distribution Date occurs prior to the Expiration Date. IF PURCHASER DECLARES THAT THE RIGHTS CONDITION IS SATISFIED, PURCHASER WILL NOT REQUIRE DELIVERY OF RIGHTS. UNLESS AND UNTIL PURCHASER DECLARES THAT THE RIGHTS CONDITION IS SATISFIED, HOLDERS OF SHARES WILL BE REQUIRED TO TENDER ONE RIGHT FOR EACH SHARE TENDERED TO EFFECT A VALID TENDER OF SUCH SHARE. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, RIGHTS CERTIFICATES (IF APPLICABLE) AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER. The Depositary will establish accounts with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, 8 or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedure described below. If the Distribution Date occurs prior to the Expiration Date, the Depositary also will make a request to establish an account with respect to the Rights at the Book-Entry Transfer Facility, but no assurance can be given that book-entry delivery of Rights will be available. If book-entry delivery of Rights is available, the foregoing book-entry transfer procedures also will apply to Rights. Otherwise, if Rights Certificates have been issued, a tendering stockholder will be required to tender Rights by means of physical delivery of Rights Certificates to the Depositary (in which event references in this Offer to Purchase to Book-Entry Confirmations with respect to Rights will be inapplicable) or pursuant to the guaranteed delivery procedure set forth below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. SIGNATURE GUARANTEE. Signatures on all Letters of Transmittal must be guaranteed by a firm which is a member of the Medallion Signature Guarantee Program, or by any other "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution"), except in cases where Shares are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If a Share Certificate or Rights Certificate, if applicable, is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate or Rights Certificate, if applicable, is not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the certificates, with the signature(s) on such certificates or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates or, if applicable, Rights Certificates are not immediately available (including, if the Distribution Date has occurred, because Rights Certificates have not yet been distributed by the Company) or such stockholder cannot deliver all required documents to the Depositary prior to the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, is received prior to the Expiration Date by the Depositary as provided below; and (iii) the Share Certificates and, if applicable, Rights Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal are received by the Depositary within three Nasdaq National Market trading days of the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the Nasdaq National Market is open for business. The Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile transmission to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the form of Notice of Guaranteed Delivery made available by Purchaser. 9 In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of the Share Certificates, and, if applicable, Rights Certificates, evidencing such Shares, or a Book-Entry Confirmation of the delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser in its sole discretion, which determination shall be final and binding on all parties. Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Purchaser also reserves the absolute right to waive any condition of the Offer or any defect or irregularity in the tender of any Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. APPOINTMENT AS PROXY. By executing the Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of Purchaser as such stockholder's proxies, each with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares (including the associated Rights) tendered by such stockholder and accepted for payment by Purchaser (and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase). All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consent executed by such stockholder (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of Purchaser will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares. The acceptance for payment by Purchaser of Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and Purchaser upon the terms and subject to the conditions of the Offer. BACKUP FEDERAL INCOME TAX WITHHOLDING. Under the federal income tax laws, unless an exception applies under the applicable rules and regulations, the Depositary will be required to withhold 31% of the amount of any payments made to stockholders pursuant to the Offer. To prevent backup federal income tax withholding with respect to the payment of the Offer Price for Shares purchased pursuant to the Offer, each tendering stockholder must generally provide the Depositary with his or her correct taxpayer identification number ("TIN") and certify that such stockholder is not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. See "Section 5. Certain United States Federal Income Tax Consequences" of this Offer to Purchase and Instruction 8 to the Letter of Transmittal. If the stockholder is a nonresident alien or foreign entity not subject to back-up 10 withholding, the stockholder must give the Depositary a completed Form W-8 Certificate of Foreign Status prior to receipt of any payments. 4. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after October 10, 1998. A withdrawal of Shares will also constitute a withdrawal of the associated Rights. If Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this "Section 4. Withdrawal Rights." Any such delay will be by an extension of the Offer to the extent required by applicable rules and regulations. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in "Section 3. Procedure for Tendering Shares," any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and must otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. None of Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in "Section 3. Procedure for Tendering Shares." 5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following discussion, subject to the limitations set forth herein, describes the material Federal income tax consequences of the Offer and the Proposed Merger to holders of Shares who hold their Shares as capital assets and exchange their Shares for cash pursuant to the Offer and the Proposed Merger. The tax consequences to a specific stockholder may vary depending upon such stockholder's particular tax situation, and the discussion set forth below may not apply to certain categories of holders of Shares subject to special treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such as foreign stockholders, securities dealers, broker-dealers, insurance companies, financial institutions, tax-exempt entities and stockholders who acquired their Shares pursuant to an exercise of an employee stock option or otherwise as compensation or who hold restricted stock. The discussion is based on the Code as in effect on the date of this Offer to Purchase, as well as the rules and regulations thereunder, existing administrative interpretations and court decisions currently in effect, all of which are subject to change, retroactively or prospectively, and to possibly differing interpretations and does not address state, local or foreign tax laws. Since the Offer is conditioned upon, among other events, the Rights having been 11 redeemed or invalidated or being otherwise inapplicable to the Offer and the Proposed Merger, this tax discussion assumes the satisfaction of such condition and thus no allocation of consideration to the Rights or the Rights Certificates. No ruling will be requested from the Internal Revenue Service (the "IRS") regarding the tax consequences of the Offer and the Proposed Merger and thus there can be no assurance that the IRS will agree with the discussion set forth below. The receipt of cash pursuant to the Offer or the Proposed Merger will be a taxable transaction for Federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for Federal income tax purposes, a tendering stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer or the Proposed Merger and the aggregate tax basis in the Shares tendered by the stockholder and purchased pursuant to the Offer or converted in the Proposed Merger, as the case may be. Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer or converted in the Proposed Merger, as the case may be. If Shares are held by a noncorporate stockholder as capital assets, gain or loss recognized by such stockholder will be capital gain or loss, which would be subject to tax at ordinary income rates if the Shares were held for one year or less and at a maximum tax rate of 20% if held for more than one year. A stockholder (other than certain exempt stockholders including, among others, all corporations and certain foreign individuals and entities) that tenders Shares may be subject to 31% backup withholding unless the stockholder provides its TIN and certifies that such number is correct or properly certifies that it is awaiting a TIN, or unless an exemption applies. A stockholder that does not furnish its TIN may be subject to a penalty imposed by the IRS. See "Section 3. Procedure for Tendering Shares." If backup withholding applies to a stockholder, the Depositary is required to withhold 31% from payments to such stockholder. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. If a stockholder sells Shares pursuant to the Offer (or surrenders Shares pursuant to the Proposed Merger) and the Rights associated therewith are redeemed by the Company in satisfaction of the Rights Condition, the redemption of the Rights will be a taxable transaction. If the redemption of the Rights occurs before the Distribution Date, the cash received will be in the form of a dividend and would thus constitute ordinary income to the extent of the Company's earnings and profits. If the redemption of the Rights occurs on or after the Distribution Date, it is unclear whether the resulting gain will be treated as a dividend or as the sale or exchange of a capital asset. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO CERTAIN CATEGORIES OF HOLDERS OF SHARES SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS FOREIGN HOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION, OR WHO HOLD RESTRICTED STOCK. STOCKHOLDERS OF THE COMPANY ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER, INCLUDING ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER. 6. PRICE RANGE OF SHARES According to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Company Form 10-K"), the Shares are listed and trade on the Nasdaq National Market under the symbol "QKTN." The following table sets forth for the quarterly fiscal periods ended March 31, 12 June 30, September 30 and December 31 the closing high and low last sales prices per Share as reported by the Nasdaq National Market.
HIGH LOW --------- --------- 1996: First Quarter............................................................................ $ 11.50 $ 9.00 Second Quarter........................................................................... 16.50 11.13 Third Quarter............................................................................ 15.13 11.88 Fourth Quarter........................................................................... 21.63 15.00 1997: First Quarter............................................................................ $ 21.00 $ 15.00 Second Quarter........................................................................... 15.88 6.69 Third Quarter............................................................................ 16.63 12.13 Fourth Quarter........................................................................... 16.31 10.69 1998: First Quarter............................................................................ $ 15.75 $ 9.75 Second Quarter........................................................................... 10.88 6.00 Third Quarter through August 11, 1998.................................................... 8.00 7.31
On August 11, 1998, the last full trading day prior to the date of this Offer to Purchase and Purchaser's first public announcement of its intention to make the Offer, the closing price per Share as reported on the Nasdaq National Market was $8.00. HOLDERS OF SHARES ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. Prior to the Distribution Date, the Rights are attached to outstanding Shares and may not be traded separately. As a result, the sales prices per Share set forth above include the associated Rights. As a result of the commencement of the Offer, the Distribution Date may occur, after which the Rights will separate and may begin trading apart from the Shares. IN SUCH EVENT, STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION, IF ANY, FOR THE RIGHTS. 7. CERTAIN INFORMATION CONCERNING THE COMPANY The information concerning the Company contained in this Offer to Purchase, including financial information and information relating to the Rights and the Rights Agreement, has been taken from or is based upon publicly available documents and records on file with the Commission and other public sources. Neither Parent nor Purchaser assumes any responsibility for the accuracy or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent and Purchaser. GENERAL. According to the Company Form 10-K, the Company is a Delaware corporation with its principal executive offices located at 55 W. Trimble Road, San Jose, California 95131. According to the Company Form 10-K, the Company designs, manufactures, sells and supports products that verify the design of integrated circuits and electronic systems. The Company derives substantially all of its revenue from its design verification products and related maintenance and consulting services. FINANCIAL INFORMATION. Set forth below is selected consolidated financial data with respect to the Company excerpted or derived in part from the audited financial statements contained in the Company Form 10-K and from the unaudited financial statements contained in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and March 31, 1997, in each case filed by the Company with the Commission. More comprehensive financial information is included in such reports and other documents filed by the Company with the Commission. For the periods covered by such reports, the following summary is qualified in its entirety by reference to such reports and such other documents and all 13 the financial information (including any related notes) contained therein. Such reports and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below. QUICKTURN DESIGN SYSTEMS, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, (1) ---------------------- ----------------------------------- 1998 1997(2) 1997 (3) 1996 (4) 1995 (4) ---------- ---------- ----------- ---------- ---------- STATEMENT OF OPERATIONS DATA Total revenues...................................... $ 23,565 $ 21,402 $ 110,404 $ 109,578 $ 82,442 Research and development............................ $ 5,985 $ 5,787 $ 23,499 $ 19,706 $ 15,436 Operating income (loss)............................. $ (2,752) $ (3,461) $ (13,466) $ 17,973 $ 11,085 Net income (loss)................................... $ (1,417) $ (2,118) $ (5,346) $ 14,131 $ 12,478 Gross margin percent................................ 66% 68% 70% 70% 70% PER SHARE DATA Net income (loss) per share--basic.................. $ (0.08) $ (0.13) $ (0.31) $ 0.87 $ 0.81 Net income (loss) per share--diluted................ $ (0.08) $ (0.13) $ (0.31) $ 0.79 $ 0.74 Cash dividends per common share outstanding......... -- -- -- -- -- Weighted average number of shares outstanding--basic................................ 17,704 16,562 17,110 16,323 15,497 Weighted average number of shares outstanding--diluted.............................. 17,704 16,562 17,110 17,912 16,806 BALANCE SHEET DATA (AS OF THE DATES INDICATED) Cash and investments, short-term.................... $ 40,404 $ 22,918 $ 32,808 $ 36,404 $ 31,397 Cash and investments, long-term..................... $ 18,922 $ 27,972 $ 20,326 $ 18,198 $ 9,110 Working capital..................................... $ 49,867 $ 38,132 $ 51,143 $ 49,243 $ 44,381 Property, plant and equipment, net.................. $ 13,431 $ 10,560 $ 11,118 $ 11,243 $ 13,003 Total assets........................................ $ 124,421 $ 110,738 $ 129,192 $ 111,977 $ 94,240 Short-term borrowings............................... $ 851 $ 2,961 $ 1,095 $ 3,502 $ 3,401 Long-term debt and other deferrals.................. $ -- $ -- $ -- $ -- $ 3,701 Stockholders' equity................................ $ 91,500 $ 81,624 $ 91,898 $ 84,045 $ 66,337
- ------------------------ (1) Effective in 1997, the Company changed its fiscal year to December 31 from a 52-week or 53-week year, ending on the last Sunday in December. (2) The first quarter of 1997 included merger related charges of $1,200. (3) The 1997 results include one-time acquisition and merger related charges of $19.2 million. (4) The 1995 and 1996 results of operations and certain balance sheet data have been restated to reflect the February 1997 merger of the Company with SpeedSim-TM-, Inc. which was accounted for as a pooling of interests. 14 The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission also maintains an Internet site on the World Wide Web at http://www.sec.gov that contains reports, proxy statements and other information. Copies of such materials may also be obtained by mail, upon payment of the Commission's customary fees, by writing to its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The information should also be available for inspection at the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006. 8. CERTAIN INFORMATION CONCERNING PARENT AND PURCHASER GENERAL. Parent is an Oregon corporation. Parent's principal offices are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. Parent 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. In 1996, Parent expanded its product offerings beyond traditional EDA to include (1) intellectual property products and services intended to increase design efficiency by delivering standard, reusable functions for the design of hardware components and (2) embedded software development and system verification tools intended to shorten product time-to-market by allowing for simultaneous development and testing of hardware and embedded software. Parent markets its products primarily to large companies in the communications, computer, semiconductor, consumer electronics, aerospace and transportation industries. Customers use Parent's software in the design of such diverse products as supercomputers, automotive electronics, telephone-switching systems, cellular base stations and handsets, computer network hubs and routers, signal processors and personal computers. Purchaser is a newly incorporated Delaware corporation and a wholly owned subsidiary of Parent which to date has not conducted any business other than in connection with the Offer and the Proposed Merger. Purchaser's principal offices are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. FINANCIAL INFORMATION. Set forth below is selected consolidated financial data relating to Parent and its subsidiaries for Parent's last three fiscal years, which have been excerpted or derived from the audited financial statements contained in Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and from the unaudited financial statements contained in Parent's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, in each case filed by Parent with the Commission. More comprehensive financial information is included in such reports and other documents filed by Parent with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents, including the financial information and related notes contained therein. Such reports and other documents may be inspected and copies may be obtained from the offices of the Commission in the same manner as set forth with respect to information about the Company in "Section 7. Certain Information Concerning the Company." 15 MENTOR GRAPHICS CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------------- ---------------------------------- 1998 (1) 1997 (2) 1997 (2) 1996 1995 ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Total revenues........................... $ 227,125 $ 216,197 $ 454,727 $ 447,886 $ 432,517 Research and development................. $ 57,728 $ 54,180 $ 112,227 $ 92,905 $ 86,782 Operating income (loss) (3) (4).......... $ (5,313) $ (29,313) $ (36,370) $ (9,849) $ 52,554 Net income (loss)........................ $ (6,650) $ (24,417) $ (31,307) $ (4,978) $ 50,506 Gross margin percent..................... 72% 60% 65% 70% 73% PER SHARE DATA Net income (loss) per share--basic....... $ (0.10) $ (0.38) $ (0.48) $ (0.08) $ 0.79 Net income (loss) per share-- diluted.... $ (0.10) $ (0.38) $ (0.48) $ (0.08) $ 0.78 Cash dividends per common share outstanding............................ $ -- $ -- $ -- $ -- $ -- Weighted average number of shares outstanding--basic..................... 64,802 64,848 64,885 64,134 63,710 Weighted average number of shares outstanding--diluted................... 64,802 64,848 64,885 64,134 65,134 BALANCE SHEET DATA (AS OF THE DATES INDICATED) Cash and investments, short-term......... $ 138,559 $ 136,495 $ 137,060 $ 197,079 $ 211,996 Cash and investments, long-term (5)...... $ -- $ -- $ -- $ 30,000 $ 30,000 Working capital.......................... $ 152,933 $ 158,324 $ 148,191 $ 200,848 $ 213,491 Property, plant and equipment, net....... $ 98,986 $ 112,396 $ 103,452 $ 102,253 $ 99,605 Total assets............................. $ 407,398 $ 417,744 $ 402,302 $ 513,359 $ 495,372 Short-term borrowings.................... $ -- $ 985 $ -- $ 9,055 $ 9,358 Long-term debt and other deferrals (5).......................... $ 609 $ 3,806 $ 617 $ 56,375 $ 55,054 Stockholders' equity..................... $ 278,546 $ 294,401 $ 277,537 $ 319,640 $ 326,226
- ------------------------ (1) In the six months ended June 30, 1998, Parent acquired its Korean distributor for $4,000. (2) Parent recognized an impairment in the value of certain previously capitalized software development costs in the first quarter of 1997 of $5,358. In addition, all remaining previously capitalized software development costs were fully amortized in 1997 to recognize the change in the estimated useful lives of older software product offerings. (3) Operating income (loss) includes special charges of $10,307, $8,560, $18,858, $11,998, $(2,040) for the six months ended June 30, 1998 and 1997 and for the years ended December 31, 1997, 1996, and 1995, respectively. The special charges relate primarily to the disposals of subsidiaries, related employee terminations, and streamlining of worldwide operations as well as the impairment in value of various assets. The $2,040 benefit reflects a downward adjustment of a prior year special charge associated with the reduced estimate for severence costs associated with the replacement and globalization of Parent's information systems. (4) Operating income (loss) includes merger and acquisition related charges of $31,344 and $2,040, for fiscal years 1996 and 1995. In 1996, Parent completed nine business combinations, seven of which 16 were accounted for as purchase combinations. The purchase accounting allocations resulted in charges for in-process research and development (IPR&D) of $26,234. Parent also completed two acquisitions which were accounted for as a pooling of interests. Merger expenses of $5,110 were incurred with these acquisitions. In 1995, Parent completed five business combinations, two of which were accounted for as pooling of interests and three of which were accounted for as purchases. The purchase accounting allocations resulted in charges for IPR&D of $1,430. The merger related expenses associated with the pooling transactions in 1995 were $610. The results of operations include the purchases only from date of the respective acquisition forward. The results of operations for all acquisitions accounted for as pooling of interests are included for all periods presented. (5) In the first quarter of 1997, Parent had an early termination of an interest rate swap agreement. OTHER INFORMATION. Except as described in this Offer to Purchase and in Schedule II hereto, (i) neither Parent nor Purchaser nor, to the knowledge of Parent or Purchaser, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of Parent or Purchaser or any of the persons so listed, beneficially owns or has any right to acquire, directly or indirectly, any Shares and (ii) neither Parent nor Purchaser nor, to the knowledge of Parent or Purchaser, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days. Except as otherwise described in this Offer to Purchase, neither Parent nor Purchaser nor, to the knowledge of Parent or Purchaser, any of the persons listed in Schedule I hereto has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, since December 31, 1994, neither Parent nor Purchaser nor, to the knowledge of Parent or Purchaser, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the applicable rules and regulations of the Commission. Except as set forth in this Offer to Purchase, since December 31, 1994, there have been no contacts, negotiations or transactions between any of Parent or Purchaser or any of their respective subsidiaries or, to the knowledge of Parent or Purchaser, any of the persons listed in Schedule I hereto on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. 9. SOURCE AND AMOUNT OF FUNDS The total amount of funds required by Purchaser to purchase all of the Shares on a fully diluted basis pursuant to the Offer and to pay fees and expenses related to the Offer and Proposed Merger is estimated to be approximately $270 million. Purchaser intends to obtain all funds needed for the Offer and the Proposed Merger through a capital contribution or a loan from the Parent. Parent plans to provide the funds for such capital contribution or loan from its available cash and working capital and pursuant to the Credit Agreement described below. At June 30, 1998, Parent had short-term cash and investments of approximately $138.6 million and working capital of approximately $152.9 million. Parent has entered into a definitive commitment letter dated August 11, 1998 (the "Commitment Letter") with Bank of America National Trust and Savings Association ("Bank of America") and BancAmerica Robertson Stephens ("BARS"), an affiliate of Bank of America. Pursuant to the Commitment Letter, Bank of America has committed to provide a three-year $200 million unsecured revolving credit facility (the "Credit Facility") to Parent, subject to the terms and conditions stated in the Commitment Letter. The form of the definitive credit agreement (the "Credit Agreement") is attached to the Commitment Letter. The Credit Facility initially will be underwritten by Bank of America, and BARS will 17 use its best efforts to syndicate all or part of the Credit Facility to financial institutions acceptable to the Company, BARS and Bank of America. Borrowings under the Credit Agreement may be used by Parent to purchase the capital stock of the Company and other permitted acquisitions, for working capital needs and for general corporate purposes. The initial borrowing under the Credit Agreement will be subject to the satisfaction of certain conditions, including the termination of Parent's existing credit facility, the valid tender of not less than a majority of the outstanding shares, the absence of any legal prohibitions to a merger between the Purchaser and the Company, no material changes to the Offer without the consent of Bank of America, and satisfaction of all material terms and conditions of the Offer. The Credit Agreement will initially provide availability to Parent of up to $200 million, which will be reduced by $25 million after each of the first two anniversaries of the initial funding. In addition, the total commitments will be further reduced in the event that Parent issues certain equity securities, borrows funded debt and/or disposes of its Wilsonville facility, but in any case, not to less than $100 million. Under the Credit Agreement, Parent will have the option of borrowing funds at variable interest rates based either on a base rate of interest or LIBOR, plus, in each case, a variable applicable margin. Interest on loans based on a base rate of interest ("Base Rate Loans") will be payable at the higher of the base rate of interest charged by Bank of America and the federal funds rate plus 0.5%. Interest on a loan based on LIBOR ("LIBOR Loans") will be payable at the rate at which LIBOR loans in U.S. dollars would be offered to major banks in the London interbank market in the same amount and for the same duration as the LIBOR Loan to be made by Bank of America. The applicable margin for both Base Rate Loans and LIBOR Loans will be based on Parent's leverage ratio determined quarterly. Depending on the leverage ratio and the size of the commitment, the applicable margin for Base Rate Loans will vary from 0.0% to 1.50% and for LIBOR Loans will vary from 1.0% to 2.75%. In addition, Parent will be required to pay certain commitment and agency fees in the amounts and on the dates set forth in a confidential fee letter dated August 11, 1998 among Parent, Bank of America and BARS. The Credit Agreement will contain representations, warranties, conditions to borrowing, covenants (including financial covenants) and events of default customary for facilities of this nature. Other than the financial covenants and provisions pertaining to the Proposed Acquisition, the Credit Agreement's provisions are substantially similar to the provisions contained in Parent's existing credit facility. The foregoing description of the terms and conditions of the Credit Agreement is qualified in its entirety by reference to the full text thereof which, together with the Commitment Letter, has been filed as an exhibit to the Tender Offer Statement on Schedule 14D-1 and is incorporated herein by reference. No final decisions have been made concerning the method Parent will employ to repay its borrowings incurred to consummate the Offer. These decisions, when made, will be based on Parent's review from time to time of the advisability of particular actions, as well as on prevailing interest rates, stock market and financial and other economic conditions. Furthermore, of course, there can be no assurance that Parent will be able to utilize any one or more of the repayment options or as to the amount that will be available under any of them. 10. BACKGROUND OF THE OFFER BACKGROUND OF THE OFFER. During a series of meetings and telephone calls in the summer of 1995, representatives of Parent and the Company discussed the possibility of a business combination between the two companies. These discussions did not result in any negotiations concerning a business combination. On August 11, 1998, Mr. Walden C. Rhines, Chief Executive Officer and President of Parent, met with Mr. Glen Antle, Chairman of the Board of the Company. At the meeting, Mr. Rhines proposed that Parent acquire the Company at a price of $12.125 per Share in cash. While Mr. Antle stated that he would communicate the offer to the Company Board, he stated that he was unwilling to accept the offer, to cause the Company to remove its takeover defenses or to cause the Company to refrain from taking actions to prevent the consummation of the Offer. 18 At the meeting, Mr. Rhines delivered the following letter to Mr. Antle setting forth the Proposed Acquisition and its merits and indicating Parent's desire to enter into a negotiated transaction: The Board of Directors August 11, 1998 Quickturn Design Systems, Inc. 55 W. Trimble Road San Jose, CA 95131 Attention:Glen M. Antle Chairman of the Board Dear Mr. Antle: I am writing to inform you that the Board of Directors of Mentor Graphics Corporation has unanimously authorized Mentor Graphics to offer to acquire all outstanding shares of Quickturn Design Systems, Inc. common stock at a price of $12.125 per share in cash. We have the necessary financing in hand to consummate this acquisition and therefore the offer is not subject to any financing condition. Reflecting our commitment to this acquisition, we have already acquired more than three percent of Quickturn's outstanding common stock. We believe our offer represents a superior opportunity for all Quickturn stockholders to maximize the value of their investment in Quickturn. This all-cash offer represents a substantial premium over Quickturn's current market price. Moreover, we believe that the combination of Mentor Graphics and Quickturn will significantly benefit the customers of both companies. It will advance Mentor Graphics' strategy of continuing to be a leading supplier of electronic system verification solutions by strengthening our position in emulation products. In addition, in separate patent-infringement lawsuits over the past two and a half years, Mentor Graphics has sued Quickturn and Quickturn has sued Mentor Graphics. The acquisition will resolve these disputes between our companies, which otherwise will continue to require substantial time and expense and represent a significant distraction for both companies well into the future. We are determined to make this acquisition a reality and to bring its benefits to our respective stockholders and customers, as expeditiously as possible. Accordingly, we are commencing a tender offer directly to your stockholders on August 12, 1998. We are prepared, however, to acquire Quickturn through a negotiated transaction and to consider an increased offering price in the event that we are first permitted to conduct a due diligence review and that such review demonstrates greater value of Quickturn to Mentor Graphics than we can ascertain from public information. Very truly yours, /s/_ Walden C. Rhines President and Chief Executive Officer The preceding letter contains forward-looking statements within the meaning of Section 21E of the Exchange Act. On August 12, 1998, Parent and Purchaser commenced the Offer. Also on August 12, 1998 Parent filed preliminary materials with the Commission to solicit agent designations. On August 12, 1998, Parent and Purchaser commenced litigation against the Company and the Company 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 19 Proposed Merger or to approve the Offer and the Proposed Merger would constitute a breach of the Company Board's fiduciary duties under Delaware law, (ii) invalidating the Rights or compelling the Company 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 the DGCL would constitute a breach of the Company 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 the DGCL, (v) enjoining the Company 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 Company Board's fiduciary duties under Delaware law, (vi) enjoining the Company Board from taking any actions to impede, or refuse to recognize the validity of, Parent's call of the Special Meeting, provided that Parent has obtained Agent Designations from Company stockholders holding not less than 10% of the outstanding Shares of the Company, and (vii) enjoining the Company Board from taking any action to cause the Company to become subject to Section 2115 of the California General Corporation Law. Also on August 12, 1998 Parent and Purchaser commenced litigation against the Company in the United States District Court for the District of Delaware seeking, among other things, a declaratory judgment that Parent and Purchaser have disclosed all information required by, and are otherwise in full compliance with, the Exchange Act and any other federal securities laws, rules or regulations deemed applicable to the Offer and the Solicitation. 11. PURPOSE OF THE OFFER AND THE PROPOSED MERGER; PLANS FOR THE COMPANY PURPOSE. The purpose of the Offer and the Proposed Merger is to acquire control of, and ultimately the entire equity interest in, the Company. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all outstanding Shares. Parent intends, as soon as practicable following consummation of the Offer, to propose and seek to have the Company consummate the Proposed Merger with Purchaser or another direct or indirect subsidiary of Parent. The purpose of the Proposed Merger is to acquire all Shares not tendered and purchased pursuant to the Offer or otherwise. At the Effective Time, it is anticipated that each then outstanding Share (other than Shares owned by Parent and its subsidiaries, including Purchaser, Shares held in the treasury of the Company and Shares held by stockholders of the Company who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights under the DGCL) would be converted into the right to receive an amount in cash equal to the Offer Price. If, following consummation of the Offer, Purchaser owns 90% or more of the outstanding Shares, Purchaser intends to consummate the Proposed Merger as a "short-form" merger pursuant to Section 253 of the DGCL. Under such circumstances, neither the approval of any holder of Shares (other than Purchaser) nor the Company Board would be required. On August 12, 1998, Parent filed preliminary agent designation materials with the Commission, which, in definitive form, will be mailed to stockholders of the Company after completion of review by the staff of the Commission and receipt from the Company of a current stockholder list. The Solicitation requests stockholders of the Company to grant Parent Agent Designations to provide for the call of the Special Meeting in order to, among other things, remove the entire Company Board, reduce the size of the Company Board to five members and fill the newly created vacancies on the Company Board with the Nominees. If the Nominees are elected, Parent expects that, subject to their fiduciary duties under applicable law, the Nominees would redeem the Rights (or amend the Rights Agreement to make the Rights inapplicable to the Offer and the Proposed Merger) and approve the Offer and the Proposed Merger under Section 203, which would satisfy the Rights Condition and the Section 203 Condition, and take such other actions as may be required to expedite the prompt consummation of the Offer and the Proposed Merger. The Solicitation will be made pursuant to separate agent designation materials. Parent stands ready to negotiate the Proposed Acquisition with the Company. Accordingly, Purchaser reserves the right to amend the Offer (including amending the number of Shares to be purchased and the Offer Price) at any time, including upon Parent entering into a merger agreement with the Company or 20 Parent negotiating a merger agreement with the Company not involving a tender offer pursuant to which Purchaser would terminate the Offer and the Shares would, upon consummation of such merger, be converted into cash. Subject to the terms and conditions of the Proposed Merger and in accordance with the DGCL, the Company will be merged with and into Purchaser. It is expected that Purchaser will be the surviving corporation in the Proposed Merger and will continue its corporate existence under Delaware law. Under the DGCL, the merger of a Delaware company generally requires the approval of its board of directors and the affirmative vote of holders of at least a majority of its outstanding voting securities. If the Nominees are elected and approve the Offer and the Offer is thereafter consummated (without any waiver of the Minimum Condition and assuming the satisfaction or waiver of all other conditions to the Offer), it is expected that the Nominees would, subject to their fiduciary duties as directors of the Company, approve the Proposed Merger, and Purchaser could approve the Proposed Merger without the affirmative vote of any other stockholder, assuming no additional Shares have been issued since April 30, 1998 (except pursuant to then outstanding options or other rights). See this "Section 11. Purpose of the Offer and the Proposed Merger; Plans for the Company--Section 203" for a discussion of Section 203 and its impact on the Proposed Merger in certain other circumstances. SECTION 203. The Company is incorporated under the laws of the State of Delaware. Section 203 regulates certain business combinations involving a Delaware corporation and an Interested Stockholder of such corporation (any person beneficially owning, directly or through an associate or affiliate, 15% or more of such corporation's voting stock). In general, Section 203 prevents an Interested Stockholder from engaging in a "Business Combination" (defined as a variety of transactions, including mergers, as set forth in the following paragraph) with a Delaware corporation for three years following the date such person became an Interested Stockholder unless: (i) before such person became an Interested Stockholder, the board of directors of the corporation approved the Business Combination or the transaction in which the Interested Stockholder became an Interested Stockholder; (ii) upon consummation of the transaction which resulted in the Interested Stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding for the purposes of determining the number of shares outstanding those shares owned by directors of the corporation who are also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether plan shares will be tendered in a tender or exchange offer); or (iii) following the transaction in which such person became an Interested Stockholder, the Business Combination is (x) approved by the board of directors of the corporation and (y) authorized at a meeting of the stockholders by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the Interested Stockholder. Section 203 provides that during such three-year period the corporation may not merge or consolidate with an Interested Stockholder, or any affiliate or associate thereof, and also may not engage in certain other transactions with an Interested Stockholder or any affiliate or associate thereof, including, without limitation (i) any sale, lease, exchange, mortgage, pledge, transfer or other disposition assets, except proportionately to all stockholders, having an aggregate market value equal to 10% or more of the aggregate market value of all assets of the corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; (ii) any transaction which results in the issuance or transfer by the corporation or by certain subsidiaries thereof of any stock of the corporation or of such subsidiaries to the Interested Stockholder, except pursuant to a transaction which effects a pro rata distribution to all stockholders of the corporation; (iii) any transaction involving the corporation or certain subsidiaries thereof which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation or any such subsidiary which is owned directly or indirectly by the Interested Stockholder (except as a result of immaterial changes due to fractional share adjustments); or (iv) a receipt by the Interested Stockholder of the benefit (except proportionately as a stockholder of such corporation) of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. 21 Absent approval by the Company Board of the Offer or the Proposed Merger prior to consummation of the Offer, Section 203 would prohibit, among other things, consummation of the Proposed Merger (or any other business combination with Purchaser or any affiliate of Purchaser) for a period of three years following consummation of the Offer unless (i) Purchaser acquires that number of Shares which equals, when added to the Shares currently owned, directly or indirectly, by Purchaser, 85% of the Shares outstanding as of the commencement of the Offer (excluding certain Shares as described above), or (ii) the Proposed Merger (or any other business combination) is approved by the Company Board and authorized at a meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the Company not beneficially owned, directly or indirectly, by Purchaser or its affiliates. If the Nominees are elected before the Offer is consummated, it is expected that the Nominees will, subject to their fiduciary duties as directors of the Company, grant Section 203 approval to Purchaser immediately prior to the consummation of the Offer. The Nominees will be unable to grant such Section 203 approval to Purchaser if Purchaser becomes an Interested Stockholder prior to the election of the Nominees as directors. Purchaser does not intend to become an Interested Stockholder of the Company prior to the election of the Nominees as directors of the Company unless (assuming all other conditions to the Offer are satisfied or waived) Purchaser is granted Section 203 approval by the current Company Board, the Rights Condition is satisfied and the Minimum Condition to the Offer is satisfied, or Purchaser acquires beneficial ownership of 85% or more of the outstanding Shares, in which event it will no longer be necessary to obtain Company Board approval under Section 203. The provisions of Section 203 could impede the ability of Parent to effect the Proposed Merger promptly after consummation of the Offer. The Offer is conditioned on Purchaser being satisfied in its sole discretion that the restrictions on business combinations contained in Section 203 are inapplicable to the Proposed Merger (as a result of action by the Company Board, the acquisition by Purchaser of a sufficient number of Shares, or otherwise). See this "Section 11. Purpose of the Offer and the Proposed Merger; Plans for the Company" and "Section 14. Certain Conditions of the Offer." RULE 13E-3. Rule 13e-3 under the Exchange Act is applicable to certain "going private" transactions and may under certain circumstances be applicable to the Proposed Merger or another business combination following the purchase of Shares pursuant to the Offer in which Purchaser seeks to acquire the remaining Shares not held by it. Purchaser believes, however, that Rule 13e-3 will not be applicable to the Proposed Merger. Rule 13e-3 requires, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction, be filed with the Commission and disclosed to stockholders prior to consummation of the transaction. PLANS FOR THE COMPANY. If elected at the Special Meeting, Parent expects the Nominees to, subject to their fiduciary duties, redeem the Rights (or amend the Rights Agreement to make the Rights inapplicable to the Offer and the Proposed Merger) and approve the Offer and the Proposed Merger under Section 203, which would satisfy the Rights Condition and the Section 203 Condition, and take such other actions as may be required to expedite the prompt consummation of the Offer and the Proposed Merger. Parent intends, as soon as practicable following consummation of the Offer, to propose and seek to have the Company consummate the Proposed Merger or a similar business combination with Purchaser or another direct or indirect subsidiary of Parent. The purpose of the Proposed Merger is to acquire all Shares not tendered and purchased pursuant to the Offer or otherwise. At the Effective Time, it is anticipated that each then outstanding Share (other than Shares owned by Parent and its subsidiaries, including Purchaser, Shares held in the treasury of the Company and Shares held by stockholders of the Company who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights, under the DGCL) would be converted into the right to receive an amount in cash equal to the Offer Price. Subject to the terms and conditions of the Proposed Merger and in accordance with the DGCL, the Company would be merged with and into Purchaser or another direct or indirect subsidiary of Parent. Purchaser would be the surviving corporation in the Proposed Merger and would continue its corporate existence under Delaware law. 22 Except as indicated in this Offer to Purchase, Parent and Purchaser have no present plans or proposals which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any subsidiary of the Company, a sale or transfer of a material amount of assets of the Company or any subsidiary of the Company or any material change in the Company's capitalization or dividend policy or any other material changes in the Company's corporate structure or business, or the composition of the Company Board or the Company's management. 12. DIVIDENDS AND DISTRIBUTIONS If, on or after the date of this Offer to Purchase, the Company should (i) split, combine or otherwise change the Shares or its capitalization, (ii) acquire or otherwise cause a reduction in the number of outstanding Shares or (iii) issue or sell any additional Shares, shares of any other class or series of capital stock, other voting securities or any securities convertible into, or options, rights or warrants, conditional or otherwise, to acquire, any of the foregoing, then, without prejudice to Purchaser's rights under "Section 14. Certain Conditions of the Offer," Purchaser, in its sole discretion, may make such adjustments to the purchase price and other terms of the Offer (including the number and type of securities to be purchased) as it deems appropriate to reflect such split, combination or other change. If, on or after the date of this Offer to Purchase, the Company should declare or pay any dividend on the Shares or make any other distribution (including the issuance of additional shares of capital stock pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of Purchaser or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to Purchaser's rights under "Section 14. Certain Conditions of the Offer," (i) the purchase price per Share payable by Purchaser pursuant to the Offer will be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution or right shall be received and held by the tendering stockholder for the account of Purchaser and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance and subject to applicable law, Purchaser will be entitled to all the rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser in its sole discretion. 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION The purchase of Shares by Purchaser pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Depending upon the number of Shares purchased pursuant to the Offer and the aggregate market value of any Shares not purchased pursuant to the Offer, the Shares may no longer meet the standards for continued listing on the Nasdaq National Market and may be delisted from the Nasdaq National Market. The published guidelines of the Nasdaq National Market indicate that the Nasdaq National Market would consider delisting the Shares if, among other things, either (i) the number of round lot holders of Shares should fall below 400, the number of publicly held Shares should fall below 750,000, the aggregate market value of the publicly held Shares should fall below $5,000,000, the minimum bid price for Shares should fall below $1 per Share, the net tangible assets of the Company should fall below $4,000,000 or there should be less than two registered and active market makers providing quotations for the Shares, or, alternatively, (ii) the market capitalization of the Company (or the Company's total assets and total revenue, respectively) should fall below $50,000,000, the number of round lot holders of Shares should fall below 400, the number of publicly held Shares should fall below 1,100,000, the aggregate market value of the publicly held Shares should fall below $15,000,000, the minimum bid price for Shares should fall below $5 per Share or 23 there should be less than four registered and active market makers providing quotations for the Shares. If neither of the foregoing standards are met, the Shares would no longer be admitted to quotation on the Nasdaq National Market. To the extent the Shares are delisted from the Nasdaq National Market, the market for the Shares could be adversely affected. If the Nasdaq National Market were to delist the Shares, it is possible that the Shares would continue to trade in the over-the-counter market and that price quotations for the Shares would be reported by other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend on the number of holders of Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act (as described below) and other factors. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly, if any, effected by the Offer would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer Price. The Shares are currently "margin securities," as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, following the Offer it is possible that the Shares might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve Board, in which event such Shares could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by the Company to the Commission if the Shares are not listed on a "national securities exchange" and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. In addition, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 under the Securities Act. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or be eligible for reporting on the National Association of Securities Dealers Automated Quotation System. As soon as practicable after the Distribution Date has occurred, Rights Certificates are to be sent to all holders of Rights. If the Distribution Date has occurred and the Rights separate from the Shares, the foregoing discussion with respect to the effect of the Offer on the market for the Shares, Nasdaq National Market listing and Exchange Act registration would apply to the Rights in a similar manner. 14. CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, and in addition to (and not in limitation of) Purchaser's rights to extend and amend the Offer at any time, in its sole discretion, Purchaser shall not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, and may terminate or amend the Offer and may postpone the acceptance for payment of and payment for, Shares tendered, if (i) any one or more of the Minimum Condition, the Rights Condition, the Section 203 Condition and the HSR Condition shall not have been satisfied or (ii) at any time on or after August 12, 1998, and prior to the acceptance for payment of Shares, any of the following conditions shall exist: (a) there shall have been threatened, instituted or be pending any action or proceeding before any court or governmental, administrative or regulatory authority or agency, domestic or foreign (each, a "Governmental Entity"), or by any other person, domestic or foreign, before any court or Governmental 24 Entity, (i) challenging or seeking to, or which is reasonably likely to, make illegal, materially delay or otherwise directly or indirectly restrain or prohibit or seeking to, or which is reasonably likely to, impose voting, procedural, price or other requirements, including any such requirements under California law, in addition to those required by federal securities laws and the DGCL (each as in effect on the date of this Offer to Purchase), in connection with the making of the Offer, the acceptance for payment of, or payment for, any Shares by Purchaser or any other affiliate of Parent or the consummation by Purchaser or any other affiliate of Parent of the Proposed Merger or other business combination with the Company, or seeking to obtain material damages in connection therewith; (ii) seeking to prohibit or limit materially the ownership or operation by the Company, Parent or any of their respective subsidiaries of all or any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries; (iii) seeking to impose or confirm limitations on the ability of Parent and its subsidiaries, including Purchaser, to exercise effectively full rights of ownership of any Shares (including the Rights associated with Shares), including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to the Company's stockholders; (iv) seeking to require divestiture by Parent and its subsidiaries, including Purchaser, of any Shares; (v) seeking any material diminution in the benefits expected to be derived by Parent, Purchaser or any other affiliate of Parent as a result of the transactions contemplated by the Offer or the Proposed Merger or any other similar business combination with the Company; (vi) otherwise directly or indirectly relating to the Offer or which otherwise, in the sole judgment of Purchaser, might materially adversely affect the Company or Purchaser or any other affiliate of Parent or the value of the Shares; or (vii) which otherwise, in the sole judgment of Purchaser, is reasonably likely to materially adversely affect the business, operations (including, without limitation, results of operations), properties (including, without limitation, intangible properties), condition (financial or otherwise), assets or liabilities (including, without limitation, contingent liabilities) or prospects of either the Company or any of its subsidiaries or Parent or any of its subsidiaries, including Purchaser; (b) there shall have been any action taken, or any statute, rule, regulation, legislation, interpretation, judgment, order or injunction enacted, entered, enforced, promulgated, amended, issued or deemed applicable to (i) Parent, Purchaser, the Company or any subsidiary or affiliate of Parent or the Company or (ii) the Offer or the Proposed Merger or other business combination by Purchaser or Parent or any affiliate of Parent with the Company, by any legislative body, court, government or governmental, administrative or regulatory authority or agency, domestic or foreign, other than the routine application of the waiting period provisions of the HSR Act to the Offer or the Proposed Merger, which, in the sole judgment of Purchaser, is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (vii) of paragraph (a) above; (c) there shall have occurred any change, condition, event or development that, in the sole judgment of Purchaser, is or is reasonably likely to be materially adverse to the business, operations (including, without limitation, results of operations), properties (including, without limitation, intangible properties), condition (financial or otherwise), assets or liabilities (including, without limitation, contingent liabilities) or prospects of the Company or any of its subsidiaries; (d) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the Nasdaq National Market, (ii) any decline, measured from the close of business on August 11, 1998, in the Standard & Poor's 500 Index by an amount in excess of 15%, (iii) any material adverse change in United States currency exchange rates or a suspension of, or limitation on, currency exchange markets, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or other event that, in the sole judgment of Purchaser, might affect the extension of credit by banks or other lending 25 institutions, (vi) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or (vii) in the case of any of the foregoing existing on August 11, 1998, a material acceleration or worsening thereof; (e) the Company or any of its subsidiaries, joint ventures or partners or other affiliates shall have, directly or indirectly, (i) split, combined or otherwise changed, or authorized or proposed a split, combination or other change of, the Shares or its capitalization (other than by redemption of the Rights in accordance with their terms as such terms have been publicly disclosed prior to the date of this Offer to Purchase), (ii) acquired or otherwise caused a reduction in the number of, or authorized or proposed the acquisition or other reduction in the number of, outstanding Shares or other securities (other than as aforesaid), (iii) issued or sold, or authorized or proposed the issuance, distribution or sale of, additional Shares (other than the issuance of Shares under option prior to the date of this Offer to Purchase, in accordance with the terms of such options as such terms have been publicly disclosed prior to the date of this Offer to Purchase), shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, (iv) declared or paid, or proposed to declare or pay, any dividend or other distribution, whether payable in cash, securities or other property, on or with respect to any shares of capital stock of the Company (other than in the event the Rights are redeemed, the price of redemption thereof), (v) altered or proposed to alter any material term of any outstanding security (including the Rights) other than to amend the Rights Agreement to make the Rights inapplicable to the Offer and the Proposed Merger, (vi) incurred any debt other than in the ordinary course of business or any debt containing burdensome covenants, (vii) authorized, recommended, proposed or entered into an agreement, agreement in principle or arrangement or understanding with respect to any merger, consolidation, liquidation, dissolution, business combination, acquisition of assets, disposition of assets, release or relinquishment of any material contractual or other right of the Company or any of its subsidiaries or any comparable event not in the ordinary course of business, (viii) authorized, recommended, proposed or entered into, or announced its intention to authorize, recommend, propose or enter into, any agreement, arrangement or understanding with any person or group that, in the sole judgment of Purchaser, could adversely affect either the value of the Company or any of its subsidiaries, joint ventures or partnerships or the value of the Shares to Parent or Purchaser, (ix) entered into or amended any employment, change in control, severance, executive compensation or similar agreement, arrangement or plan with or for the benefit of any of its employees, consultants or directors, or made grants or awards thereunder, other than in the ordinary course of business or entered into or amended any agreements, arrangements or plans so as to provide for increased or accelerated benefits to any such persons, (x) except as may be required by law, taken any action to terminate or amend any employee benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended) of the Company or any of its subsidiaries, or Purchaser shall have become aware of any such action that was not disclosed in publicly available filings prior to the date of this Offer to Purchase, or (xi) amended or authorized or proposed any amendment to the Company's Articles of Incorporation or Bylaws, or Purchaser shall have become aware that the Company or any of its subsidiaries shall have proposed or adopted any such amendment that was not disclosed in publicly available filings prior to the date of this Offer to Purchase; (f) a tender or exchange offer for any Shares shall have been made or publicly proposed to be made by any other person (including the Company or any of its subsidiaries or affiliates), or it shall have been publicly disclosed or Purchaser shall have otherwise learned that (i) any person, entity (including the Company or any of its subsidiaries) or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 5% of any class or series of capital stock of the Company (including the Shares), through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any right, option or warrant, conditional or otherwise, to acquire beneficial ownership of more than 5% of any class or series of capital stock of the Company (including the Shares), other than acquisitions for bona fide arbitrage purposes only and other than as disclosed in a Schedule 13G on file with the Commission prior to the date of this Offer Purchase, 26 (ii) any such person, entity or group that prior to the date of this Offer to Purchase had filed such a Schedule 13G with the Commission has acquired or proposes to acquire, through the acquisition of stock, the formation of a group or otherwise, beneficial ownership of 1% or more of any class or series of capital stock of the Company (including the Shares), or shall have been granted any right, option or warrant, conditional or otherwise, to acquire beneficial ownership of 1% or more of any class or series of capital stock of the Company (including the Shares), other than for bona fide arbitrage purposes, (iii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a tender offer or exchange offer or a merger, consolidation or other business combination with or involving the Company or (iv) any person shall have filed a Notification and Report Form under the HSR Act (or amended a prior filing to increase the applicable filing threshold set forth therein) or made a public announcement reflecting an intent to acquire the Company or any subsidiary or significant assets of the Company; (g) any required approval, permit, authorization or consent of any governmental authority or agency (including those described or referred to in "Section 15. Certain Legal Matters and Regulatory Approvals") shall not have been obtained on terms satisfactory to Purchaser in its sole discretion; (h) Parent or Purchaser shall have reached an agreement or understanding with the Company providing for termination of the Offer, or Parent, Purchaser or any other affiliate of Parent shall have entered into a definitive agreement or announced an agreement in principle with the Company providing for a merger or other business combination with the Company or the purchase of stock or assets of the Company; (i) (1) any material contractual right of the Company or any of its subsidiaries or affiliates shall be impaired or otherwise adversely affected or any material amount of indebtedness of the Company or any of its subsidiaries, joint ventures or partnerships shall become accelerated or otherwise become due before its stated due date, in either case, with or without notice or the lapse of time or both, as a result of the transactions contemplated by the Offer or the Proposed Merger or (2) any covenant, term or condition in any of the Company's or any of its subsidiaries', joint ventures' or partnerships' instruments, licenses, or agreements is or may be materially adverse to the value of the Shares in the hands of Purchaser (including, but not limited to, any event of default that may ensue as a result of the consummation of the Offer or the Proposed Merger or the acquisition by Parent of control of the Company); or (j) Purchaser shall have determined in its sole discretion that Section 2115 of the California General Corporation Law (the "CGCL") applies to the Offer or the Proposed Merger; which, in the reasonable judgment of Parent or Purchaser in any such case, and regardless of the circumstances (including any action or inaction by Parent or Purchaser or any of their affiliates) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment. The foregoing conditions are for the sole benefit of Parent and Purchaser and may be asserted by Parent or Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Parent or Purchaser in whole or in part at any time and from time to time in their reasonable discretion. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 15. CERTAIN REGULATORY AND LEGAL MATTERS Based upon its examination of publicly available information with respect to the Company, neither Parent nor Purchaser is aware of any license or other regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, which might be adversely affected by the acquisition of Shares by Purchaser pursuant to the Offer or, except as set forth below, of any approval or 27 other action by any domestic (federal or state) or foreign governmental, administrative or regulatory authority or agency which would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer and the Proposed Merger. Should any such approval or other action be required, Parent and Purchaser contemplate that this approval or action would be sought. Purchaser does not currently intend, however, to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such action or the receipt of any such approval (subject to Purchaser's right to decline to purchase Shares if any of the conditions in "Section 14. Certain Conditions of the Offer" shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the businesses of the Company, Purchaser or Parent or that certain parts of the businesses of the Company, Purchaser or Parent might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken. Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this "Section 15. Certain Regulatory and Legal Matters." See "Section 14. Certain Conditions of the Offer." STATE TAKEOVER LAWS. Section 2115 of the CGCL purports to subject certain corporations with specified minimum contacts in California to certain provisions of the CGCL even if that corporation is organized under the laws of a different state. While Purchaser believes that, based upon publicly available information and the past conduct of the Company, Section 2115 of the CGCL should not operate so as to make such provisions applicable to the Company, Purchaser is in the process of determining whether Section 2115 of the CGCL operates so as to apply to the Company. See "Section 14. Certain Conditions of the Offer" and "Section 17. Legal Proceedings." The Company is incorporated under the laws of the State of Delaware and its operations are conducted throughout the United States. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, stockholders, executive offices or principal places of business in such states. In EDGAR V. MITE CORP., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS CORP. V. DYNAMICS CORP. OF AMERICA, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquirer from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Subsequently, a number of Federal courts ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. Except as described herein, Purchaser has not attempted to comply with any state takeover statutes in connection with the Offer. Purchaser reserves the right to challenge the validity or applicability of any state law allegedly applicable to the Offer and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of that right. In the event that any state takeover statute is found applicable to the Offer, Purchaser might be unable to accept for payment or purchase Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, Purchaser may not be obligated to accept for purchase, or pay for, any Shares tendered. See "Section 14. Certain Conditions of the Offer." ANTITRUST. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by Purchaser pursuant to the Offer are subject to such requirements. 28 Pursuant to the HSR Act, following the commencement of the Offer, Parent intends to file Premerger Notification and Report Forms in connection with the purchase of Shares pursuant to the Offer with the Antitrust Division and the FTC. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following the applicable filings by Parent, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the Antitrust Division or the FTC for additional information or documentary material prior to the expiration of the waiting period. Pursuant to the HSR Act, Parent intends to request early termination of the waiting period applicable to the Offer. There can be no assurance, however, that the 15-calendar day HSR Act waiting period applicable to the Offer will be terminated early. If the Antitrust Division or the FTC were to request additional information or documentary material from Parent with respect to the Offer, the waiting period with respect to the Offer would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Thereafter, the consummation of the Offer may only be prevented by a court order that extends the waiting period, by an injunction or by agreement between the parties. Purchaser will not be permitted to purchase Shares pursuant to the Offer or engage in any other transaction that would result in Purchaser having beneficial ownership of $15 million or more of the outstanding voting securities of the Company until expiration of the waiting period applicable to the Offer. If the acquisition of Shares is delayed as a result of a request by the Antitrust Division or the FTC for additional information or documentary material pursuant to the HSR Act in connection with the acquisition of Shares pursuant to the Offer, the Offer may, but need not, be extended and, in any event, the purchase of and payment for Shares will be deferred until 10 days after the request is substantially complied with by Parent, unless the extended period expires on or before the date when the initial 15-day period would otherwise have expired, or unless the waiting period is sooner terminated by the FTC and the Antitrust Division. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. Pursuant to the HSR Condition, the Offer is conditioned upon the waiting period applicable to the Offer under the HSR Act having expired or been terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the purchase of Shares pursuant to the Offer by Purchaser, the Antitrust Division or the FTC could take such action under the antitrust laws as they deem necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by Purchaser or the divestiture of substantial assets of Purchaser, the Company or their respective subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of information available to Parent relating to the businesses in which Parent, the Company and their respective subsidiaries are engaged, Parent believes that the Offer will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, what the result would be. The Company Form 10-K indicates that the Company and certain of its subsidiaries conduct business in foreign countries where regulatory filings or approvals under antitrust and other laws may be required or desirable in connection with the consummation of the Offer and the Proposed Merger. Certain of such filings for approvals, if required or desirable, may not be made or obtained prior to the expiration of the Offer. After commencement of the Offer, Parent and Purchaser will seek further information regarding the applicability of any such laws and currently intends to take such action as may be required or desirable. If any government or governmental authority or agency takes any action prior to the completion of the 29 Offer that, in the sole judgment of Purchaser, might have certain adverse effects, Purchaser will not be obligated to accept for payment or pay for any Shares tendered. There can be no assurance that a challenge to the Offer will not be made pursuant to the merger control regimes of one or more countries or by legal actions brought by private parties or, if such a challenge is made, what the outcome will be. See "Section 14. Certain Conditions of the Offer." APPRAISAL RIGHTS. Holders of Shares do not have appraisal rights as a result of the Offer. However, if the Proposed Merger is consummated, holders of Shares will have certain rights pursuant to the provisions of Section 262 of the DGCL to dissent and demand appraisal of their Shares in connection with the Proposed Merger. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Proposed Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of the Shares could be based upon factors other than, or in addition to, the price per share to be paid in the Proposed Merger or the market value of the Shares. The value so determined could be more or less than the price per share to be paid in the Proposed Merger. The Proposed Merger also would need to comply with other applicable procedural and substantive requirements of Delaware law. Several decisions by Delaware courts have held that, in certain circumstances, a controlling stockholder of a corporation involved in a merger has a fiduciary duty to the other stockholders that requires the merger to be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there were fair dealings among the parties. FOREIGN LAWS. According to publicly available information, the Company also owns property and conducts businesses in a number of other jurisdictions. In connection with the acquisition of the Shares pursuant to the Offer, the laws of certain foreign countries and jurisdictions may require the filing of information with, or the obtaining of the approval of, governmental authorities in such countries and jurisdictions. In addition, the waiting period prior to consummation of the Offer associated with such filings or approvals may extend beyond the scheduled Expiration Date. The governments in such countries and jurisdictions might attempt to impose additional conditions on the Company's operations conducted in such countries and jurisdictions as a result of the acquisition of Shares pursuant to the Offer or the Proposed Merger. 16. FEES AND EXPENSES Except as set forth below, Purchaser will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. Salomon Smith Barney is acting as Dealer Manager for the Offer and as financial advisor to Parent in connection with Parent's efforts to acquire the Company. Questions regarding the Offer may be directed to Salomon Smith Barney at the phone number and address set forth on the back cover hereof. As compensation for its services to Parent in connection with the Offer and Proposed Merger, Salomon Smith Barney will receive a fee of $2.4 million if the Offer and the Proposed Merger or a similar acquisition transaction is consummated or a fee of $600,000 if, following commencement of the Offer, no such acquisition transaction is consummated. Parent has also agreed to pay to Salomon Smith Barney 10% of certain proceeds received by Parent from the sale of the Shares owned by Parent in the event the Offer and Proposed Merger or similar acquisition transaction is not consummated. In the event Parent receives a termination, topping or similar fee following the termination or abandonment of a proposed acquisition transaction, Parent has also agreed to pay to Salomon Smith Barney 10% of the excess (if any) of such fee over Parent's out-of-pocket expenses in connection with such proposed acquisition transaction. Parent has 30 also agreed to reimburse Salomon Smith Barney for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel, and to indemnify Salomon Smith Barney and certain related persons against certain liabilities and expenses, including certain liabilities and expenses under the federal securities laws. Salomon Smith Barney is a service mark of Smith Barney Inc. Salomon Brothers Inc and Smith Barney Inc. are affiliated but separately registered broker/dealers under common control of Salomon Smith Barney Holdings Inc. Salomon Brothers Inc and Salomon Smith Barney Holdings Inc. have been licensed to use the Salomon Smith Barney service mark. Purchaser has retained MacKenzie Partners, Inc. ("MacKenzie") as the Information Agent, and IBJ Schroder Bank & Trust Company as the Depositary, in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. As compensation for acting as Information Agent in connection with the Offer, MacKenzie will receive reasonable and customary compensation, plus reimbursement for certain out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. As compensation for acting as Depositary in connection with the Offer, IBJ Schroder Bank & Trust Company will receive reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will be indemnified against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by Purchaser for customary handling and mailing expenses incurred by them in forwarding material to their customers. 17. LEGAL PROCEEDINGS Parent and the Company are involved in patent litigation in the United States District Court in Portland, Oregon and San Francisco, California and in Germany, in which the parties have alleged various claims of patent infringement against each other. In March 1996, Parent filed suit (MENTOR GRAPHICS CORPORATION V. QUICKTURN DESIGN SYSTEMS, INC.) in the United States District Court in Portland, Oregon against the Company for a declaratory judgment of non-infringement, invalidity and unenforceability of three of the Company's patents. The Company filed a counterclaim against Parent alleging infringement of six of the Company's patents, including the three patents subject to the declaratory judgment action. The counterclaim seeks a permanent injunction prohibiting sales of Parent's SimExpress products in the United States as well as compensatory damages and attorneys' fees. In August 1997, the District Court granted the Company a preliminary injunction prohibiting Parent from selling its SimExpress version 1.0 and 1.5 acceleration verification systems in the United States. The injunction also prohibits Parent from shipping current United States inventory modified in the United States to any of its non-United States locations. On August 5, 1998, the United States Court of Appeals for the Federal Circuit affirmed the grant of the preliminary injunction on Parent's appeal. In June 1998, the District Court appointed a senior patent litigator to be Special Master in the case. The Special Master has reviewed the judge's rulings on claim interpretation (so-called "Markman" rulings) and will provide recommended rulings on summary judgment motions filed in June 1998 by Parent and the Company. Rulings on these District Court matters are expected in the third and fourth quarters of 1998. While a trial in the District Court is scheduled to begin December 1, 1998, there can be no assurance that such date will not be extended. An unfavorable ruling in the District Court trial could involve substantial cost to Parent and could make permanent the prohibition on Parent's manufacturing and selling its existing accelerated verification of hardware design products in the United States. While an adverse judgment in 31 this litigation would not affect Parent's ability to borrow funds under the Credit Facility, an adverse judgment could have a material adverse effect on Parent's results of operations in the applicable period. In January 1996, the Company filed an administrative complaint with the United States International Trade Commission ("ITC") (IN THE MATTER OF CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND COMPONENTS THEREOF, INVESTIGATION NO. 337-TA-383) seeking to prohibit the distribution of SimExpress products in the United States. In August 1996, the ITC issued a ruling effectively prohibiting the importation of this technology into the United States. In August 1997, the ITC Administrative Law Judge recommended the imposition of evidentiary and monetary sanctions against Parent. While this decision is expected to be appealed, no decision is expected for at least nine months. If Parent is unsuccessful in its appeal, the amount of monetary sanctions has been stipulated to be $425,000. In December 1997, the ITC issued a Cease and Desist Order prohibiting Parent from importing SimExpress products or components, and from providing repair or maintenance services to existing United States customers. This order took effect in February 1998. Discovery on the issue of the Company's damages caused by Parent's alleged infringement is not yet complete, and the Company has not presented a calculation of its damages nor made a monetary settlement demand. Parent believes that the Company's damages would be based in significant part upon the fact that the gross amount of all of Parent's allegedly infringing U.S. sales total only approximately $3,500,000. In addition to compensatory damages, in the event the court finds that Parent's infringement was willful, the trial court judge has the discretion to enhance the jury award so that the total award is at most triple the amount awarded by the jury. The trial court judge also has the discretion, if he determines that the action qualifies as "an extraordinary case" (which typically requires a finding that the infringement was willful), to award the Company reasonable costs and attorneys fees. In October 1997, the Company also filed an action against Parent in a German court alleging that SimExpress infringes on a German patent held by the Company (the European version of one of the patents in dispute in MENTOR GRAPHICS CORPORATION V. QUICKTURN DESIGN SYSTEMS, INC. discussed above). Parent expects resolution in this case no earlier than late 1999. In February 1998, Meta Systems, Inc. ("Meta"), a subsidiary of Parent, filed a patent infringement action against the Company in the United States District Court for the Northern District of California in San Francisco, California (META SYSTEMS, INC. AND APTIX CORPORATION V. QUICKTURN DESIGN SYSTEMS, INC.). The complaint, which is based on a patent licensed from Aptix Corporation of San Jose, California by Meta and Parent, relates to the Company's M3000 System Realizer and seeks damages for infringement as a result of the Company's manufacture and sale of certain emulation equipment. Meta, which was joined in the suit by Aptix Corporation, plans to seek an injunction prohibiting further infringement by the Company. A trial date of July 6, 1999 has been set. On August 12, 1998, Parent and Purchaser commenced litigation against the Company and the Company 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 to approve the Offer and the Proposed Merger would constitute a breach of the Company Board's fiduciary duties under Delaware law, (ii) invalidating the Rights or compelling the Company 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 the DGCL would constitute a breach of the Company 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 the DGCL, (v) enjoining the Company 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 Company Board's fiduciary duties under Delaware law, (vi) enjoining the Company Board from taking any actions to impede, or refuse to recognize the validity of, Parent's call of the Special Meeting, provided that Parent has obtained Agent Designations from Company 32 stockholders holding not less than 10% of the outstanding Shares of the Company and (vii) enjoining the Company Board from taking any action to cause the Company to become subject to Section 2115 of the California General Corporation Law. Also on August 12, 1998 Parent and Purchaser commenced litigation against the Company in the United States District Court for the District of Delaware seeking, among other things, a declaratory judgment that Parent and Purchaser have disclosed all information required by, and are otherwise in full compliance with, the Exchange Act and any other federal securities laws, rules or regulations deemed applicable to the Offer and the Solicitation. 18. MISCELLANEOUS Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by the Dealer Manager or by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Pursuant to Rule 14d-3 of Regulation 14D under the Exchange Act, Parent and Purchaser have filed with the Commission a Schedule 14D-1, together with exhibits, furnishing certain additional information with respect to the Offer. The Schedule 14D-1 and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in "Section 7. Certain Information Regarding the Company," except that they will not be available at the regional offices of the Commission. August 12, 1998 MGZ Corp. 33 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER The following table sets forth the name, current business address, citizenship and present principal occupation or employment and material occupations, positions, offices or employments and business addresses thereof for the past five years of each director and executive officer of Parent. Unless otherwise indicated, the current business address of each person is 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. Unless otherwise indicated, each such person is a citizen of the United States of America and has held his or her present position as set forth below for the past five years. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Parent.
PRESENT PRINCIPAL OCCUPATION AND NAME TITLE FIVE YEAR EMPLOYMENT HISTORY - --------------------------- --------------------------- ------------------------------------------------------ Walden C. Rhines President, Chief Executive Dr. Rhines has served as Director, President and Chief Officer and Director Executive Officer of Parent since 1993. From 1972 to 1993, Dr. Rhines was employed by Texas Instruments Incorporated where his duties included Executive Vice President of Texas Instruments Semiconductor Group. Dr. Rhines is also a director of Cirrus Logic, Inc. and Triquint Semiconductor, Inc. Gregory K. Hinckley Executive Vice President, Mr. Hinckley has served as Executive Vice President, Chief Operating Officer and Chief Operating Officer and Chief Financial Officer of Chief Financial Officer Parent since 1997. From 1995 until 1996, Mr. Hinckley was Senior Vice President of VLSI Technology, Inc. ("VLSI"). From 1992 until 1996, Mr. Hinckley was Vice President, Finance and Chief Financial Officer of VLSI. Mr. Hinckley is also a director OEC Medical Systems, Inc. and Amkor Technology, Inc. G. M. "Ken" Bado Senior Vice President, Mr. Bado has served as Senior Vice President, World World Trade Trade of Parent since 1996. Mr. Bado was Vice President of the Americas of Parent from 1994 to 1996. In 1996, Mr. Bado also held the position of Vice President and General Manager, Professional Services of Parent. Prior thereto, Mr. Bado was the Southern Area General Manager for North American Sales of Parent. Bernd U. Braune Senior Vice President Mr. Braune has served as Senior Vice President of Parent since July 1997. From 1995 to 1997, Mr. Braune held the position of Senior Vice President of Worldwide Sales and Marketing for VLSI. From 1993 to 1995, Mr. Braune was General Manager and Vice President of European Operations for VLSI. From 1991 to 1993, Mr. Braune was Managing Director for European Operations of NCR Microelectronics. Mr. Braune is a citizen of Germany.
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PRESENT PRINCIPAL OCCUPATION AND NAME TITLE FIVE YEAR EMPLOYMENT HISTORY - --------------------------- --------------------------- ------------------------------------------------------ Dean Freed Vice President, General Mr. Freed has served as Vice President, General Counsel and Secretary Counsel and Secretary of Parent since 1995. Mr. Freed served as Deputy General Counsel and Assistant Secretary of Parent from 1994 to 1995 and was Associate General Counsel and Assistant Secretary of Parent from 1990 to 1994. Anthony B. Adrian Vice President, Corporate Mr. Adrian has served as Vice President, Corporate Controller Controller of Parent since February 1998. In 1997, Mr. Adrian held the position of Vice President and Acting Controller for Wickland Oil Company. From 1996 to 1997, Mr. Adrian served as Managing Director of Wickland Terminals in Australia and from 1992 to 1996 he served as Vice President and Controller of Wickland Oil. Dennis Weldon Treasurer Mr. Weldon has served as Treasurer of Parent since 1996. Mr. Weldon served as Director of Finance Administration of Parent from 1994 to 1996 and prior thereto served as Finance Manager of Parent. Jon A. Shirley Director Mr. Shirley has served as Chairman of the Board of Directors of Parent since 1994 and as a Director of Parent since 1989. Mr. Shirley's principal occupation is private investment. Mr. Shirley served as President and Chief Operating Officer of Microsoft Corporation from 1983 to 1990. Mr. Shirley is currently a director of Microsoft Corporation. Marsha B. Congdon Director Ms. Congdon has served as a Director of Parent since 1991. Since 1997, Ms. Congdon's principal occupation has been private investment. Ms. Congdon served as Vice President, Policy and Strategy of US West Inc. from 1995 to 1997 and prior thereto, served as Regional Vice President and Chief Executive Officer--Oregon of US West. James R. Fiebiger Director Dr. Fiebiger has served as a Director of Parent since 1994. Dr. Fiebiger has been President and Chief Executive Officer of Gatefield Corp. since 1997. From 1993 to 1997, Dr. Fiebiger served as Chairman of the Board and Managing Director of Thunderbird Technologies, Inc. and prior thereto, served as President and Chief Operating Officer of VLSI. Dr. Fiebiger is also a director of Thunderbird Technologies, Inc.
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PRESENT PRINCIPAL OCCUPATION AND NAME TITLE FIVE YEAR EMPLOYMENT HISTORY - --------------------------- --------------------------- ------------------------------------------------------ David A. Hodges Director Dr. Hodges has served as a Director of Parent since 1995. Dr. Hodges is a Professor in the Graduate School of the Department of Electrical Engineering and Computer Science at the University of California at Berkeley ("UC Berkeley") where he has been a faculty member since 1970. Dr. Hodges was Dean of the College of Engineering at UC Berkeley from 1990 to 1996. Dr. Hodges is also a director of Silicon Image, Inc. Fontaine K. Richardson Director Dr. Richardson has served as a Director of Parent since 1993. Dr. Richardson has been a General Partner of Eastech Management Company since 1983. Dr. Richardson is also a director of Banyan Systems Incorporated.
The name and position with Purchaser of each director and officer of Purchaser are set forth below. The business address, parent principal occupation or employment, five-year employment history and citizenship of each such person is set forth above.
NAME TITLE - --------------------------- ------------------------------------------------------ Walden C. Rhines President, Chief Executive Officer and Director Gregory K. Hinkley Chief Financial Officer, Secretary and Director
I-3 SCHEDULE II TRANSACTIONS IN SHARES TRANSACTIONS IN SHARES IN THE PAST 60 DAYS
DATE SHARES PURCHASED PURCHASE PRICE - --------- ---------------- --------------- 6/19/98.. 10,000 $ 7.150 6/22/98.. 7,000 $ 7.500 6/23/98.. 29,000 $ 7.483 6/24/98.. 15,000 $ 7.438 6/25/98.. 20,000 $ 7.438 6/26/98.. 10,000 $ 7.350 6/29/98.. 7,500 $ 7.313 7/1/98... 3,500 $ 7.313 7/2/98... 2,500 $ 7.500 7/6/98... 9,000 $ 7.403 7/7/98... 25,000 $ 7.625 7/8/98... 9,000 $ 7.590 7/9/98... 12,500 $ 7.563 7/13/98.. 10,000 $ 7.938 7/14/98.. 137,000 $ 7.865 7/15/98.. 50,000 $ 7.622 7/17/98.. 25,000 $ 7.813 7/20/98.. 10,000 $ 7.750 7/21/98.. 12,000 $ 7.688 7/22/98.. 46,000 $ 7.565 7/23/98.. 10,000 $ 7.625 7/27/98.. 5,000 $ 7.688 7/28/98.. 6,000 $ 7.750 7/31/98.. 50,000 $ 7.788 8/3/98... 18,000 $ 7.653 8/4/98... 30,000 $ 7.521 8/5/98... 20,000 $ 7.438 8/10/98 2,500 $ 7.500
OTHER INFORMATION Jon A. Shirley and his wife are general partners of The Shirley Family Limited Partnership, which, in turn, is a limited partner of The Fallen Angel Limited Partnership. The Fallen Angel Limited Partnership is the record owner of 184,500 Shares. Mr. Shirley and his wife disclaim beneficial ownership of such Shares. II-1 Facsimile copies (with manual signatures) of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or such stockholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below: THE DEPOSITARY FOR THE OFFER IS: IBJ SCHRODER BANK & TRUST COMPANY BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT DELIVERY: P.O. Box 84 (212) 858-2611 One State Street Bowling Green Station Attn: Reorganization Dept. New York, New York 10004 New York, New York 10274-0084 Attn: Reorganization Dept. Attn: Reorganization Dept. Securities Processing Window SC-1 CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE: (212) 858-2103
Any questions or requests for assistance or additional copies of the Offer to Purchase and the related Letter of Transmittal, and other tender offer materials, may be directed to the Dealer Manager or the Information Agent at their respective addresses and telephone numbers listed below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [MACKENZIE PARTNERS, INC. LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or CALL TOLL-FREE (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: SALOMON SMITH BARNEY Seven World Trade Center New York, New York 10048 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 12, 1998 OF MGZ CORP. A WHOLLY OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, SEPTEMBER 9, 1998 UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS: IBJ SCHRODER BANK & TRUST COMPANY BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY: P.O. Box 84 (212) 858-2611 One State Street Bowling Green Station Attn: Reorganization Dept. New York, New York 10004 New York, New York 10274-0084 Attn: Reorganization Dept. Attn: Reorganization Dept. Securities Processing Window SC-1
CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE: (212) 858-2103 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders either if certificates evidencing Shares and/or Rights (as such terms are defined below) are to be forwarded herewith or if delivery of Shares and/or Rights, is to be made by book-entry transfer to the Depositary's account at The Depositary Trust Company (the "Book-Entry Transfer Facility") pursuant to the book-entry transfer procedures described in Section 3 of the Offer to Purchase (as defined below) dated August 12, 1998. Unless the Rights Condition (as defined in the Offer to Purchase) is satisfied, stockholders will be required to tender one Right for each Share tendered in order to effect a valid tender of Shares. UNLESS THE DISTRIBUTION DATE (AS DEFINED IN THE OFFER TO PURCHASE) OCCURS, A TENDER OF SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS. Stockholders whose certificates representing Shares (the "Share Certificates") or, if applicable, certificates representing the Rights (the "Rights Certificates"), are not immediately available or who cannot deliver their Share Certificates (or, if applicable, Rights Certificates) and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) or who cannot complete the procedure for delivery by book-entry transfer on a timely basis and who wish to tender their Shares and/or Rights, must do so pursuant to the guaranteed delivery procedure described in Section 3 of the Offer to Purchase. See Instruction 4. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. / / CHECK HERE IF SHARES AND/OR RIGHTS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ______________________________________ Account Number ________________ Transaction Code Number ___________ / / CHECK HERE IF SHARES AND/OR RIGHTS ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ____________________________________ Window Ticket No. (if any) _________________________________________ Date of Execution of Notice of Guaranteed Delivery _________________ Name of Institution which Guaranteed Delivery ______________________
DESCRIPTION OF SHARES TENDERED NAME(S) AND ADDRESS(ES) OF HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY) TOTAL NUMBER OF SHARES SHARE EVIDENCED BY NUMBER OF CERTIFICATE SHARE SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** Total Shares * Need not be completed by stockholders delivering Shares by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being tendered hereby. See Instruction 4.
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DESCRIPTION OF RIGHTS TENDERED* NAME(S) AND ADDRESS(ES) OF HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON RIGHTS CERTIFICATE(S) AND RIGHTS TENDERED RIGHTS CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY) TOTAL NUMBER OF RIGHTS RIGHTS EVIDENCED BY NUMBER OF CERTIFICATE RIGHTS RIGHTS NUMBER(S)** CERTIFICATE(S)** TENDERED*** Total Rights * Need not be completed unless separate Rights Certificates have been issued. ** Need not be completed by stockholders delivering Rights by book-entry transfer. *** Unless otherwise indicated, it will be assumed that all Rights evidenced by each Rights Certificate delivered to the Depositary are being tendered hereby. See Instruction 4.
3 NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to MGZ Corp, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Parent"), the above-described shares of common stock, par value $.001 per share (the "Shares"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement between the Company and The First National Bank of Boston, dated as of January 10, 1996 (the "Rights"), pursuant to Purchaser's offer to purchase all outstanding Shares (and associated Rights) at a purchase price of $12.125 per Share (and associated Right), net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 12, 1998 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer"). Subject to, and effective upon, acceptance for payment of the Shares and Rights tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to or upon the order of Purchaser all right, title and interest in and to all the Shares and Rights that are being tendered hereby and all other Shares and Rights or other securities issued or issuable in respect thereof (including, without limitation, the issuance of additional shares pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of other rights (other than the separation of the Rights from the Shares)) that is declared or paid by the Company on or after August 12, 1998 (a "Distribution") and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and Rights (and any Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver Share Certificates and Rights Certificates (and any Distributions), or transfer ownership of such Shares or Rights (and any Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (b) present such Shares and Rights (and any Distributions) for transfer on the books of the Company, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and Rights (and any Distributions), all in accordance with the terms and subject to the conditions of the Offer. The undersigned understands that, unless the Rights Condition is satisfied, holders of Shares will be required to tender one Right for each Share tendered in order to effect a valid tender of such Share. Unless and until the Distribution Date (as defined in the Offer to Purchase) occurs, the Rights are represented by and transferred with the Shares. Accordingly, if the Distribution Date does not occur prior to the Expiration Date, a tender of Shares will constitute a tender of the associated Rights. If a Distribution Date has occurred, Rights Certificates representing that number of Rights equal to the number of Shares being tendered must be delivered to the Depositary in order for such Shares to be validly tendered. If a Distribution Date has occurred but Rights Certificates have not been received by the undersigned, the undersigned agrees hereby to deliver Rights Certificates representing a number of Rights equal to the number of Shares tendered herewith to the Depositary within three Nasdaq National Market trading days of the date such Rights Certificates are distributed. Purchaser reserves the right to require that the Depositary receive such Rights Certificates, or a Book-Entry Confirmation (as defined in the Offer to Purchase), if available, with respect to such Rights prior to accepting Shares for payment. Payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of, among other things, such Rights Certificates, if such certificates have been distributed to holders of Shares. Purchaser will not pay any additional consideration for the Rights tendered pursuant to the Offer. The undersigned hereby irrevocably appoints designees of Purchaser as the attorneys and proxies of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or his substitute shall in his sole judgment deem proper, with respect to all of the Shares and Rights tendered hereby which have been accepted for payment by Purchaser prior to the time of any vote or other action (and any Distributions), at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting) or otherwise. This appointment shall be effective when, and only to the extent that, Purchaser accepts such Shares and Rights as provided in the Offer to Purchase. This power of attorney and proxy are irrevocable, are coupled with an interest in the Shares and Rights tendered hereby, and are granted in consideration of, and effective upon, the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares and Rights (and any Distributions), and no subsequent proxies will be given or written consents executed by the undersigned (and if given or executed, will not be deemed effective). 4 The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares and Rights tendered hereby (and any Distributions) and that when the same are accepted for payment by Purchaser, Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares and Rights tendered hereby (and any Distributions). All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that the tender of Shares and, if applicable, Rights pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. The undersigned acknowledges that no interest will be paid on the Offer Price for tendered Shares regardless of any extension of the Offer or any delay in making such payment. Unless otherwise indicated in the box entitled "Special Payment Instructions," please issue the check for the purchase price and/or return any Share Certificates (and/or, if applicable, Rights Certificates) evidencing any Shares or Rights not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares or Rights tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail the check for the purchase price and return any Share Certificates (and/or, if applicable, Rights Certificates) evidencing any Shares or Rights not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price and/or return any Share Certificates (and/or, if applicable, Rights Certificates) evidencing any Shares or Rights not tendered or not purchased in the name(s) of, and mail said check and Share Certificates (and/or, if applicable, Rights Certificates) to, the person(s) so indicated. The undersigned acknowledges that Purchaser has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares or Rights from the name of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares or Rights so tendered. 5 - -------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if Share Certificates or Rights Certificates not tendered or not purchased are, and/or the check for the purchase price is, to be issued in the name of someone other than the undersigned, or if Shares and/or Rights tendered hereby and delivered by book-entry transfer which are not purchased are to be returned by credit to an account at the Book-Entry Transfer Facility other than that designated above. Issue: / / Check / / Share Certificate(s) (or, if applicable, Rights Certificates) to: Name: ______________________________________________________________________ (PLEASE PRINT) Address: ___________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) __________________________________________________________________________ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) / / Credit Shares (or Rights, if applicable) delivered by book-entry transfer and not purchased to the account set forth below: Account Number _____________________________________________________________ - -------------------------------------------------- - -------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if Share Certificates and/or Rights Certificates not tendered or not purchased are, and/or the check for the purchase price is, to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown under the undersigned's signature. Mail: / / Check / / Share Certificate(s) (or, if applicable, Rights Certificates) to: Name: ______________________________________________________________________ (PLEASE PRINT) Address: ___________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) __________________________________________________________________________ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) - ----------------------------------------------------- 6 IMPORTANT STOCKHOLDERS: SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE) ________________________________________________________________________________ ________________________________________________________________________________ Signature(s) of Holder(s) Dated:____________________ (Must be signed by the registered holder(s) exactly as such holder(s) name(s) appear(s) on the Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) or on a security position listing or by a person(s) authorized to become the registered holder(s) of such Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s): _______________________________________________________________________ (Please Print) Capacity (full title): _________________________________________________________ Address: _______________________________________________________________________ (Include Zip Code) Area Code and Telephone No.: ___________________________________________________ Taxpayer Identification or Social Security No.: ________________________________ (See Substitute Form W-9 on reverse side) GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5) Authorized Signature: __________________________________________________________ Name: __________________________________________________________________________ (Please Type or Print) Title: _________________________________________________________________________ Name of Firm: __________________________________________________________________ Address: _______________________________________________________________________ (Include Zip Code) Area Code and Telephone No.: ___________________________________________________ Dated: _________________________________________________________________________ 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, signatures on all Letters of Transmittal must be guaranteed by a firm that is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"), unless the Shares and Rights tendered thereby are tendered (i) by a registered holder of Shares and Rights who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on this Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 5. If Share Certificates (and/or, if applicable, Rights Certificates) are registered in the name of a person or persons other than the signer of this Letter of Transmittal, or if payment is to be made or delivered to, or Share Certificates or Rights Certificates are to be issued or returned to, a person other than the registered owner or owners, then the tendered Share Certificates (and/or, if applicable, Rights Certificates) must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the Share Certificates (and/or, if applicable, Rights Certificates), with the signatures on the Share Certificates (and/or, if applicable, Rights Certificates) or stock powers guaranteed by an Eligible Institution as provided herein. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of Transmittal is to be used if Share Certificates (and/or, if applicable, Rights Certificates) are to be forwarded herewith or, unless an Agent's Message is utilized, if deliveries are to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Share Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required by this Letter of Transmittal, or an Agent's Message in the case of a book-entry transfer, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date (as defined in the Offer to Purchase). If a Distribution Date (as defined in the Offer to Purchase) has occurred, Rights Certificates, or Book-Entry Confirmation of a transfer of Rights into the Depositary's account at the Book-Entry Transfer Facility, if available (together with, if Rights are forwarded separately from Shares, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantee, or an Agent's Message in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal), must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date or, if later, within three Nasdaq National Market trading days of the date on which such Rights Certificates are distributed. If Share Certificates (and/or, if applicable, Rights Certificates) are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Stockholders whose Share Certificates (and/or, if applicable, Rights Certificates) are not immediately available, who cannot deliver their Share Certificates (and/or, if applicable, Rights Certificates) and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis, may tender their Shares pursuant to the guaranteed delivery procedure described in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, must be received by the Depositary prior to the Expiration Date; and (c) Share Certificates (and/or, if applicable, Rights Certificates) for all tendered Shares or Rights, in proper form for tender, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares or Rights delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), and any other documents required by this Letter of Transmittal, must be received by the Depositary within (i) in the case of Shares, three Nasdaq National Market trading days of the date of execution of such Notice of Guaranteed Delivery or (ii) in the case of Rights, a period ending on the later of (y) three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery and (z) three Nasdaq National Market trading days after the date Rights Certificates are distributed, all as provided in Section 3 of the Offer to Purchase. 8 THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES, RIGHTS CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted. By execution of this Letter of Transmittal (or a manually signed facsimile thereof), all tendering stockholders waive any right to receive any notice of the acceptance of their Shares and Rights for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Share Certificate (and/or, if applicable, Rights Certificate) numbers, the number of Shares evidenced by such Share Certificates (and/or if applicable, the number of Rights evidenced by such Rights Certificates) and the number of Shares (and/or, if applicable, the number of Rights) tendered should be listed on a separate signed schedule and attached hereto. 4. PARTIAL TENDERS. If fewer than all the Shares evidenced by a Share Certificate (and/or, if applicable, fewer than all the Rights evidenced by a Rights Certificate) delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares (and/or, if applicable, Rights) which are to be tendered in the box entitled "Number of Shares Tendered" (and/or, if applicable, "Number of Rights Tendered"). In such cases, new Share Certificates (and/or, if applicable, Rights Certificates) evidencing the remainder of the Shares that were evidenced by the Share Certificates (and/or, if applicable, Rights Certificates) delivered to the Depositary herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Delivery Instructions" on the reverse hereof, as soon as practicable after the expiration or termination of the Offer. All Shares (and/or, if applicable, Rights) evidenced by Share Certificates (and/or, if applicable, Rights Certificates) delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares and Rights tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) without alteration, enlargement or any other change whatsoever. If any of the Shares or Rights tendered hereby are owned of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares or Rights tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares and Rights tendered hereby, no endorsements of Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) or separate stock powers are required, unless payment of the purchase price is to be made, or Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) evidencing Shares or Rights not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares or Rights tendered hereby, the Share Certificate(s) evidencing the Shares (and/or, if applicable, Rights Certificate(s) evidencing Rights) tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s) (or, if applicable, Rights Certificate(s)). Signature(s) on any such Share Certificate(s) (or, if applicable, Rights Certificate(s)) or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any Share Certificate (and/or, if applicable, Rights Certificate) or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and proper evidence satisfactory to Purchaser of the authority of such person to so act must be submitted. 9 6. STOCK TRANSFER TAXES. Purchaser will pay any stock transfer taxes with respect to the sale and transfer of any Shares and Rights to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) evidencing Shares or Rights not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s) of such Shares or Rights, then the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATE(S) (AND/OR, IF APPLICABLE, RIGHTS CERTIFICATE(S)) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price is to be issued, or any Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) evidencing Shares or Rights not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any Share Certificate(s) (and/or, if applicable, Rights Certificate(s)) evidencing Shares or Rights not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares or Rights by book-entry transfer may request that Shares or Rights not purchased be credited to such account at the Book-Entry Transfer Facility as such stockholder may designate in the box entitled "Special Payment Instructions." If no such instructions are given, any such Shares or Rights not purchased will be returned by crediting the account at the Book-Entry Transfer Facility. 8. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the Depositary with such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9, which is provided below, unless an exemption applies. In the case of any holder who has completed the box entitled "Special Payment Instructions," however, the correct TIN on Substitute Form W-9 should be provided for the recipient of the payment pursuant to such instructions. Failure to provide the information on the Substitute Form W-9 may subject the tendering holder to a $50 penalty and to 31% federal income tax backup withholding on the payment of the purchase price for the Shares and Rights. 9. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Additional copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or from brokers, dealers, commercial banks and trust companies. THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY HEREOF (TOGETHER WITH SHARE CERTIFICATES (AND/OR, IF APPLICABLE, RIGHTS CERTIFICATES) OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under the federal income tax law, a holder of Shares whose tendered Shares and/or Rights are accepted for payment is required by law to provide the Depositary (as payer) with such holder's correct TIN on Substitute Form W-9 below. The holder of Shares and/or Rights must also state that (i) such holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such holder that such holder is no longer subject to backup withholding. If the Depositary is not provided with the correct TIN, the holder of Shares and/or Rights may be subject to a $50 penalty imposed by the Internal Revenue Service and payments made to such holder may be subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement, signed under penalties of perjury, attesting to such individual's exempt status. Forms of such statements can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. 10 If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the holder of Shares and/or Rights. Backup withholding is not an additional tax. Rather, the tax withheld pursuant to backup withholding rules will be available as a credit against such holder's tax liabilities. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. WHAT NUMBER TO GIVE THE DEPOSITARY If the holder of Shares and/or Rights is an individual, the correct TIN is his or her social security number. In other cases, the correct TIN may be the employer identification number of the record holder of the Shares and/or Rights tendered hereby. If the Shares and/or Rights are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering holder of Shares has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I of the Substitute Form W-9 and the Depositary is not provided with a TIN within thirty (30) days, the Depositary may withhold 31% of all payments of the purchase price to such holder until a TIN is provided to the Depositary. 11 PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY
SUBSTITUTE PART I -- Taxpayer Identification --------------------------------- FORM W-9 Number -- For all accounts, enter Social Security Number Department of the Treasury taxpayer identification number in OR Internal Revenue Service the box at right. (For most --------------------------------- individuals this is your social Employer Identification Number security number. If you do not (If awaiting TIN write have a number, see Obtaining a "Applied For") Number in the enclosed GUIDELINES.) Certify by signing and dating below. Note: If the account is in more than one name, see chart in the enclosed GUIDELINES to determine which number to give the payer PAYER'S REQUEST FOR TAXPAYER PART II -- For Payees exempt from backup withholding, see the enclosed IDENTIFICATION NUMBER (TIN) GUIDELINES and complete as instructed therein. CERTIFICATION -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me); and (2) I am not subject to backup withholding either because (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if, after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed GUIDELINES.) SIGNATURE ------------------------------------ DATE ------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER 12 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that, notwithstanding the information I provided in Part I of the Substitute Form W-9 (and the fact that I have completed this Certificate of Awaiting Taxpayer Identification Number), if I do not provide a correct taxpayer identification number to the Depositary within thirty (30) days, 31% of all reportable payments made to me thereafter may be withheld. SIGNATURE ------------------------------------------ DATE -------------------------------- THE INFORMATION AGENT FOR THE OFFER IS: [MACKENZIE PARTNERS, INC. LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) OR CALL TOLL-FREE (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: SALOMON SMITH BARNEY Seven World Trade Center New York, New York 10048 (212) 783-3738 (800) 558-3745 13 EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (as defined below) if certificates evidencing shares of common stock, par value $.001 per share (the "Shares"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), and/or, if applicable, certificates for the associated preferred stock purchase rights issued pursuant to the Rights Agreement between the Company and The First National Bank of Boston dated January 10, 1996 (the "Rights") are not immediately available (including because certificates for Rights have not yet been distributed), or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach IBJ Schroder Bank & Trust Company (the "Depositary") on or prior to the Expiration Date (as defined in the Offer to Purchase, dated August 12, 1998 (the "Offer to Purchase")). This Notice of Guaranteed Delivery may be delivered by hand or facsimile transmission or mail to the Depositary. See Section 3 of the Offer to Purchase. THE DEPOSITARY FOR THE OFFER IS: IBJ SCHRODER BANK & TRUST COMPANY BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY: P.O. Box 84 (212) 858-2611 One State Street Bowling Green Station Attn: Reorganization Dept. New York, New York 10004 New York, New York Attn: Reorganization Dept. 10274-0084 Securities Processing Window Attn: Reorganization Dept. SC-1 CONFIRM RECEIPT OF FACSIMILE BY TELEPHONE: (212) 858-2103
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to MGZ Corp., a Delaware corporation and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal (which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares and Rights specified below pursuant to the guaranteed delivery procedures described in Section 3 of the Offer to Purchase. - ------------------------------------------- Number of Shares: __________________________________________________________ Number of Rights: __________________________________________________________ Certificate Nos. (if available): __________________________________________________________ ____________________________________________________________________________ Name(s) of Record Holder(s): __________________________________________________________ Please Type or Print Address: ___________________________________________________________________ ____________________________________________________________________________ Zip Code Area Code and Tel. No.: ________________________________________________________________ - ------------------------------------------- - ------------------------------------------- -------------------------------- If Shares and/or Rights will be delivered by book-entry transfer, provide the following information: Account Number: ____________________________________________________________ Date: ______________________________________________________________________ Signature(s): ______________________________________________________________ ______________________________________ GUARANTEE (NOT TO BE USED FOR A SIGNATURE GUARANTEE) The undersigned, a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"), guarantees the delivery to the Depositary of the Shares and/or Rights tendered hereby, in proper form of transfer, or a Book-Entry Confirmation (as defined in the Offer to Purchase), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents (a) in the case of Shares, within three Nasdaq National Market trading days of the date hereof and (b) in the case of Rights, within a period ending on the later of (i) three Nasdaq National Market trading days after the date hereof and (ii) three Nasdaq National Market trading days after the date certificates for Rights are distributed to stockholders. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates representing Shares and/or Rights to the Depositary within the time period set forth herein. Failure to do so could result in a financial loss to such Eligible Institution. - ------------------------------------------- Name of Firm: ________________________________________________________________ Address: _____________________________________________________________________ _____________________________________________________________________________ Zip Code Area Code and Tel. No.: __________________________________________________________________ - ------------------------------------------- -------------------------------- -------------------------------- ______________________________________________________________________________ Authorized Signature Name: ________________________________________________________________________ Please Print Title: _______________________________________________________________________ Date: ________________________________________________________________________ NOTE: DO NOT SEND CERTIFICATES FOR SHARES OR RIGHTS WITH THIS FORM. CERTIFICATES FOR SHARES OR RIGHTS SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.(A)(4) 5 BROKER/DEALER LETTER SALOMON SMITH BARNEY SEVEN WORLD TRADE CENTER NEW YORK, NEW YORK 10048 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. AT $12.125 NET PER SHARE BY MGZ CORP. A WHOLLY OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, SEPTEMBER 9, 1998 UNLESS THE OFFER IS EXTENDED. August 12, 1998 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by MGZ Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Parent"), to act as Dealer Manager in connection with Purchaser's offer to purchase all outstanding shares of common stock, par value $.001 per share (the "Shares"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement between the Company and The First National Bank of Boston, dated January 10, 1996 (the "Rights"), at a purchase price of $12.125 per Share (and associated Right), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 12, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer") enclosed herewith. UNLESS THE RIGHTS CONDITION (AS DEFINED IN THE OFFER TO PURCHASE) IS SATISFIED, STOCKHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT FOR EACH SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION 3 OF THE OFFER TO PURCHASE. UNLESS THE DISTRIBUTION DATE (AS DEFINED IN THE OFFER TO PURCHASE) OCCURS, A TENDER OF SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which, together with the Shares owned by Parent and its subsidiaries, including Purchaser, would represent a majority of the outstanding Shares on a fully diluted basis on the date of purchase, (ii) the Rights having been redeemed by the Board of Directors of the Company, or Purchaser being satisfied, in its sole discretion, that the Rights have been invalidated or are otherwise inapplicable to the Offer and the Proposed Merger (as defined in the Offer to Purchase), (iii) Purchaser being satisfied, in its sole discretion, that, after consummation of the Offer, the provisions of Section 203 of the Delaware General Corporation Law would not prohibit for any period of time, or impose any voting requirement in excess of majority stockholder approval with respect to, the Proposed Merger or other business combination with Purchaser or any affiliate of Purchaser and (iv) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Offer is also subject to other terms and conditions. This Offer is not conditioned on Purchaser obtaining financing. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated August 12, 1998. 2. The Letter of Transmittal to tender Shares and Rights for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal (with manual signatures) may be used to tender Shares (and associated Rights). 3. The Notice of Guaranteed Delivery to be used to tender Shares and Rights pursuant to the Offer if none of the procedures for tendering Shares and Rights set forth in the Offer to Purchase can be completed on a timely basis. 4. A printed form of letter which may be sent to your clients for whose accounts you hold Shares (and associated Rights) registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer. 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 6. A return envelope addressed to IBJ Schroder Bank & Trust Company, as Depositary (the "Depositary"). YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, SEPTEMBER 9, 1998 UNLESS THE OFFER IS EXTENDED. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and pay for all Shares which are validly tendered and not properly withdrawn on or prior to the Expiration Date (as defined in the Offer to Purchase). In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal (or a manually signed facsimile thereof) and any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other required documents should be sent to the Depositary and (ii) certificates representing the tendered Shares (the "Share Certificates") and, if the Rights are at such time separately traded, certificates (the "Rights Certificates") representing that number of Rights equal to the number of Shares being tendered, or a timely Book-Entry Confirmation should be delivered to the Depositary in accordance with the instructions set forth in the Offer to Purchase and the Letter of Transmittal. Holders of Shares whose Share Certificates (and/or, if applicable, Rights Certificates) are not immediately available or who cannot deliver their Share Certificates (and/or, if applicable, Rights Certificates) and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date must tender their Shares and/or Rights according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Dealer Manager and the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares and Rights pursuant to the Offer. Purchaser will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable on the transfer of Shares and Rights to it, except as otherwise provided in Instruction 6 to the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Salomon Smith Barney or MacKenzie Partners, Inc. (the "Information Agent"), at their respective addresses and telephone numbers set forth on the back cover page of the Offer to Purchase. Requests for additional copies of the enclosed materials may be directed to the Information Agent at the address and telephone number set forth on the back cover page of the Offer to Purchase. Very truly yours, Salomon Smith Barney NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PURCHASER, THE DEPOSITARY, THE INFORMATION AGENT, THE DEALER MANAGER OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.(A)(5) 6 CLIENT LETTER OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. AT $12.125 NET PER SHARE BY MGZ CORP. A WHOLLY OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, SEPTEMBER 9, 1998 UNLESS THE OFFER IS EXTENDED. August 12, 1998 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated August 12, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer") relating to an offer by MGZ Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Parent"), to purchase all outstanding shares of common stock, par value $.001 per share (the "Shares"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement between the Company and The First National Bank of Boston, dated January 10, 1996 (the "Rights"), at a purchase price of $12.125 per Share (and associated Right), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. UNLESS THE RIGHTS CONDITION (AS DEFINED IN THE OFFER TO PURCHASE) IS SATISFIED, STOCKHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT FOR EACH SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION 3 OF THE OFFER TO PURCHASE. UNLESS THE DISTRIBUTION DATE (AS DEFINED IN THE OFFER TO PURCHASE) OCCURS, A TENDER OF SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS. WE ARE THE HOLDER OF RECORD OF SHARES AND RIGHTS HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES AND RIGHTS CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES OR RIGHTS HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to tender any or all of the Shares and Rights held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase. Please note the following: 1. The tender price is $12.125 per Share, including the associated Right, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions of the Offer. 2. The Offer is being made for all of the outstanding Shares and Rights. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Wednesday, September 9, 1998 unless the Offer is extended. 4. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which, together with the Shares owned by Parent and its subsidiaries, including Purchaser, would represent a majority of the outstanding Shares on a fully diluted basis on the date of purchase, (ii) the Rights having been redeemed by the Board of Directors of the Company, or Purchaser being satisfied, in its sole discretion, that the Rights have been invalidated or are otherwise inapplicable to the Offer and the Proposed Merger (as defined in the Offer to Purchase), (iii) Purchaser being satisfied, in its sole discretion, that, after consummation of the Offer, the provisions of Section 203 of the Delaware General Corporation Law would not prohibit for any period of time, or impose any voting requirement in excess of majority stockholder approval with respect to, the Proposed Merger or other business combination with Purchaser or any affiliate of Purchaser and (iv) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Offer is also subject to other terms and conditions. The Offer is not conditioned on Purchaser obtaining financing. 5. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, stock transfer taxes on the transfer of Shares and Rights pursuant to the Offer. If you wish to have us tender any or all of the Shares and Rights held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope to return your instruction to us is enclosed. If you authorize tender of your Shares and Rights, all such Shares and Rights will be tendered unless otherwise indicated in such instruction form. PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER YOUR SHARES AND RIGHTS ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is made solely pursuant to the Offer to Purchase and the related Letter of Transmittal and any supplements or amendments thereto. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares and Rights pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares and Rights in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by the Dealer Manager (as defined in the Offer to Purchase) or one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated August 12, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with the Offer to Purchase, as each may be amended and supplemented from time to time, constitute the "Offer") in connection with the offer by MGZ Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Parent"), to purchase all outstanding shares of common stock, par value $.001 per share (the "Shares"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), and the associated preferred stock purchase rights (the "Rights"). This will instruct you to tender to Purchaser the number of Shares and Rights indicated below (or if no number is indicated below, all Shares and Rights) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase. Number of Shares to be Tendered: SIGN HERE Shares* Number of Rights to be Tendered: Signature(s) Rights* Dated: , 1998 Print Name(s) Print Address(es) Taxpayer Identification or Social Security Number(s) Area Code and Telephone Number(s)
- ------------------------ * UNLESS THE RIGHTS CONDITION (AS DEFINED IN THE OFFER TO PURCHASE) IS SATISFIED, STOCKHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT FOR EACH SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION 3 OF THE OFFER TO PURCHASE. UNLESS THE DISTRIBUTION DATE (AS DEFINED IN THE OFFER TO PURCHASE) OCCURS, A TENDER OF SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS. UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES AND RIGHTS HELD BY US FOR YOUR ACCOUNT ARE TO BE TENDERED. EX-99.(A)(6) 7 W-9 TAX GUIDELINES GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security Numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the type of number to give the payer.
GIVE THE GIVE THE EMPLOYER FOR THIS TYPE OF SOCIAL SECURITY FOR THIS TYPE OF IDENTIFICATION ACCOUNT: NUMBER OF -- ACCOUNT: NUMBER OF -- - --------------------------------- ------------------------ --------------------------------- ------------------------ 1. An individual's account The individual 8. Sole proprietorship account The owner (4) 2. Two or more individuals (joint The actual owner of the 9. A valid trust, estate or The legal entity (Do not account) account or, if combined pension trust furnish the identifying funds, any one of the number of the personal individuals (1) representative or trustee unless the legal entity itself is not designated in the account title) (5) 3. Husband and wife (joint The actual owner of the 10. Corporate account The corporation account) account or, if joint funds, either person (1) 4. Custodian account of a minor The minor(2) 11. Religious, charitable, or The organization (Uniform Gift to Minors Act) educational organization account 5. Adult and minor (joint The adult or, if the 12. Partnership account held in The partnership account) minor is the only the name of the business contributor, the minor (1) 6. Account in the name of The ward, minor, or 13. Association, club, or other The organization guardian or committee for a incompetent person (3) tax- exempt organization designated ward, minor, or incompetent person 7. a. The usual revocable saving The grantor-trustee (1) 14. A broker or registered The broker or nominee trust account (grantor is nominee also trustee) b. So-called trust account that The actual owner (1) 15. Account with the Department The public entity is not a legal or valid of Agriculture in the name of a trust under State law public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ------------------------ (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) You must show your individual name, but you may also enter your business or "doing business" name. You may use either your Social Security Number or Employer Identification Number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or if you do not know your number, obtain Form SS-5, Application for Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. Payees specifically exempted from backup withholding on ALL payments by brokers include the following: - A corporation. - A financial institution. - An organization exempt from a tax under Section 501(a), or an individual retirement plan or a custodial account under Section 403(b)(7) if the account satisfies the requirements of Section 401(F)(2). - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under Section 584(a). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. - A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - Payments described in Section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under Section 1451. - Payments made by certain foreign corporations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Section 6041, 6041(A)(a), 6045, and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 PRESS RELEASE Exhibit 99(a)(7) MENTOR GRAPHICS ANNOUNCES $12.125 PER SHARE ALL-CASH TENDER OFFER FOR QUICKTURN WILSONVILLE, Ore., August 12, 1998 -- Mentor Graphics Corporation (Nasdaq: MENT) today announced a cash tender offer for all shares of Quickturn Design Systems, Inc. (Nasdaq: QKTN) at a price of $12.125 per share. The all-cash offer, which was unanimously approved by the Mentor Graphics Board of Directors and which commences today, represents a premium of 51.6 percent over Quickturn's closing price of $8.00 per share on Tuesday, August 11, 1998. Mentor Graphics and Quickturn provide electronic design automation (EDA) tools that help engineers create better electronic products, such as cellular phones, personal computers and networking equipment. The tender offer is scheduled to expire at 12:00 midnight, New York City time, on September 9, 1998, unless extended. Mentor Graphics has the necessary financing in hand to consummate the acquisition and its offer to acquire Quickturn is therefore not subject to any financing condition. Reflecting its commitment to the acquisition of Quickturn, Mentor Graphics has already acquired more than three percent of Quickturn's common stock. Based on Quickturn's 17,809,342 shares outstanding at April 30, 1998, the transaction is valued at $216 million. Mentor Graphics expects the transaction to increase earnings per share beginning in the third quarter after closing, following a six-month transition period to integrate the businesses and to realize synergies. In the year 2000, assuming consummation of the transaction in the fourth quarter of 1998, Mentor Graphics expects to achieve, in addition to enhanced revenue growth, approximately $30 million of cost savings in that year resulting from elimination of duplicative selling, general and administrative, research and development, and litigation expenses and from the realization of manufacturing efficiencies. The preceding statements in this paragraph are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (see below). (more) 2 Mentor Graphics President and CEO Dr. Walden C. Rhines said: "The strengths of Mentor Graphics and of Quickturn are highly complementary. Mentor Graphics, the third-largest electronic design automation company with 1997 revenues of $455 million, focuses primarily on the software side of EDA. The company's core competency is in system verification and IP reuse. We have long-term strategic relationships with leading semiconductor and systems companies. "Quickturn, with 1997 revenues of $110 million, is the market leader in system-level hardware emulation solutions for the design of integrated circuits and electronic systems. The company has been successful in marketing to major semiconductor companies in the United States and Japan, and in creating a state-of-the-art manufacturing infrastructure. "We believe that, together, our comprehensive range of verification solutions, our sales and support channels, and the dedicated employees of both companies will enable us to help semiconductor and systems customers around the world create better electronic products faster, more cost-effectively, and with higher quality and reliability, for greater competitive advantage. "Mentor Graphics and Quickturn have each sued the other for patent infringement. We believe that the acquisition could eliminate these protracted, costly and distracting legal issues," Dr. Rhines said. To facilitate the offer, Mentor Graphics is filing today with the Securities and Exchange Commission preliminary agent designation solicitation materials to call a special meeting of Quickturn's stockholders to replace Quickturn's Board of Directors with Mentor Graphics' nominees. The record holders of 10 percent of Quickturn's outstanding shares have the power to call such a special meeting. Mentor Graphics expects to mail agent designation solicitation materials to the Quickturn stockholders in due course. (more) 3 Mentor Graphics said that it is also commencing litigation in the Delaware Chancery Court and the United States District Court in Delaware to ensure that Quickturn stockholders will have the opportunity to receive the benefits of Mentor Graphics' offer. The tender offer is subject to terms and conditions including a majority of outstanding Quickturn shares being validly tendered and not withdrawn; redemption or removal of Quickturn's shareholder rights plan; the inapplicability of the Delaware business combination statute; and the expiration or termination of the Hart-Scott-Rodino waiting period. The Offer to Purchase and ancillary documents will be available on a Mentor Graphics World Wide Web site at http://www.mentorg.com/file. This news release does not constitute an offer to purchase any securities, nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the Quickturn stockholders. The tender offer and the agent designation solicitation will be made only pursuant to separate materials in compliance with the requirements of applicable federal and state law. Mentor Graphics' financial advisor with regard to the transaction is Salomon Smith Barney. Mentor Graphics has retained MacKenzie Partners, Inc. as Information Agent for the Offer and as solicitor for the agent designation solicitation. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements contained in this press release, including, without limitation, statements containing the words "believes," "expects," and words of similar import, constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual (more) 4 results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: (i) consummation of the acquisition of Quickturn by Mentor Graphics; (ii) the successful integration of Quickturn into Mentor Graphics' operations within six months after consummation of the acquisition; (iii) for high-performance applications, the market acceptance and manufacturing ramp-up of Mentor Graphics' Celaro architecture for emulation; (iv) for mid-range performance, the successful completion of Quickturn's Mercury beta trials and its product launch; (v) the economic condition of the electronics industry in Asia, particularly in Japan; (vi) the amount and timing of the charge-off of intangible assets associated with the acquisition of Quickturn; (vii) the retention of key employees within the sales, service and manufacturing organizations as well as certain engineering teams of Quickturn; (viii) satisfactory resolution of pending patent litigation; and (ix) Mentor Graphics' ability to operate successfully within a more leveraged capital structure. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. Contacts: Anne M. Wagner Vice President, Marketing 503-685-1462 Gregory K. Hinckley COO and CFO 503-685-4833 Dennis Weldon Treasurer 503-685-1462 Roy Winnick Kekst and Company 212-521-4842 EX-99.(A)(8) 9 SUMMARY ADVERTISEMENT Exhibit 99(a)(8) THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SHARES. THE OFFER IS MADE SOLELY BY THE OFFER TO PURCHASE DATED AUGUST 12, 1998 AND THE RELATED LETTER OF TRANSMITTAL AND ANY AMENDMENTS OR SUPPLEMENTS THERETO, AND IS BEING MADE TO ALL HOLDERS OF SHARES. PURCHASER IS NOT AWARE OF ANY STATE WHERE THE MAKING OF THE OFFER IS PROHIBITED BY ADMINISTRATIVE OR JUDICIAL ACTION PURSUANT TO ANY VALID STATE STATUTE. IF PURCHASER BECOMES AWARE OF ANY VALID STATE STATUTE PROHIBITING THE MAKING OF THE OFFER OR THE ACCEPTANCE OF SHARES PURSUANT THERETO, PURCHASER WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH STATE STATUTE. IF, AFTER SUCH GOOD FAITH EFFORT, PURCHASER CANNOT COMPLY WITH SUCH STATE STATUTE, THE OFFER WILL NOT BE MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) THE HOLDERS OF SHARES IN SUCH STATE. IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF PURCHASER BY SALOMON SMITH BARNEY OR ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF QUICKTURN DESIGN SYSTEMS, INC. AT $12.125 NET PER SHARE IN CASH BY MGZ CORP. A WHOLLY OWNED SUBSIDIARY OF MENTOR GRAPHICS CORPORATION MGZ Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Mentor Graphics Corporation, an Oregon corporation ("Parent"), is offering to purchase all outstanding shares of common stock, par value $.001 per share ("Common Stock"), of Quickturn Design Systems, Inc., a Delaware corporation (the "Company"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement between the Company and the First National Bank of Boston, dated January 10, 1996 (the "Rights" and, together with the Common Stock, the "Shares"), at a price of $12.125 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 12, 1998 (the "Offer to Purchase") and in the related Letter of Transmittal (which, as amended and supplemented from time to time, together constitute the "Offer"). All capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Offer to Purchase. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON SEPTEMBER 9, 1998, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which, together with the Shares owned by Parent and its subsidiaries, including Purchaser, would represent a majority of the outstanding Shares on a fully diluted basis on the date of purchase, (ii) the Rights having been redeemed by the Board of Directors of the Company or Purchaser being satisfied, in its sole discretion, that the Rights have been invalidated or are otherwise inapplicable to the Offer and the Proposed Merger (as defined below), (iii) Purchaser being satisfied, in its sole discretion, that, after consummation of the Offer, the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL") would not prohibit for any period of time, or impose any voting requirement in excess of majority stockholder approval with respect to, the Proposed Merger or other business combination with Purchaser or any affiliate of Purchaser and (iv) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Offer is also subject to other terms and conditions. The Offer is not conditioned on Purchaser obtaining financing. The purpose of the Offer and the Proposed Merger is to acquire control of, and ultimately the entire equity interest in, the Company. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all outstanding Shares. Parent intends, as soon as practicable following consummation of the Offer, to propose and seek to have the Company consummate a merger or similar business combination with Purchaser or another direct or indirect subsidiary of Parent (the "Proposed Merger"). The purpose of the Proposed Merger is to acquire all Shares not tendered and purchased pursuant to the Offer or otherwise. At the effective time of the Proposed Merger, it is anticipated that each then outstanding Share (other than Shares owned by Parent and its subsidiaries, including Purchaser, Shares held in the treasury of the Company and Shares held by stockholders of the Company who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights under the DGCL) would be converted into the right to receive an amount in cash equal to the Offer Price. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to IBJ Schroder Bank & Trust Company (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for all tendering stockholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest be paid on the purchase price for the Shares, regardless of any delay in making such payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares and, if the Rights are at such time separately traded, certificates representing the Rights, or timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Shares and, if applicable, Rights, into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer and (iii) any other documents required under the Letter of Transmittal. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to 12:00 Midnight, New York City time, on September 9, 1998 (or the latest time and date at which the Offer, if extended by Purchaser, shall expire) and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after October 10, 1998. For the withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and must otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the form and validity (including the time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. A request is being made to the Company for use of its stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance or for copies of the Offer to Purchase and the related Letter of Transmittal, and other Offer materials, may be directed to the Information Agent or the Dealer Manager as set forth below, and copies will be furnished promptly at Purchaser's expense. In addition, Purchaser is establishing an Internet site on the World Wide Web at http://www.mentorg.com/file that will contain the Offer to Purchase, the related Letter of Transmittal and other materials and information regarding the Offer. No fees or commissions will be paid to brokers, dealers or other persons (other than the Dealer Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [MACKENZIE PARTNERS LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or CALL TOLL-FREE (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: SALOMON SMITH BARNEY Seven World Trade Center New York, New York 10048 Salomon Smith Barney is a service mark of Smith Barney Inc. Salomon Brothers Inc and Smith Barney Inc. are affiliated but separately registered broker/dealers under common control of Salomon Smith Barney Holdings Inc. Salomon Brothers Inc and Salomon Smith Barney Holdings Inc. have been licensed to use the Salomon Smith Barney service mark. August 12, 1998 EX-99.(B) 10 COMMITMENT LETTER August 11, 1998 CONFIDENTIAL Mr. Gregory K. Hinckley Executive Vice President and COO/CFO Mentor Graphics Corporation 8005 S.W. Boeckman Road Wilsonville, Oregon 97070 Dear Mr. Hinckley: Bank of America National Trust and Savings Association ("Bank of America") is pleased to advise you that, subject to the terms and conditions contained in this letter and in the attached Summary of Terms and Conditions (the "Term Sheet"), it commits to lend to Mentor Graphics Corporation (the "Borrower") up to $200,000,000 pursuant to a revolving credit facility (the "Credit Facility"), and to serve as administrative agent ("Administrative Agent") for the Credit Facility. BancAmerica Robertson Stephens (or its successor within the BankAmerica Corporation organization, "BARS") is pleased to advise you that it is willing to arrange and syndicate the Credit Facility as the lead arranger (the "Lead Arranger"), to a syndicate of lenders (together with Bank of America, the "Lenders"). BARS is a wholly-owned, direct subsidiary of BankAmerica Corporation, the parent company of Bank of America, and is a registered broker-dealer. Please refer to the attached "Disclosure Statement" for important additional information on this relationship. The fees payable in connection with the Credit Facility are set forth in a separate letter of even date herewith (the "Fee Letter"). It is agreed that Bank of America will act as the sole and exclusive administrative agent for the Credit Facility, and that BARS will act as the sole and exclusive lead arranger for the Credit Facility. You agree that no other agents, co-agents or arrangers will be appointed, no other titles will be awarded and no compensation (other than that expressly contemplated by the Term Sheet and the Fee Letter) will be paid in connection with the Credit Facility unless you and we shall so agree. You hereby authorize the Lead Arranger to commence syndication efforts immediately after this commitment is made public and agree actively to assist the Lead Arranger in achieving a syndication that is satisfactory to Bank of America and the Borrower. To assist BARS in its syndication efforts, (i) you agree to promptly prepare and provide to BARS all information which we may reasonably request, including all financial information and projections, (ii) Mentor Graphics August 11, 1998 Page 2 you understand that in arranging and syndicating the Credit Facility, the Lead Arranger may use and rely upon the information and projections without independent verification thereof, (iii) you agree to use commercially reasonable efforts to ensure that the syndications efforts benefit materially from your existing lending relationships, (iv) you agree to host with the Lead Arranger one or more meetings with prospective Lenders and you agree to make senior management available for these meetings, and (v) you agree to assist in the preparation of a Confidential Information Memorandum and other marketing materials to be used in connection with the syndication. The Borrower represents to the best of its knowledge that the information and disclosures (other than projections and pro forma financial information) made by the Borrower to BARS or Bank of America in writing in discharging its agreements hereunder (as supplemented through the closing date of the Credit Facility) will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein, in light of the circumstances in which they were made and all information and disclosures so provided, not false or misleading. The Borrower further represents to the best of its knowledge that all projections and pro forma financial information provided by the Borrower to BARS or Bank of America in writing in discharging its agreements hereunder will be based on good faith assumptions and estimates that the Borrower believes reasonable at the time made in light of the circumstances when made. The Lead Arranger will manage all aspects of the syndication and reserve the right in consultation with the Borrower to allocate the commitments of the Lenders. In addition to the conditions to closing set forth in the Term Sheet, Bank of America's commitment to close and the Lead Arranger's agreement to syndicate loans is subject to, among other conditions, (i) the execution of a definitive credit agreement (the form of which has been delivered under separate cover as of the date hereof) and the negotiation and execution of other related documentation reasonably satisfactory to the Administrative Agent and Lead Arranger, (ii) there being no material adverse change in the reasonable opinion of the Administrative Agent and Lead Arranger in the financial condition or business of the Borrower or the Borrower and its consolidated subsidiaries since the date hereof, (iii) the non-occurrence of any material adverse change after the date hereof in loan syndication or capital market conditions after the date of this letter, generally, which in the reasonable opinion of the Lead Arranger would materially adversely affect our syndication efforts in respect of any portion of the Credit Facility to be syndicated, and (iv) until the earlier of November 30, 1998, or notification by BARS of the completion of the syndication of the Credit Facility, there being no competing offering, placement, or arrangement of any debt securities or bank financing by or on behalf of the Borrower or any of its affiliates. Whether or not the transactions contemplated hereby are consummated, the Borrower hereby agrees to indemnify and hold harmless Bank of America and BARS, and their respective directors, officers, employees and affiliates (each, an "indemnified person") from and against any and all losses, claims, damages, liabilities (or actions or other proceedings commenced or threatened in respect thereof) and expenses that arise out of, result from or in any way relate to this commitment letter, the providing or syndication of the Credit Facility, the use of the proceeds thereof or the contemplated tender offer, and to reimburse each indemnified person, Mentor Graphics August 11, 1998 Page 3 upon its demand, for any legal or other expenses (including the allocated cost of in-house counsel) incurred in connection with investigating, defending or participating in any such loss, claim, damage, liability or action or other proceeding (whether or not such indemnified person is a party to any action or proceeding out of which any such expenses arise), other than any of the foregoing claimed by any indemnified person to the extent incurred (i) by reason of the bad faith, gross negligence or willful misconduct of such person, (ii) as a result of litigation or claims by any indemnified person against another indemnified person in connection with the Credit Facility or relating to the transactions contemplated thereby and (iii) except as otherwise provided under applicable law, as a result of litigation or claims by the Borrower against such indemnified person. Neither Bank of America nor BARS, nor any of their affiliates, shall be responsible or liable to the Borrower or any other person for any consequential damages which may be alleged, except to the extent found by a final decision of a court of competent jurisdiction to have resulted from the bad faith, willful misconduct or gross negligence of Bank of America, BARS or any such affiliate. The obligations contained in this paragraph will survive the closing of the Credit Facility. In addition, the Borrower hereby agrees to reimburse Bank of America and BARS from time to time upon demand for their reasonable out-of-pocket costs and expenses (including the allocated cost of in-house counsel) incurred by Bank of America or the Lead Arranger in connection with the syndication of the Credit Facility and the negotiation and preparation of documents for the Credit Facility, regardless of whether the credit agreement is executed or the Credit Facility closes. The terms contained in this letter, the Term Sheet and the Fee Letter are confidential and, except for disclosure to your board of directors, officers and employees, to professional advisors retained by either party in connection with this transaction, or as may be required by law, may not be disclosed in whole or in part to any other person or entity without the prior written consent of the other party; provided, however, that you may freely disclose this letter (but not the Fee Letter) and the terms and substance hereof at any time following (i) your signed acceptance hereof and (ii) the payment of the fees set forth in the Fee Letter to be paid upon the Company's acceptance of this letter and the public disclosure of the commitment hereunder; and provided further that Bank of America may disclose in connection with the syndication as provided herein. Notwithstanding any such disclosure to any other person or entity, this letter sets forth the understanding among the parties hereto and may not be relied upon by any other person or entity (other than the indemnified persons). Upon your delivery to us of a signed copy of this letter and the Fee Letter, this letter agreement, and the Fee Letter, shall become binding agreements as of the date so accepted. Bank of America's commitment hereunder shall remain in effect until 7:00 p.m. Pacific Daylight time, on August 11, 1998, when, if not so accepted, Bank of America's commitment hereunder will terminate. This commitment will expire on November 6, 1998, if the definitive documentation in respect of the Credit Facility has not been executed by the parties thereto on or before that date. This letter agreement, the attached Term Sheet and the Fee Letter supersede all prior or Mentor Graphics August 11, 1998 Page 4 contemporaneous agreements and understandings of the parties hereto, oral or written, relating to the subject matter hereof. We are pleased to have the opportunity to work with you on this important financing. Very truly yours, BANK OF AMERICA NATIONAL TRUST AND BANCAMERICA ROBERTSON STEPHENS SAVINGS ASSOCIATION By: /s/ Kevin McMahon By: /s/ Katharine J. Pattison --------------------------------- --------------------------------- Kevin McMahon Katharine J. Pattison Managing Director Managing Director ACCEPTED AND AGREED TO: this 11 day of August, 1998 MENTOR GRAPHICS CORPORATION By: /s/ Gregory K. Hinckley --------------------------------- Title: Executive Vice President ------------------------------ BANCAMERICA ROBERTSON STEPHENS DISCLOSURE STATEMENT BancAmerica Robertson Stephens ("BARS") is a wholly-owned, direct subsidiary of BankAmerica Corporation, the parent company of Bank of America National Trust and Savings Association ("Bank of America"). BARS is a broker-dealer registered with the Securities and Exchange Commission, and is a member of the New York Stock Exchange, National Association of Securities Dealers, Inc. and the Securities Investor Protection Corporation. BARS is not a bank. The securities and financial instruments sold, offered or recommended by BARS are not bank deposits, are not guaranteed by, and are not otherwise obligations of, any bank, thrift or other subsidiary of BankAmerica Corporation, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. From time to time, Bank of America's affiliates may lend to one or more issuers whose securities are underwritten, dealt in, or placed by BARS. You are referred to the relevant prospectus, offering statement or other disclosure document for material information relating to any such lending relationship, and whether the proceeds of an issue will be used to repay any such loans. Furthermore, the obligations of BARS are not those of any affiliated bank or thrift, and no such affiliated bank or thrift is responsible for securities underwritten, dealt in, or placed by BARS. In order for Bank of America and its affiliates to better serve you, they intend to share credit and other information about you with each other and with BARS. BARS also may share credit and other information regarding you with Bank of America and its affiliates. Such sharing of information shall, however, be limited to such information as shall be necessary to permit Bank of America and BARS to syndicate the Credit Facility described in the Commitment Letter to which this "Disclosure Statement" is attached. BARS also may participate from time to time in a primary or secondary distribution of securities offered or sold to you by it. Further, BARS may act as an investment adviser to issuers whose securities may be offered or sold to you by it. Mentor Graphics Confidential MENTOR GRAPHICS CORPORATION Summary of Terms and Conditions $200,000,000 Revolving Credit Facility August 11, 1998 - -------------------------------------------------------------------------------- Borrower: Mentor Graphics Corporation ("Mentor" or the "Company"). Administrative Agent: Bank of America National Trust and Savings Association ("Bank of America" or in such capacity, the "Agent"). Lead Arranger: BancAmerica Robertson Stephens ("BARS"). Lenders: Bank of America will initially underwrite the Facility and BARS will use its best efforts to syndicate the Facility to financial institutions acceptable to the Company, BARS and Bank of America. All lenders participating directly in the Facility, including Bank of America, will be collectively referred to as the "Lenders" or individually as a "Lender". Facility: A three year $200,000,000 unsecured reducing revolving credit facility (the "Facility"), with a $25,000,000 swingline subfacility for borrowings under the Facility for up to seven days in duration. Purpose: To be used by the Borrower to (i) purchase the stock of a target corporation ("Target"), (ii) support ongoing working capital, capital expenditures and general corporate purposes of the Borrower and (iii) pay fees and expenses of the stock purchase transaction in connection with the acquisition of Target. Reduction Schedule: The Facility will reduce by $25 million to $175 million upon the first day of the fiscal quarter following the fiscal quarter in which the first anniversary of the initial funding of the Facility occurs, and reduce an additional $25 million to $150 million upon the first day of the fiscal quarter following the fiscal quarter in which the second anniversary of the initial funding of the Facility occurs. Maturity: The residual amount of the Facility will terminate and all outstanding amounts will become due three years from the closing date of the Facility. August 11, 1998 1 BancAmerica Robertson Stephens Mentor Graphics Confidential Interest Rates and Commitment Fees: Interest rates and commitment fees will be determined by the Borrower's Leverage ratio as follows: LIBOR Base Rate Commitment Leverage Margin Margin Fee -------- ------ ------ --- 1. x > = 3.50 2.500 1.250 0.500 2. 3.00 < = x < 3.50 2.250 1.000 0.500 3. 2.50 < = x < 3.00 2.000 0.750 0.375 4. 2.00 < = x < 2.50 1.750 0.500 0.375 5. 1.50 < = x < 2.00 1.500 0.250 0.375 6. 1.00 < = x < 1.50 1.250 0.000 0.350 7. x < 1.00 1.000 0.000 0.325 Pricing will be locked in at level 1 from initial funding through the first reporting period after the consummation of the Acquisition of Target. Notwithstanding the foregoing, to the extent that the Borrower has not reduced the aggregate Commitment as set forth above by at least $25,000,000 by the first day following the first anniversary of the initial funding or by an additional $25,000,000 by the first day following the second anniversary of the initial funding then, in each case, the Applicable Margin shall be increased by 0.25 until such reduction shall have occurred. Leverage shall be defined as the ratio of Borrower's Total Funded Debt to Adjusted EBITDA. Representations/ Warranties: The representations and warranties contained in the Credit Agreement (as defined below), including but not limited to: corporate existence; corporate authorization; enforceability; no Default or Event of Default; no material adverse change since the Company's most recent fiscal quarter end; non-violation of agreements; financial condition; assets free of all but permitted liens; environmental matters; compliance with laws, including ERISA; no material litigation; payment of taxes and filing of returns; necessary government permits; and full disclosure. Conditions Precedent to Closing: Conditions precedent to the closing of the Facility (the "Closing") shall be the following: 1. Execution and delivery of a credit agreement (in the form delivered herewith under separate cover (the "Credit Agreement")), and negotiation, execution and delivery of opinions of counsel and supporting documentation reasonably satisfactory to the Agent, the Lead Arranger and the Borrower; August 11, 1998 2 BancAmerica Robertson Stephens Mentor Graphics Confidential 2. Representations/warranties true and correct in all material respects; 3. Payment of fees and expenses required to be paid by the Closing, to the extent invoiced; 4. No material adverse change since the date of the Commitment Letter; 5. Terms of the tender offer in respect of the proposed acquisition of Target and the documentation relating thereto shall be reasonably satisfactory to the Agent and the Lead Arranger in all material respects. Conditions Precedent to Initial Funding: Cancellation of existing credit facilities; not less than a majority of the shares of common stock of the Target have been tendered to the Company pursuant to the tender offer and there are no legal prohibitions to a merger between the Company (or a subsidiary of the Company) and the Target (with the Company being the surviving corporation to the extent the Company is merged with Target); all material terms and conditions of tender offer otherwise satisfied; no material change in the terms and conditions of the tender offer without the written consent of the Agent; all governmental and third party approvals necessary in connection with the acquisition of Target shall have been obtained and be in full force and effect and all applicable waiting periods shall have expired without notice of any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose material adverse conditions on the acquisition of Target. Conditions Precedent to All Fundings: Customary for a facility of this type and contained in the Credit Agreement, including but not limited to: absence of any Event of Default; representations and warranties true and correct in all material respects; no material adverse change since the date of the Closing. Covenants: Covenants contained in the Credit Agreement, including but not limited to: preservation of corporate existence and franchises; maintenance of equipment, real estate, and other property; maintenance of insurance, permits, patents, etc.; payment of all material obligations when due and not contested in good faith; payment of all taxes, assessments, and charges or levies imposed; compliance with laws (including environmental-related and ERISA); use of proceeds; restrictions on transactions with affiliates; engaging in same line of business; and the covenants and restrictions hereinafter noted. August 11, 1998 3 BancAmerica Robertson Stephens Mentor Graphics Confidential Financial Covenants: The Company shall comply, determined in accordance with generally accepted accounting principles on a consolidated basis, with the following financial covenants measured as of the end of each fiscal quarter: 1. Minimum Quick Ratio. Minimum of 0.50 to 1.00 through the two fiscal quarter ends immediately following the initial funding or, should the initial funding take place during the last 30 days of a fiscal quarter, for that fiscal quarter through the two fiscal quarter ends thereafter but in no event later than September 30, 1999, increasing to 0.60 to 1.00 through the remainder of fiscal year-end 1999, 0.70 to 1.00 from the fiscal quarter ending March 31, 2000 through the fiscal quarter ending September 30, 2000, and 0.90 for the fiscal quarter ending December 31, 2000 and thereafter. Defined as the ratio of quick assets (including cash, cash equivalents and accounts receivable) to adjusted total current liabilities (including bank revolving facility outstandings). In the event that the Company receives net cash proceeds of other Funded Debt of (i) $50,000,000 or more in the aggregate, the above ratios shall each increase by 0.10, and (ii) $75,000,000 or more in the aggregate, the above ratios shall each increase by 0.20. 2. Minimum Tangible Net Worth. Tangible net worth as of June 30, 1998 less $17.5 million plus 75% of net income (before merger and acquisition-related expenses (relating to in-process research and development, goodwill and other intangibles associated with the acquisition) incurred in respect of the acquisition of Target or for other permitted acquisitions consummated with stock, as well as special charges of up to $8 million relating principally to the relocation of the Company's billing center in the Netherlands to Ireland taken in the third or fourth fiscal quarter of 1998) earned in each quarterly accounting period beginning with the quarter ended September 30, 1998 (to the extent such number is positive) plus 100% of any new equity the Company issues after June 30, 1998 (excluding the cost of issuance of such new equity (such cost to include normal underwriting fees and discounts), any acquisition-related write-offs (relating to in-process research and development, goodwill and other intangibles associated with the acquisition) or acquisitions financed with the issuance of stock) minus up to $215 million for write-offs resulting from the acquisition of Target minus acquisition-related write-offs (relating to in-process research and development, goodwill and other intangibles associated with the acquisition) of any permitted acquisition or acquisitions paid for in cash or cash and stock. 3. Maximum Total Funded Debt to Adjusted EBITDA. Maximum of 3.50 to 1.00 through the two fiscal quarter ends immediately following the initial funding or, should the initial funding take place during the last 30 days of a fiscal quarter, for that fiscal quarter through the two fiscal quarter ends thereafter but in no event later than September 30, 1999 (and defined for these two or three, as the case may be, fiscal quarters only as August 11, 1998 4 BancAmerica Robertson Stephens Mentor Graphics Confidential a ratio of total funded debt (excluding purchase money indebtedness and subordinated indebtedness) minus cash and cash equivalents in excess of $40 million to Adjusted EBITDA) and a maximum of 3.25 to 1.00 for the third or fourth quarter, as the case may be, immediately following the initial funding, decreasing to 2.50 to 1.00 for the fourth or fifth quarter, as the case may be, immediately following the initial funding, 2.00 to 1.00 for the fifth or sixth quarter, as the case may be, immediately following the initial funding and each fiscal quarter thereafter but in any event decreasing to 1.25 to 1.00 commencing the fiscal quarter ending December 31, 2000 and thereafter . Defined as the ratio of total funded debt (including any sale-leaseback of the Company's Wilsonville campus) to Adjusted EBITDA. Adjusted EBITDA will be measured on a rolling 4-quarter basis and will exclude the Company's fourth fiscal quarter 1997 special charges, first fiscal quarter 1998 special charges, second fiscal quarter 1998 special charges (up to $4.5 million), third and fourth fiscal quarter 1998 special charges up to $8.0 million relating principally to the relocation of the Company's billing center in the Netherlands to Ireland, as well as charges associated with the acquisition of Target up to $215 million and any acquisition related write-offs (relating to in-process research and development, goodwill, and other intangibles associated with other permitted acquisitions). Adjusted EBITDA shall be further adjusted, effective upon the initial funding under the Facility, to include the historical financial results of Target for each rolling 4-quarter period for which Adjusted EBITDA is calculated (and to the extent Target's Adjusted EBITDA is a positive amount), until such time as the first day of any such rolling 4-quarter period falls after the date on which the acquisition of Target is consummated. With the exception of the aforementioned exclusions and the additional adjustments for the historical financial results of Target, there will be no other adjustments to EBITDA. 4. Minimum Fixed Charge Coverage Ratio. Commencing with the fiscal quarter ending March 31, 2000 through the fiscal quarter ending September 30, 2000, a minimum of 3.00 to 1.00 and increasing to 5.00 to 1.00 for the fiscal quarter ending December 31, 2000 and thereafter. Defined as (a) Adjusted EBITDA minus capital expenditures divided by (b) interest expense plus the current portion of long term debt (excluding the final maturity of the Credit Facility). 5. Minimum EBITDA to Interest Ratio. Minimum of 2.75 to 1.00 through the two fiscal quarter ends immediately following the initial funding or, should the initial funding take place during the last 30 days of a fiscal quarter, for that fiscal quarter through the two fiscal quarter ends thereafter but in no event later than September 30, 1999, increasing to 4.50 to 1.00 for the third or fourth quarter, as the case may be, immediately following the initial funding and 6.00 to 1.00 for the fourth or fifth quarter, as the case may be, immediately following the initial funding and thereafter but in no event after December 31, 1999. Defined August 11, 1998 5 BancAmerica Robertson Stephens Mentor Graphics Confidential as Adjusted EBITDA to Interest Expense calculated on an annualized basis. Other Covenants: Additional covenants in the Credit Agreement which include but shall not be limited to: 1. Financial and Compliance Reporting. The Company shall submit quarterly consolidated financial statements within 50 days of each quarter end; annual consolidated and consolidating financial statements with unqualified opinion from outside auditors in respect of the consolidated financial statements within 100 days of each fiscal year end, copies of all significant reports, including Forms 8K, 10-Q and 10-K, within 10 days of filing with the SEC; quarterly compliance certificates within 50 days of each quarter end and within 100 days of year end; notices of default, material litigation and environmental enforcement actions; notices of certain changes in status of material technology licenses; and certain other information as may be reasonably requested by the Agent or the Lenders. 2. Negative Pledge and Additional Liens. The Company and its subsidiaries agree not to hypothecate assets and not to incur other liens, subject to permitted lien exceptions contained in the Credit Agreement (including an appropriate exception for stock of Target acquired by the Company in connection with the acquisition of Target). No accounts receivable securitization permitted. 3. Additional Indebtedness and Contingent Obligations. The Company and its subsidiaries agree not to incur certain additional indebtedness and contingent obligations, subject to exceptions contained in the Credit Agreement. 4. Restricted Payments. The Company will not be permitted to declare dividends or redeem or repurchase its stock, except for (i) dividends payable solely in common stock, and (ii) stock buybacks associated with employee stock purchase plans of up to $5,000,000 per year. 5. Asset Dispositions. The Company and its subsidiaries will not be permitted to dispose of property or assets, subject to certain agreed upon exceptions contained in the Credit Agreement. 6. Loans and Investments. The Company and its subsidiaries will not be permitted to enter into loans and investments, subject to certain agreed upon exceptions contained in the Credit Agreement. 7. Acquisitions. August 11, 1998 6 BancAmerica Robertson Stephens Mentor Graphics Confidential The Company may not, without the prior approval of the Majority Banks, make any acquisitions, except that in any given fiscal year the Company shall be permitted to make acquisitions for which the total consideration paid for all such acquisitions in any fiscal year does not exceed $25,000,000 in the aggregate and for which the cash consideration paid for all such acquisitions in such fiscal year other than 1999 does not exceed $15,000,000 in the aggregate; provided, however, the Company may not make acquisitions with cash until the Fixed Charge Coverage Ratio returns to 1.75 to 1; provided further that in fiscal year-end 1998 the Company may make up to three acquisitions of companies previously disclosed (the "Additional Acquisitions") for which the total cash consideration (including contingency payments) for any Additional Acquisition does not exceed $30,000,000 in the aggregate and for which the initial cash consideration paid for each such Additional Acquisition does not exceed $10,000,000 in the aggregate. The Company may not make any cash acquisitions during fiscal year-end 1999. 8. Maximum Capital Expenditures. The Company and its subsidiaries will not be permitted to make capital expenditures in excess of $45 million for the fiscal year ending 1999. Mandatory Repayment Mandatory prepayments and permanent reductions in Facility size from (i) the net cash proceeds of other Funded Debt (other than purchase money indebtedness, leases or capital leases less than $10 million), (ii) the sale-leaseback of the Wilsonville Campus and (iii) equity issuances (excluding the costs of any such issuance (such costs to include normal underwriting fees and discounts)) but excluding up to $2,000,000 in net proceeds from such issuance in any fiscal quarter and excluding equity issued to consummate mergers, for employee stock purchase programs and employee option programs or paid as dividends. The Facility will reduce dollar for dollar so that total senior debt (including sale-leaseback of Wilsonville Campus of up to the fair market value thereof) will be no greater than what the level of the reducing revolver would have been. The Facility is not to be reduced below $100 million as a result of the foregoing mandatory prepayments. Events of Default: Events of Default to include those contained in the Credit Agreement, including but not limited to: failure to pay any principal, or (after a grace period of five days) any interest, fees or other amounts payable under the loan documents; failure to comply with covenants (subject to a 30 day grace period in respect of certain covenants); materially incorrect representations and warranties; voluntary and involuntary bankruptcy or insolvency; ERISA matters; material unpaid judgments; cross acceleration to any material debt of the Company; change of control; material adverse changes; and other usual and customary defaults. August 11, 1998 7 BancAmerica Robertson Stephens Mentor Graphics Confidential Fees and Expenses: Costs and expenses and reasonable attorneys' fees (including reasonable costs and expenses of outside counsel and allocated cost of in-house legal services) incurred at any time by the Agent and the Lead Arranger in the negotiation, syndication, documentation, closing and ongoing administration of this Facility shall be paid by the Company, regardless of whether or not the Facility closes. Company shall pay all legal and out-of-pocket expenses incurred by the Agent and each Lender in enforcing the loan documents. Assignment/ Participation: Assignments to customary eligible assignees permitted with consent of Company (at all times other than during the existence of an Event of Default) and Agent (neither such consent to be unreasonably withheld), subject to $10,000,000 minimum. Majority Banks: Lenders with aggregate commitments equaling at least 51% of the total Facility. Governing Law: State of California This Summary of Terms and Conditions is not meant to be, nor should it be construed as, an attempt to define all of the terms and conditions of the transaction contemplated hereby, nor is it intended to reflect specific document phrasing that will exist in the credit agreement. It is intended only to outline the basic points of business understanding around which binding legal documentation will be structured. August 11, 1998 8 BancAmerica Robertson Stephens ================================================================================ CREDIT AGREEMENT Dated as of ___________, 1998 among MENTOR GRAPHICS CORPORATION, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, and THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO Arranged by BANCAMERICA ROBERTSON STEPHENS ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS.............................. 1 1.01 Certain Defined Terms....................................... 1 1.02 Other Interpretive Provisions............................... 17 1.03 Accounting Principles....................................... 18 1.04 Certain Matters Regarding the Financial Results of Target... 19 ARTICLE II THE CREDITS.............................. 19 2.01 Amounts and Terms of Commitments............................ 19 2.02 Loan Accounts............................................... 19 2.03 Procedure for Borrowing..................................... 20 2.04 Conversion and Continuation Elections....................... 21 2.05 Swingline Loans............................................. 22 2.06 Reduction or Termination of the Commitments................. 25 2.07 Prepayments................................................. 26 2.08 Repayment................................................... 27 2.09 Interest.................................................... 27 2.10 Fees........................................................ 28 (a) Arrangement, Agency Fees............................... 28 (b) Commitment Fees........................................ 28 2.11 Computation of Fees and Interest............................ 28 2.12 Payments by the Company..................................... 29 2.13 Payments by the Banks to the Agent.......................... 29 2.14 Sharing of Payments, Etc.................................... 30 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY................. 30 3.01 Taxes....................................................... 31 3.02 Illegality.................................................. 32 3.03 Increased Costs and Reduction of Return..................... 32 3.04 Funding Losses.............................................. 33 3.05 Inability to Determine Rates................................ 34 3.06 Reserves on Offshore Rate Loans............................. 34 3.07 Certificates of Banks....................................... 34 3.08 Delay....................................................... 34 3.09 Substitution of Banks....................................... 34 3.10 Survival.................................................... 35 i. ARTICLE IV CONDITIONS PRECEDENT.......................... 35 4.01 Conditions of Effectiveness................................. 35 (a) Credit Agreement and Notes............................. 35 (b) Resolutions; Incumbency................................ 35 (c) Organization Documents; Good Standing.................. 35 (d) Legal Opinions......................................... 36 (e) Payment of Fees........................................ 36 (f) Certificate............................................ 36 (g) Compliance Certificate................................. 36 (h) Tender Offer........................................... 36 (i) Other Documents........................................ 36 4.02 Conditions to Initial Borrowings............................ 36 (a) Payment of Fees........................................ 37 (b) Certificate............................................ 37 4.03 Conditions to All Borrowings................................ 37 (a) Notice of Borrowing or Conversion/Continuation......... 38 (b) Continuation of Representations and Warranties......... 38 (c) No Existing Default.................................... 38 ARTICLE V REPRESENTATIONS AND WARRANTIES..................... 38 5.01 Corporate Existence and Power............................... 38 5.02 Corporate Authorization; No Contravention................... 39 5.03 Governmental Authorization.................................. 39 5.04 Binding Effect.............................................. 39 5.05 Litigation.................................................. 39 5.06 No Default.................................................. 39 5.07 ERISA Compliance............................................ 40 5.08 Use of Proceeds; Margin Regulations......................... 40 5.09 Title to Properties......................................... 40 5.10 Taxes....................................................... 41 5.11 Financial Condition......................................... 41 5.12 Environmental Matters....................................... 41 5.13 Regulated Entities.......................................... 41 5.14 No Burdensome Restrictions.................................. 42 5.15 Copyrights, Patents, Trademarks and Licenses, etc........... 42 5.16 Subsidiaries................................................ 42 5.17 Insurance................................................... 42 5.18 Swap Obligations............................................ 42 5.19 Year 2000................................................... 42 5.20 Full Disclosure............................................. 43 ii. ARTICLE VI AFFIRMATIVE COVENANTS......................... 43 6.01 Financial Statements........................................ 43 6.02 Certificates; Other Information............................. 44 6.03 Notices..................................................... 44 6.04 Preservation of Corporate Existence, Etc.................... 45 6.05 Maintenance of Property..................................... 45 6.06 Insurance................................................... 46 6.07 Payment of Obligations...................................... 46 6.08 Compliance with Laws........................................ 46 6.09 Compliance with ERISA....................................... 46 6.10 Inspection of Property and Books and Records................ 46 6.11 Environmental Laws.......................................... 47 6.12 Use of Proceeds............................................. 47 ARTICLE VII NEGATIVE COVENANTS........................... 47 7.01 Limitation on Liens......................................... 47 7.02 Disposition of Assets....................................... 49 7.03 Consolidations and Mergers.................................. 50 7.04 Loans and Investments....................................... 51 7.05 Limitation on Indebtedness.................................. 52 7.06 Transactions with Affiliates................................ 53 7.07 Use of Proceeds............................................. 53 7.08 Contingent Obligations...................................... 54 7.09 Lease Obligations........................................... 54 7.10 Restricted Payments......................................... 55 7.11 ERISA....................................................... 55 7.12 Change in Business.......................................... 56 7.13 Accounting Changes.......................................... 56 7.14 Financial Covenants......................................... 56 (a) Adjusted Quick Ratio................................... 56 (b) Minimum Tangible Net Worth............................. 56 (c) Leverage Ratio......................................... 57 ARTICLE VIII EVENTS OF DEFAULT........................... 57 8.01 Event of Default............................................ 57 (a) Non-Payment............................................ 57 (b) Representation or Warranty............................. 58 (c) Specific Defaults...................................... 58 (d) Other Defaults......................................... 58 iii. (e) Cross-Acceleration..................................... 58 (f) Insolvency; Voluntary Proceedings...................... 58 (g) Involuntary Proceedings................................ 59 (h) ERISA.................................................. 59 (i) Monetary Judgments..................................... 59 (j) Non-Monetary Judgments................................. 59 (k) Change of Control...................................... 59 8.02 Remedies.................................................... 60 8.03 Rights Not Exclusive........................................ 60 ARTICLE IX THE AGENT............................... 60 9.01 Appointment and Authorization; Agent........................ 60 9.02 Delegation of Duties........................................ 61 9.03 Liability of Agent.......................................... 61 9.04 Reliance by Agent........................................... 61 9.05 Notice of Default........................................... 62 9.06 Credit Decision............................................. 62 9.07 Indemnification of Agent.................................... 62 9.08 Agent in Individual Capacity................................ 63 9.09 Successor Agent............................................. 63 9.10 Withholding Tax............................................. 63 ARTICLE X MISCELLANEOUS............................. 65 10.01 Amendments and Waivers...................................... 65 10.02 Notices..................................................... 66 10.03 No Waiver; Cumulative Remedies.............................. 66 10.04 Costs and Expenses.......................................... 67 10.05 Company Indemnification..................................... 67 10.06 Payments Set Aside.......................................... 67 10.07 Successors and Assigns...................................... 68 10.08 Assignments, Participations, etc............................ 68 10.09 Confidentiality............................................. 70 10.10 Set-off..................................................... 70 10.11 Automatic Debits of Fees.................................... 71 10.12 Notification of Addresses, Lending Offices, Etc............. 71 10.13 Counterparts................................................ 71 10.14 Severability................................................ 71 10.15 No Third Parties Benefited.................................. 71 10.16 Governing Law and Jurisdiction.............................. 71 10.17 Waiver of Jury Trial........................................ 72 10.18 Entire Agreement............................................ 72 iv. SCHEDULES Schedule 2.01 Commitments and Pro Rata Shares Schedule 5.05 Litigation Schedule 5.07 ERISA Schedule 5.12 Environmental Matters Schedule 5.15 Intellectual Property Matters Schedule 5.16 Subsidiaries and Minority Interests Schedule 5.17 Insurance Matters Schedule 7.01 Permitted Liens Schedule 7.02 Permitted Asset Dispositions Schedule 7.05 Permitted Indebtedness Schedule 7.08 Contingent Obligations Schedule 10.02 Offshore and Domestic Lending Offices, Addresses for Notices v. EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D Form of Opinion of Borrower's Counsel Exhibit E Form of Assignment and Acceptance Agreement Exhibit F Form of Promissory Note Exhibit G Form of Subordination Agreement vi. CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of _____________, 1998, among Mentor Graphics Corporation, an Oregon corporation (the "Company"), the several financial institutions from time to time party to this Agreement (collectively, the "Banks"; individually, a "Bank"), and Bank of America National Trust and Savings Association, as swingline bank and as agent for the Banks. WHEREAS, the Banks have agreed to make available to the Company a revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following meanings: "Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any line of business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary), provided that the Company or the Subsidiary is the surviving entity. "Adjusted EBITDA" means, with respect to the Company and its Subsidiaries on a consolidated basis for any rolling four-quarter period, net income for such period plus, to the extent deducted in computing such net income, the sum of (a) income tax expense, (b) interest expense, (c) depreciation and amortization expense, (d) the Special Charges, (e) merger and acquisition-related charges recorded on and after the Closing Date of up to $215,000,000 in the aggregate in respect of the Acquisition by the Company of Target, and (f) non-cash merger and acquisition-related charges (for goodwill, intangibles or in-process research and development) for other permitted Acquisitions, all as determined in accordance with GAAP. "Adjusted EBITDA" may be further modified pursuant to the terms of Section 1.04. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the 1. management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "Agent" means BofA in its capacity as agent for the Banks hereunder, and any successor agent arising under Section 9.09. "Agent-Related Persons" means BofA and any successor agent arising under Section 9.09, together with their respective Affiliates (including, in the case of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agent's Payment Office" means the address for payments set forth on Schedule 10.02 or such other address as the Agent may from time to time specify. "Agreement" means this Credit Agreement. "Applicable Margin" means, for any day, with respect to any Base Rate Loan or Offshore Rate Loan, the applicable margin (on a per annum basis) set forth on the pricing grid attached as Annex I in accordance with the parameters for calculation and adjustment of such applicable margin also set forth on Annex I. "Arranger" means BancAmerica Robertson Stephens. "Assignee" has the meaning specified in subsection 10.08(a). "Attorney Costs" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" has the meaning specified in the introductory clause hereto. References to the "Banks" shall include the Swingline Bank in its capacity as such unless the context otherwise clearly requires. For purposes of clarification only, to the extent that the Swingline Bank may have any rights or obligations in addition to those of the Banks due to its status as Swingline Bank, its status as such will be specifically referenced. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. ss. 101, et seq.). "Base Rate" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) 2. Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. "BofA" means Bank of America National Trust and Savings Association, a national banking association. "Borrowing" means a borrowing hereunder consisting of (i) Loans of the same Type made to the Company on the same day by the Banks or (ii) a Swingline Loan made to the Company by the Swingline Bank, in each case under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.03 or Section 2.05. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City, San Francisco, California, or Portland, Oregon, are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Cash Equivalents" means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof having maturities of not more than 12 months from the date of acquisition; (b) certificates of deposit, time deposits, Eurodollar time deposits, repurchase agreements, reverse repurchase agreements, or bankers' acceptances, having in each case a tenor of not more than 12 months, issued by (i) any U.S. commercial bank or any commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (but including, in any event, Singapore), or a political subdivision of any such country, in each case having combined capital and surplus of not less than $100,000,000 and whose short-term securities are rated at least A-1 by Standard & Poor's Corporation ("S&P") or at least P-1 by Moody's Investor Service, Inc. ("Moody's"), or (ii) any Bank; 3. (c) taxable and tax-exempt commercial paper of an issuer rated at least A-l by S&P or at least P-l by Moody's and in either case having a tenor of not more than 270 days; (d) medium term notes of an issuer rated at least AA by S&P or at least Aa2 by Moody's and having a remaining term of not more than 12 months after the date of acquisition by the Company or its Subsidiaries; (e) municipal notes and bonds which are rated at least SP-2 or AA by S&P or at least MIG-2 or Aa by Moody's with tenors of not more than 12 months; (f) investments in taxable or tax-exempt money market funds with assets greater than $500,000,000 and whose assets have average maturities less than or equal to 180 days and are rated at least A-l by S&P or at least P-l by Moody's; (g) money market preferred instruments of an issuer rated at least A-1 by S&P or at least P-1 by Moody's with tenors of not more than 12 months; (h) for a period of 360 days following the Funding Date, marketable securities of the Target not covered by clauses (a) through (g) above; or (i) other similar investments, subject to the Majority Banks' prior written approval. "Change of Control" means (a) any "person" (as such term is used in subsections 13(d) and 14(d) of the Exchange Act) or group of persons on or after the Closing Date is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then-outstanding voting securities, or (b) the existing directors for any reason cease to constitute a majority of the Company's board of directors. "Existing directors" means (x) individuals constituting the Company's board of directors on the Closing Date, and (y) any subsequent director whose election by the board of directors or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then in office, which directors either were directors on the Closing Date or whose election or nomination for election was previously so approved. "Clean-Up Day" has the meaning specified in subsection 2.05(d). "Closing Date" means the date on which all conditions precedent set forth in Section 4.01 are satisfied or waived by all Banks (or, in the case of subsection 4.01(e), waived by the Person entitled to receive such payment). 4. "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Commitment", as to each Bank, has the meaning specified in Section 2.01. "Compliance Certificate" means a certificate substantially in the form of Exhibit C. "Consolidated Current Liabilities" means, at any time of determination, all amounts which would, in accordance with GAAP, be included under current liabilities on a consolidated balance sheet of the Company and its Subsidiaries, but in any event including all outstanding Loans. "Consolidated Tangible Net Worth" means, at any time of determination, in respect of the Company and its Subsidiaries, determined on a consolidated basis, total assets (exclusive of goodwill, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and premium, deferred charges (other than deferred tax assets) and other like intangibles) minus total liabilities (including accrued and deferred income taxes), at such time, all as determined in accordance with GAAP. "Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered; or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation at the time of such determination in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof at the time of such determination, and in the case of other Contingent Obligations 5. other than in respect of Swap Contracts, shall be equal to the maximum reasonably anticipated liability in respect thereof and, in the case of Contingent Obligations in respect of Swap Contracts, shall be equal to the Swap Termination Value at the time of such determination. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.04, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United States. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of an Initial Bank or Eligible Assignee, (ii) a Subsidiary of a Person of which an Initial Bank or Eligible Assignee is a Subsidiary, or (iii) a Person of which an Initial Bank or Eligible Assignee is a Subsidiary. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, including for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. 6. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA in excess of $1,000,000, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurodollar Reserve Percentage" has the meaning specified in the definition of "Offshore Rate". "Event of Default" means any of the events or circumstances specified in Section 8.01. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "Existing Facility" means the Credit Agreement dated as of February 6, 1998, by and among the Company, the financial institutions party thereto, and BofA, as agent for such financial institutions. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City 7. time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "Fee Letter" has the meaning specified in subsection 2.10(a). "Fixed Charge Coverage Ratio" means, with respect to the Company and its Subsidiaries on a consolidated basis as of the last day of any fiscal quarter, the ratio of (a) (i) Adjusted EBITDA, minus (ii) capital expenditures, in each case for the period of four fiscal quarters ended on such date, to (b) (i) interest expense for the period of four fiscal quarters ended on such date, plus (ii) the current portion of long term debt (but excluding the outstanding principal amount of the Loans to be paid on the Revolving Termination Date), all as determined in accordance with GAAP. The determination of the Fixed Charge Coverage Ratio shall be subject to adjustment as provided in Section 1.04. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "Funded Debt" of any Person means, as of any date of determination, (a) all Indebtedness of such Person (including with respect to any Loans hereunder) for borrowed money (excluding earn-outs related to Acquisitions and Indebtedness secured by a Lien permitted under Section 7.01(j)); (b) all obligations of such Person with respect to capital and off-balance sheet leases (in all cases to exclude operating leases); and (c) the current portion of all obligations of such Person arising with respect to preferred stock that is mandatorily redeemable by such Person. "Funding Date" means the date of the initial funding of any Loans hereunder. "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 3.01. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other 8. entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guaranty Obligation" has the meaning specified in the definition of "Contingent Obligation." "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to capital leases; (g) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. For all purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Liabilities" has the meaning specified in Section 10.05. "Indemnified Person" has the meaning specified in Section 10.05. "Independent Auditor" has the meaning specified in subsection 6.01(a). "Initial Bank" means a Bank party to this Agreement on the Closing Date. "Insolvency Proceeding" means, with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means, (i) as to any Offshore Rate Loan, the last day of each Interest Period applicable to such Loan, (ii) as to any Base Rate Loan other than a 9. Swingline Loan, the last Business Day of each calendar quarter, and (iii) as to any Base Rate Loan that is a Swingline Loan, the Business Day on which principal of such Swingline Loan is repaid or as otherwise provided in Section 2.05; provided, however, that if any Interest Period for an Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means, as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond ___________, 2001. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Lending Office" means, as to any Bank, the office or offices of such Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 10.02, or such other office or offices as such Bank may from time to time notify the Company and the Agent. "Leverage Ratio" means, as of the last day of any fiscal quarter, the ratio of (a) Total Funded Debt on such date to (b) Adjusted EBITDA. The determination of the Leverage Ratio shall be subject to adjustment as provided in Section 1.04. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any 10. property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Loan" means an extension of credit by a Bank to the Company under Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Loan). "Loan Availability Date" means the date occurring simultaneously with or after the Closing Date upon which all conditions precedent to the initial Loans hereunder specified in Section 4.2 and 4.3 are satisfied or waived by all Banks. "Loan Documents" means this Agreement, any Notes, any Subordination Agreement, the Fee Letter and all other documents delivered to the Agent or any Bank in connection herewith. "Majority Banks" means at any time Banks then holding at least 51% of the then aggregate Credit Exposure of all the Banks, or, if no Credit Exposure then exists, Banks then having at least 51% of the Commitments. As used in this definition, the "Credit Exposure" of any Bank means (i) with respect to any outstanding Loans other than Swingline Loans, the aggregate outstanding principal amount of such Loans made by such Bank, and (ii) with respect to any outstanding Swingline Loans, such Bank's Pro Rata Share thereof. "Margin Stock" means "margin stock" as such term is defined in Regulation G, T or X of the FRB. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) of the Company or the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company to perform under any Loan Document and to avoid any Event of Default; or (c) a material impairment of the rights of or benefits available to the Banks or the Agent under any Loan Document. Notwithstanding the foregoing, any litigation or arbitration proceeding involving the Company and the Target shall not effect whether a "Material Adverse Effect" has occurred. "Material Subsidiary" means any Subsidiary which, for any period, has revenues or assets equal to or greater than five percent (5%) of the consolidated revenues or assets of the Company and its Subsidiaries, taken as a whole. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is 11. making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "Net Issuance Proceeds" means, as to any issuance of debt or equity by any Person (the "Issuing Person"), cash proceeds and non-cash proceeds received or receivable by such Issuing Person in connection therewith, net of commissions, underwriting discounts and reasonable out-of-pocket costs and expenses paid or incurred in connection therewith in favor of any Person not an Affiliate of such Issuing Person. "Note" means a promissory note executed by the Company in favor of a Bank pursuant to subsection 2.02(b), in substantially the form of Exhibit F. "Notice of Borrowing" means a notice in substantially the form of Exhibit A. "Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit B. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to any Bank, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Rate" means, for any Interest Period, with respect to Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Agent as follows: Offshore Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBOR" means the rate of interest per annum determined by the Agent to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum notified to the Agent by the Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, an Offshore Rate Loan by the 12. Reference Bank and having a maturity comparable to such Interest Period would be offered to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "Offshore Rate Loan" means a Loan that bears interest based on the Offshore Rate. "Organization Documents" means (i) for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation and (ii) for any Person not a corporation, the partnership agreement, operating agreement and/or such other documents which govern such Person. "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Participant" has the meaning specified in subsection 10.08(d). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Liens" has the meaning specified in Section 7.01. "Permitted Investments" means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof having maturities of not more than three years from the date of acquisition; 13. (b) certificates of deposit, time deposits, Eurodollar time deposits, repurchase agreements, reverse repurchase agreements, or bankers' acceptances, having in each case a tenor of not more than three years, issued by any U.S. commercial bank or any commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (but including, in any event, Singapore), or a political subdivision of any such country, in each case having combined capital and surplus of not less than $100,000,000 and whose short-term securities are rated at least A-2 by Standard & Poor's Corporation ("S&P") or at least P-2 by Moody's Investor Service, Inc. ("Moody's"); (c) taxable and tax-exempt commercial paper of an issuer rated at least A-2 by S&P or at least P-2 by Moody's and in either case having a tenor of not more than 270 days; (d) medium term notes of an issuer rated at least AA by S&P or at least Aa2 by Moody's and having a remaining term of not more than three years after the date of acquisition by the Company or its Subsidiaries; (e) municipal notes and bonds which are rated at least SP-2 or AA by S&P or at least MIG-2 or Aa by Moody's with tenors of not more than three years; (f) investments in taxable or tax-exempt money market funds with assets greater than $500,000,000 and whose assets have average maturities less than or equal to 180 days and are rated at least A-2 by S&P or at least P-2 by Moody's; (g) money market preferred instruments of an issuer rated at least A-2 by S&P or at least P-2 by Moody's with tenors of not more than three years; or (h) other similar investments, subject to the Majority Banks' prior written approval. "Permitted Swap Obligations" means all obligations (contingent or otherwise) of the Company or any Subsidiary existing or arising under Swap Contracts, provided that, except with respect to the Target's Swap Obligations for 360 days after the Funding Date, each of the following criteria is satisfied: (a) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view;" and (b) such Swap Contracts do not contain (i) any provision ("walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party, or (ii) any provision creating or permitting the declaration of an event of default, termination event or similar 14. event upon the occurrence of an Event of Default hereunder (other than an Event of Default under subsection 8.01(a)). "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pro Rata Share" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Reference Bank" means BofA. "Replacement Bank" has the meaning specified in Section 3.09. "Reportable Event" means, any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief financial officer, the chief operating officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, any of the above officers or the chief accounting officer of the Company, or any other officer having substantially the same authority and responsibility. "Revolving Loan" has the meaning specified in Section 2.01. "Revolving Termination Date" means the earlier to occur of: (a) ___________, 2001; and (b) the date on which the Commitments terminate in accordance with the provisions of this Agreement. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. 15. "Special Charges" means (i) special charges of $10,298,000 which were recorded by the Company in the fourth fiscal quarter of 1997, (ii) special charges of $5,775,000 which were recorded by the Company in the first fiscal quarter of 1998, (iii) special charges of $4,532,000 which were recorded by the Company in the second fiscal quarter of 1998, and (iv) special charges not to exceed $8,000,000 which may be recorded by the Company in the third or fourth fiscal quarter of 1998 relating principally to the relocation of the Company's European billing center from the Netherlands to the Republic of Ireland. "Subordination Agreement" has the meaning specified in subsection 7.05(f). "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined by the Company based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Bank). "Swingline Bank" means BofA, in its capacity as maker of Swingline Loans hereunder. Specific reference to the Swingline Bank shall exclude the Swingline Bank in its capacity as a Bank hereunder. 16. "Swingline Commitment" has the meaning specified in subsection 2.05(a). "Swingline Loan" has the meaning specified in subsection 2.05(a). "Target" means [________________________], a [_______________] corporation. "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office. "Tender Offer" means the Company's cash tender offer for and consent solicitation with respect to the shares of common stock of Target, as set forth in writing in the Company's [Offer to Purchase and Consent Solicitation] dated August ___, 1998. "Total Funded Debt" means all Funded Debt of the Company and its Subsidiaries (excluding subordinated debt issued pursuant to Section 7.05(g)(ii)) on a consolidated basis eliminating intercompany items, as determined in accordance with GAAP. "Type" has the meaning specified in the definition of "Loan." "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "United States" and "U.S." each means the United States of America. "Wholly-Owned Subsidiary" means any corporation in which (other than directors' qualifying shares required by law or other de minimis shares owned by third parties as required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. "Wilsonville Facility" means the Company's principal facility and headquarters located in Wilsonville, Oregon, and does not include any vacant land owned by the Company in Wilsonville, Oregon. 1.02 Other Interpretive Provisions. 17. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof," "herein," "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Agent or the Banks by way of consent, approval or waiver shall be deemed modified by the phrase "in its/their sole discretion." (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. 1.03 Accounting Principles. 18. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. (c) If the Company or the Majority Banks notify the Agent that the Company or the Majority Banks, as the case may be, desire to amend any covenant in Article VII or any definition relating thereto to eliminate the effect of any change in GAAP occurring after the Closing Date on the operation of any such covenant, then the Company's compliance with such covenant shall be determined in accordance with GAAP as in effect immediately prior to such change in GAAP until either such notice is withdrawn or such covenant or related definition is amended in a manner reasonably satisfactory to the Company and the Majority Banks. 1.04 Certain Matters Regarding the Financial Results of Target. For purposes of measuring the Leverage Ratio, Fixed Charge Coverage Ratio, and Adjusted EBITDA to Interest Ratio hereunder, Adjusted EBITDA shall be further adjusted upon the Acquisition of Target to include the historical financial results of Target for each rolling 4-quarter period for which Adjusted EBITDA is calculated hereunder (to the extent that Target's Adjusted EBITDA is a positive number), until such time as the first day of any such rolling 4-quarter period falls on or after the date on which the Acquisition of Target is consummated. ARTICLE II THE CREDITS 2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on the terms and conditions set forth herein, to make loans (each such loan, a "Revolving Loan") to the Company from time to time on any Business Day during the period from the Loan Availability Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth on Schedule 2.01 (such amount as the same may be reduced under Section 2.06 or as a result of one or more assignments under Section 10.08, the Bank's "Commitment"); provided, however, that, after giving effect to any Borrowing, (i) the aggregate principal amount of all outstanding Loans (including all outstanding Swingline Loans) shall not at any time exceed the combined Commitments, and (ii) the outstanding Revolving Loans of any Bank plus the participation of such Bank in all outstanding Swingline Loans shall not at any time exceed such Bank's Commitment. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01, prepay under Section 2.07 and reborrow under this section 2.01. 2.02 Loan Accounts. 19. (a) The Loans made by each Bank shall be evidenced by one or more loan accounts or records maintained by such Bank in the ordinary course of business. The loan accounts or records maintained by the Agent and each Bank shall be conclusive absent manifest error of the amount of the Loans made by the Banks to the Company and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. (b) Upon the request of any Bank made through the Agent, the Loans made by such Bank may be evidenced by one or more Notes, instead of or in addition to loan accounts. Each such Bank shall endorse on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each such Bank is irrevocably authorized by the Company to endorse its Note(s) and each Bank's record shall be conclusive absent manifest error; provided, however, that the failure of a Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Bank. 2.03 Procedure for Borrowing. (a) Each Borrowing shall be made upon the Company's irrevocable written notice delivered to the Agent in the form of a Notice of Borrowing (which notice must be received by the Agent prior to 9:00 a.m. (San Francisco time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans, and (ii) on the requested Borrowing Date, in the case of Base Rate Loans), specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of (1) $10,000,000, in the case of Offshore Rate Loans, or any multiple of $1,000,000 in excess thereof, (2) $1,000,000, in the case of Base Rate Loans other than Swingline Loans, or any multiple of $1,000,000 in excess thereof, and (3) $500,000, in the case of Swingline Loans, or any multiple of $500,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) in the case of Offshore Rate Loans, the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be three months; provided, however, that with respect to the Borrowing to be made on the Closing Date, the Notice of Borrowing shall be delivered to the Agent not later than 9:00 a.m. (San Francisco time) 20. one Business Day before the Closing Date and such Borrowing will consist of Base Rate Loans only. (b) The Agent will promptly notify each Bank of its receipt of any Notice of Borrowing and, other than in the case of a Borrowing of Swingline Loans, of the amount of such Bank's Pro Rata Share of that Borrowing. (c) Each Bank will make the amount of its Pro Rata Share of each Borrowing, other than in the case of a Borrowing of Swingline Loans, available to the Agent for the account of the Company at the Agent's Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date requested by the Company in funds immediately available to the Agent. The proceeds of all such Loans or payments made by the Agent pursuant to Section 2.13 will then be made available to the Company by the Agent at such office by crediting the account of the Company on the books of BofA with the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. (d) After giving effect to any Borrowing, unless the Agent shall otherwise consent, there may not be more than six (6) different Interest Periods in effect. 2.04 Conversion and Continuation Elections. (a) The Company may, upon irrevocable written notice to the Agent in accordance with subsection 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans (other than Swingline Loans), or as of the last day of the applicable Interest Period, in the case of Offshore Rate Loans, to convert any such Loans (or any part thereof in an amount not less than $10,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Loans of any other Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any Offshore Rate Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $10,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided that if at any time the aggregate amount of Offshore Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $10,000,000, such Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Offshore Rate Loans shall terminate. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than 9:00 a.m. (San Francisco time) (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued 21. as Offshore Rate Loans, and (ii) on the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, (i) the Company has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans, or (ii) any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Majority Banks otherwise consent, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as an Offshore Rate Loan. (f) After giving effect to any conversion or continuation of Loans, unless the Agent shall otherwise consent, there may not be more than six (6) different Interest Periods in effect. 2.05 Swingline Loans. (a) Subject to the terms and conditions hereof, the Swingline Bank agrees to make a portion of the aggregate Commitments available to the Company by making swingline loans (individually, a "Swingline Loan," and, collectively, the "Swingline Loans") to the Company on any Business Day during the period from the Loan Availability Date to the Revolving Termination Date in accordance with the procedures set forth in this Section 2.05 in an aggregate principal amount at any one time outstanding not to exceed $25,000,000, notwithstanding the fact that such Swingline Loans, when aggregated with any other Loans made by or participated in by the Swingline Bank, may exceed the Swingline Bank's Commitment (the amount of such commitment of the Swingline Bank to make Swingline Loans to the Company 22. pursuant to this subsection 2.05(a), as the same shall be reduced pursuant to Section 2.06 or as a result of any assignment pursuant to Section 10.08, the Swingline Bank's "Swingline Commitment"); provided that at no time shall (i) the aggregate principal amount of all outstanding Loans (including all outstanding Swingline Loans) exceed the aggregate Commitments, and (ii) the aggregate principal amount of all outstanding Swingline Loans exceed the Swingline Commitment. Additionally, all Swingline Loans shall at all times be Base Rate Loans or accrue interest at such other rate as may be agreed to by the Swingline Bank and the Company. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company may borrow under this subsection 2.05(a), prepay pursuant to subsection 2.07(a) and reborrow pursuant to this subsection 2.05(a). (b) The Company shall provide the Agent irrevocable written notice (including notice via facsimile confirmed immediately by a telephone call) in the form of a Notice of Borrowing of any Swingline Loan requested hereunder (which notice must be received by the Agent prior to 11:00 a.m. (San Francisco time) on the requested Borrowing Date) specifying (i) the amount to be borrowed, which shall be in a minimum amount in accordance with subsection 2.03(a) (unless otherwise agreed by the Swingline Bank), and (ii) the requested Borrowing Date, which shall be a Business Day. Unless the Swingline Bank has received notice prior to 12:00 noon (San Francisco time) on such Borrowing Date from the Agent (including at the request of any Bank) (A) directing the Swingline Bank not to make the requested Swingline Loan as a result of the limitations set forth in the proviso set forth in the first sentence of subsection 2.05(a); or (B) that one or more conditions specified in Article IV are not then satisfied; then, subject to the terms and conditions hereof, the Swingline Bank will, not later than 2:00 p.m. (San Francisco time) on the Borrowing Date specified in such Notice of Borrowing, make the amount of its Swingline Loan available to the Company by crediting the account of the Company on the books of BofA, or if requested by the Company, by wire transfer in accordance with written instructions provided to the Agent by the Company, less customary fees for such wire transfer. The Agent will notify the Banks on a quarterly basis if any Swingline Loan Borrowings occurred during such quarter. (c) The Company shall repay to the Swingline Bank in full on the Revolving Termination Date the aggregate principal amount of the Swingline Loans outstanding on the Revolving Termination Date. (d) For one Business Day during each successive seven Business Day period the aggregate principal amount of Swingline Loans shall be $0 (a "Clean-Up Day"). The Company shall prepay the outstanding principal amount of the Swingline Loans in whole to the extent required so that a Clean-Up Day may occur in each such seven Business Day period as provided in this subsection 2.05(d) (which Swingline Loans may not be reborrowed until such Clean-Up Day has ended). (e) If: 23. (i) any Swingline Loans shall remain outstanding at 5:00 p.m. (San Francisco time) on the Business Day immediately prior to a Clean-Up Day and by such time on such Business Day the Agent shall have received neither: (A) a Notice of Borrowing delivered pursuant to Section 2.03 requesting that Revolving Loans be made pursuant to subsection 2.01(a) on the Clean-Up Day in an amount at least equal to the aggregate principal amount of such Swingline Loans; nor (B) any other notice indicating the Company's intent to repay such Swingline Loans with funds obtained from other sources; or (ii) any Swingline Loans shall remain outstanding during the existence of a Default or Event of Default and the Swingline Bank shall in its sole discretion notify the Agent that the Swingline Bank desires that such Swingline Loans be converted into Revolving Loans; then the Agent shall be deemed to have received a Notice of Borrowing from the Company pursuant to Section 2.03 requesting that Base Rate Loans be made pursuant to subsection 2.01(a) on such Clean-Up Day (in the case of the circumstances described in clause (i) above) or on the first Business Day subsequent to the date of such notice from the Swingline Bank (in the case of the circumstances described in clause (ii) above) in an amount equal to the aggregate amount of such Swingline Loans, and the procedures set forth in subsections 2.03(b) and 2.03(c) shall be followed in making such Base Rate Loans; provided that such Base Rate Loans shall be made notwithstanding the Company's failure to comply with Section 4.03; and provided, further, that if a Borrowing of Revolving Loans becomes legally impracticable and if so required by the Swingline Bank at the time such Revolving Loans are required to be made by the Banks in accordance with this subsection 2.05(e), each Bank agrees that in lieu of making Revolving Loans as described in this subsection 2.05(e), such Bank shall purchase a participation from the Swingline Bank in the applicable Swingline Loans in an amount equal to such Bank's Pro Rata Share of such Swingline Loans, and the procedures set forth in subsections 2.03(b) and 2.03(c) shall be followed in connection with the purchases of such participations. Upon such purchases of participations the prepayment requirements of subsection 2.05(d) shall be deemed waived with respect to such Swingline Loans. The proceeds of such Base Rate Loans shall be applied to repay such Swingline Loans. If any Swingline Loan shall remain outstanding in lieu of a Borrowing of Revolving Loans as provided above, interest on such Swingline Loan shall be due and payable on demand. A copy of each notice given by the Agent to the Banks pursuant to this subsection 2.05(e) with respect to the making of Revolving Loans, or the purchases of participations, shall be promptly delivered by the Agent to the Company. Each Bank's obligation in accordance with this Agreement to make the Revolving Loans, or purchase the participations, as contemplated by this subsection 2.05(e), shall be absolute and unconditional and shall not be affected by any circumstance, including (1) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Swingline Bank or any other Person for any reason whatsoever; (2) the occurrence or continuance of a Default, an Event of Default or a 24. Material Adverse Effect; or (3) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.06 Reduction or Termination of the Commitments. (a) Voluntary Termination or Reduction of Commitments. The Company may, upon not less than three Business Days' prior notice to the Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $10,000,000 (or, with respect to any such notice delivered within five Business Days after the Funding Date, the aggregate minimum amount of $5,000,000) or any multiple of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the then-outstanding principal amount of the Loans would exceed the amount of the combined Commitments then in effect. Once reduced in accordance with this Section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Bank according to its Pro Rata Share. If and to the extent specified by the Company in the notice to the Agent, some or all of the reduction in the Commitments shall be applied to reduce the Swingline Commitment. All accrued commitment fees to, but not including, the effective date of any reduction or termination of Commitments, shall be paid on the effective date of such reduction or termination. (b) Scheduled Mandatory Reductions. On each date set forth below, the Commitment of each Bank shall automatically and permanently reduce by an amount equal to such Bank's Pro Rata Share of the aggregate Commitment reduction shown for such date below: Aggregate Date Commitment Reduction ---- -------------------- First day of the fiscal quarter following the fiscal quarter in which the first anniversary of the Funding Date occurs $25,000,000 First day of the fiscal quarter following the fiscal quarter in which the second anniversary of the Funding Date occurs $25,000,000 Any voluntary reductions of the Commitments pursuant to Section 2.06(a) shall be applied to reduce the scheduled mandatory reductions set forth in this Section 2.06(b). (c) Other Mandatory Reductions. Upon: (i) the issuance and sale of any equity securities of the Company or any Subsidiary (other than (A) equity securities issued and given as consideration to the equityholders of any Person in order to consummate an Acquisition of such Person permitted 25. hereunder, (B) equity securities issued to employees of the Company or any such Subsidiary in the ordinary course of business pursuant to an employee stock purchase program or employee stock option program, (C) any other equity securities issuance in which the net cash proceeds do not exceed $2,000,000 in any fiscal quarter, and (D) any stock dividends issued by the Company or any Subsidiary); (ii) the incurrence of any Funded Debt by the Company or any Subsidiary (other than (A) the Loans, and (B) obligations in respect of capital leases up to $10,000,000 in the aggregate); or (iii) the sale or sale-leaseback of the Wilsonville Facility; then, effective as of the day on which the Company or any such Subsidiary (1) receives the proceeds of any such equity issuance, (2) receives the proceeds of the sale or sale-leaseback of the Wilsonville Facility or (3) incurs any such Indebtedness, as the case may be, the Commitments shall automatically and permanently reduce by an amount equal to (x) the cash Net Issuance Proceeds of any such equity issuance, (y) the net cash proceeds of the sale or sale-leaseback of the Wilsonville Facility or (z) the net cash proceeds of the Funded Debt so incurred, as the case may be. With respect to each Bank, the Commitment of each Bank shall automatically reduce by an amount equal to such Bank's Pro Rata Share of the aggregate Commitment reduction. (d) Maximum Mandatory Commitment Reductions. Notwithstanding anything to the contrary in the preceding subsections (b) and (c), in no event shall the aggregate Commitments be mandatorily reduced to less than $100,000,000 by operation of the preceding subsections (b) and (c). (e) At no time shall the Swingline Commitment exceed the combined Commitments, and any reduction of the Commitments which reduces the combined Commitments to below the then-current amount of the Swingline Commitment shall result in an automatic corresponding reduction of the Swingline Commitment to the amount of the combined Commitments, as so reduced, without any action on the part of the Swingline Bank. At no time shall the Swingline Commitment exceed the Commitment of the Swingline Bank (in its capacity as a Bank), and any reduction of the Commitments which reduces the Commitment of the Swingline Bank (in its capacity as a Bank) below the then-current amount of the Swingline Commitment shall result in an automatic corresponding reduction of the Swingline Commitment to the amount of the Commitment of the Swingline Bank (in its capacity as a Bank), as so reduced, without any action on the part of the Swingline Bank. 2.07 Prepayments. (a) Optional Prepayments. Subject to Section 3.04, the Company may, at any time or from time to time, (a) in the case of Offshore Rate Loans, upon not less than three Business Days' irrevocable notice to the Agent, ratably prepay Loans in whole or in part, in minimum amounts of $10,000,000 or any multiple of $1,000,000 in excess thereof, (b) in the 26. case of Base Rate Loans other than Swingline Loans, upon irrevocable notice to the Agent given no later than 9:00 a.m. (San Francisco time) on the date of prepayment, ratably prepay Loans in whole or in part, in minimum amounts of $1,000,000 or any multiple of $1,000,000 in excess thereof or (c) in the case of Swingline Loans, upon irrevocable notice to the Agent given no later than 11:00 a.m. (San Francisco time) on the date of prepayment, prepay Swingline Loans in whole or in part, in minimum amounts of $500,000 or any multiple of $500,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. The Agent will promptly notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.04. (b) Mandatory Prepayments. On each date on which the Commitments shall be mandatorily reduced in accordance with subsections 2.05(b) and 2.05(c) (or if such date is not a Business Day, on the next succeeding Business Day), the Company shall ratably prepay the outstanding principal amount of the Loans in an amount equal to the excess (after giving effect to the required Commitment reductions) of the outstanding principal amount of the Loans over the aggregate Commitments, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.04. 2.08 Repayment. The Company shall repay to the Banks on the Revolving Termination Date the aggregate principal amount of Loans outstanding on such date. 2.09 Interest. (a)(i) Each Revolving Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under Section 2.04), plus the Applicable Margin. (ii) Each Swingline Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Base Rate, or at such other rate as may be agreed to by the Swingline Bank. (b) Interest on each Revolving Loan and Swingline Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Offshore Rate Loans under Section 2.07 for the portion of the Offshore Rate Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Agent at the request or with the consent of the Majority Banks. (c) Notwithstanding subsection (a) of this Section, if any amount of principal of or interest on any Loan, or any other amount payable hereunder or under any other Loan Document is not paid in full when due (whether at stated maturity, by acceleration, demand or 27. otherwise), the Company agrees to pay interest on such unpaid principal or other amount, from the date such amount becomes due until the date such amount is paid in full, and after as well as before any entry of judgment thereon to the extent permitted by law, payable on demand, at a fluctuating rate per annum equal to the Base Rate plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of the Company to any Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Bank would be contrary to the provisions of any law applicable to such Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Bank, and in such event the Company shall pay such Bank interest at the highest rate permitted by applicable law. 2.10 Fees. (a) Arrangement, Agency Fees. The Company shall pay an upfront fee to the Arranger for the Arranger's own account, and shall pay an agency fee to the Agent for the Agent's own account, as required by the letter agreement ("Fee Letter") among the Company, the Arranger and Agent dated August 11, 1998. (b) Commitment Fees. The Company shall pay to the Agent for the account of each Bank a commitment fee on the actual daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Agent, equal to the applicable "Commitment Fee" set forth on the pricing grid attached as Annex I in accordance with the parameters for calculation and adjustment of such Commitment Fee also set forth on Annex I. Such commitment fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter, commencing on December 31, 1998, through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of Commitments under Section 2.06, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The commitment fees provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article IV are not met. 2.11 Computation of Fees and Interest. (a) All computations of interest for Base Rate Loans when the Base Rate is determined by BofA's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each 28. period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Agent shall be conclusive and binding on the Company and the Banks in the absence of manifest error. The Agent will, at the request of the Company or any Bank, deliver to the Company or the Bank, as the case may be, a statement showing the quotations used by the Agent in determining any interest rate and the resulting interest rate. 2.12 Payments by the Company. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Agent for the account of the Banks at the Agent's Payment Office, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (San Francisco time) on the date specified herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Banks that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Agent, each Bank shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.13 Payments by the Banks to the Agent. (a) Unless the Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a 29. corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. Such payment by the Company to the Agent shall be without prejudice to the Company's rights, if any, against the Bank which failed to fund. (b) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.14 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.10) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 30. 3.01 Taxes. (a) Any and all payments by the Company to each Bank or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Bank or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) The Company agrees to indemnify and hold harmless each Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor. (d) Within 30 days after the date of any payment by the Company of Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Bank or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Agent. (e) If the Company is required to pay any amount to any Bank or the Agent pursuant to subsection (b) or (c) of this Section, then such Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole judgment of such Bank is not otherwise disadvantageous to such Bank. 31. 3.02 Illegality. (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, any obligation of that Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Agent), prepay in full such Offshore Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under Section 3.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Bank to make or maintain Offshore Rate Loans has been so terminated or suspended, the Company may elect, by giving notice to the Bank through the Agent that all Loans which would otherwise be made by the Bank as Offshore Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Agent under this Section, the affected Bank shall designate a different Lending Office with respect to its Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 3.03 Increased Costs and Reduction of Return. (a) If any Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. 32. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 3.04 Funding Losses. The Company shall reimburse each Bank and hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.07; (d) the prepayment (including pursuant to Section 2.07) or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under the proviso of subsection 2.04(a) of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Banks under this Section and under subsection 3.03(a), each Offshore Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded. 33. 3.05 Inability to Determine Rates. If the Agent determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to subsection 2.09(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Banks of funding such Loan, the Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans, as the case may be, hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. 3.06 Reserves on Offshore Rate Loans. The Company shall pay to each Bank, as long as such Bank shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), additional costs on the unpaid principal amount of each Offshore Rate Loan equal to the actual costs of such reserves allocated to such Loan by the Bank (as determined by the Bank in good faith, which determination shall be conclusive absent manifest error), payable on each date on which interest is payable on such Loan, provided the Company shall have received at least 15 days' prior written notice (with a copy to the Agent) of such additional interest from the Bank. If a Bank fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be payable 15 days from receipt of such notice. 3.07 Certificates of Banks. Any Bank claiming reimbursement or compensation under this Article III shall deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 3.08 Delay. Failure or delay on the part of any Bank to demand compensation under this Article III shall not constitute a waiver of such Bank's right to demand such compensation; provided that no Bank shall be entitled to compensation under this Article III for any increased costs or reductions incurred or suffered with respect to any date unless such Bank shall have notified the Company not more than 90 days after the later of (a) such date and (b) the date on which such Bank shall have become aware of such costs or reductions. 3.09 Substitution of Banks. Upon the receipt by the Company from any Bank (an "Affected Bank") of a claim for compensation under Section 3.03 or if the Company is required to pay any amount to any Affected Bank or the Agent for the account of an Affected Bank pursuant to subsection 3.01(b) or 3.01(c) and such Affected Bank has not changed the jurisdiction of its Lending Office so as to eliminate such additional payment by the Company within 30 days after a request by the Company to effect such change, the Company may: (i) request the Affected Bank to use its best efforts to obtain a replacement bank or financial 34. institution satisfactory to the Company (which shall, in any event, be an Eligible Assignee) to acquire and assume all or a ratable part of all of such Affected Bank's Loans and Commitment (a "Replacement Bank"); (ii) request one more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitment; or (iii) designate a Replacement Bank. Any such designation of a Replacement Bank under clause (i) or (iii) or of an existing Bank under clause (ii) shall be subject to the prior written consent of the Agent and the Swingline Bank (which consents shall not be unreasonably withheld or delayed), and shall be effected in accordance with all requirements for an assignment set forth in Section 10.08 hereof. Without limiting the generality of the foregoing, the Company agrees to pay to each Affected Bank any amounts arising under Section 3.04 by virtue of such Affected Bank's replacement on a date other than the last day of an Interest Period, with respect to any Offshore Rate Loans then outstanding. 3.10 Survival. The agreements and obligations of the Company in this Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT 4.01 Conditions of Effectiveness. The effectiveness of this Agreement is subject to the condition that the Agent shall have received on or before the Closing Date all of the following, in form and substance reasonably satisfactory to the Agent and each Bank, and in sufficient copies for each Bank: (a) Credit Agreement and Notes. This Agreement and the Notes, if any, executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver this Agreement and all other Loan Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following documents: 35. (i) the articles of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (ii) a status certificate for the Company from the Secretary of State of Oregon and certificates of foreign qualification and good standing of the Company in California and New Jersey, in each case, as of a recent date, together with a bring-down certificate by facsimile, dated the Closing Date; (d) Legal Opinions. An opinion of Dean Freed, Vice President and General Counsel of the Company substantially in the form of Exhibit D-1 and of Latham & Watkins substantially in the form of Exhibit D-2, each addressed to the Agent and the Banks; (e) Payment of Fees. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of BofA to the extent invoiced prior to or on the Closing Date; including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 10.04; (f) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in Article V are true and correct in all material respects on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the initial Borrowing; and (iii) there has occurred since August 11, 1998, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; (g) Compliance Certificate. A completed Compliance Certificate for the fiscal quarter ended _______________ [most recently reported fiscal quarter]; (h) Tender Offer. A copy of the Tender Offer, which shall be reasonably satisfactory to the Agent and the Arranger; and (i) Other Documents. Such other approvals, opinions, documents or materials as the Agent or any Bank may reasonably request. 4.02 Conditions to Initial Borrowings. The obligation of each Bank and the Swingline Bank to make its initial Loan hereunder is subject to the following conditions precedent: 36. (a) Payment of Fees. The Agent shall have received evidence reasonably satisfactory to it of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Loan Availability Date, together with Attorney Costs of BofA to the extent invoiced prior to or on the Loan Availability Date; including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 10.04; (b) Certificate. The Agent shall have received a certificate signed by a Responsible Officer, dated as of the Loan Availability Date, stating that: (i) in all material respects the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the initial Borrowing; and (iii) there has occurred since the Closing Date no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; (c) Termination of Existing Facility. The Agent shall have received evidence reasonably satisfactory to it that all amounts owing under the Existing Facility have been paid in full (or will concurrently be paid in full upon the making of the initial Loans hereunder on the initial Borrowing Date) and all commitments to lend thereunder have been terminated. (d) Conditions Relating to the Tender Offer. The Agent shall have received evidence reasonably satisfactory to it that (i) more than 50% of the outstanding shares of common stock of Target have been tendered to the Company pursuant to the Tender Offer; (ii) there are no legal prohibitions to the consummation of a merger between the Company and Target (with the Company being the surviving corporation); (iii) all material terms and conditions of the Tender Offer, other than payment for the tendered shares, have been satisfied and there have been no material changes, amendments, supplements, waivers or other modifications to the terms and conditions of the Tender Offer not approved by the Agent; (iv) all approvals of any Governmental Authority and of any other Person necessary in connection with the Acquisition of Target have been obtained by the Company and are in full force and effect and all applicable waiting periods have expired without any notice of any action being taken or threatened by any Governmental Authority which would restrain, prevent or otherwise impose material adverse conditions on the Acquisition of Target by the Company; and (v) all documentation in connection with the Tender Offer and the consummation of the Acquisition of Target contemplated thereby is in form and substance reasonably satisfactory to the Agent. 4.03 Conditions to All Borrowings. The obligation of each Bank and the Swingline Bank to make any Loan to be made by it (including its initial Loan) or to continue or convert any Loan under Section 2.04 is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Conversion/Continuation Date: 37. (a) Notice of Borrowing or Conversion/Continuation. The Agent shall have received (with, in the case of any Loan on the Loan Availability Date, a copy for each Bank) a Notice of Borrowing or a Notice of Conversion/Continuation as applicable; (b) Continuation of Representations and Warranties. The representations and warranties in Article V shall be true and correct in all material respects on and as of such Borrowing Date or Conversion/Continuation Date with the same effect as if made on and as of such Borrowing Date or Conversion/Continuation Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing or continuation or conversion. Each Notice of Borrowing and Notice of Conversion/Continuation submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date or Conversion/Continuation Date, as applicable, that the conditions in this Section 4.03 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent and each Bank that: 5.01 Corporate Existence and Power. The Company and each of its Material Subsidiaries: (a) is an entity duly organized, validly existing and, if applicable in such jurisdiction, in good standing under the laws of the jurisdiction of its incorporation or other establishment; (b) has (i) the power and authority and (ii) all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents to which it is a party; (c) is duly qualified as a foreign corporation or other entity and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case referred to in clause (b)(ii), clause (c) or clause (d), to the extent that the failure to do so is not reasonably expected to have a Material Adverse Effect. 38. 5.02 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and each other Loan Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not: (a) contravene the terms of any of the Company's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its property is subject; or (c) violate any Requirement of Law; except, in each case referred to in the foregoing clauses (b) and (c), where the conflict, breach, contravention, creation or violation would not reasonably be expected to have a Material Adverse Effect. 5.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of the Agreement or any other Loan Document. 5.04 Binding Effect. This Agreement and each other Loan Document to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.05 Litigation. Except as specifically disclosed in Schedule 5.05, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 5.06 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect 39. which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under subsection 8.01(e). 5.07 ERISA Compliance. Except as specifically disclosed in Schedule 5.07: (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable federal or state law, except to the extent that the failure to comply is not reasonably expected to have a Material Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of the Code has received or has applied for when due and not been denied a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made or duly provided for all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 5.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 6.12 and Section 7.07. Neither the Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 5.09 Title to Properties. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Material Subsidiaries is subject to no Liens, other than Permitted Liens. 40. 5.10 Taxes. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. To the best knowledge of the Company, there is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 5.11 Financial Condition. (a) The unaudited consolidated balance sheets of the Company and its Subsidiaries as of June 30, 1998, and the related consolidated statements of operations and cash flows for the fiscal quarter ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except for the absence of footnotes and as otherwise expressly noted therein and subject to ordinary, good faith year end audit adjustments; (ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby. (b) The audited financial statements of the Company at December 31, 1997, reflect or disclose all material Indebtedness and other liabilities of the Company and its consolidated Subsidiaries, including liabilities for taxes, material commitments and Contingent Obligations. (c) Since June 30, 1998, there has been no Material Adverse Effect. 5.12 Environmental Matters. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that, except as specifically disclosed in Schedule 5.12, such Environmental Laws and Environmental Claims are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect. 5.13 Regulated Entities. None of the Company, any Person controlling the Company, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 41. 5.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 5.15 Copyrights, Patents, Trademarks and Licenses, etc. Except as disclosed on Schedule 5.15, the Company or its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in Schedule 5.05, no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 5.16 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 5.16 hereto and has no material equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 5.16. 5.17 Insurance. Except as specifically disclosed in Schedule 5.17, the properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 5.18 Swap Obligations. Neither the Company nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company has undertaken its own independent assessment of its consolidated assets, liabilities and commitments and has considered appropriate means of mitigating and managing risks associated with such matters and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any Swap Contract. 5.19 Year 2000. On the basis of comprehensive review and assessment undertaken by the Company of the Company's and its Subsidiaries' computer applications and an assessment by the Company of its and its Subsidiaries' material suppliers, vendors and customers, the Company reasonably believes that the "Year 2000 Problem" (that is, the risk that computer applications used by any Person may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999) will not result in a Material Adverse Effect. For purposes of this Section 5.19, "Subsidiaries" shall not include the Target until the earlier of (i) the 360th day following the Funding Date and (ii) December 31, 1999. 42. 5.20 Full Disclosure. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Banks prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. The Company further represents to the best of its knowledge that all projections and pro forma financial information provided by the Company to Agent or the Banks in writing in discharging its agreements hereunder will be based on good faith assumptions and estimates that the Company believes reasonable at the time made in light of the circumstances when made. ARTICLE VI AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks waive compliance in writing: 6.01 Financial Statements. The Company shall deliver to the Agent and each Bank, in form and detail reasonably satisfactory to the Agent and the Majority Banks: (a) as soon as available, but not later than 100 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of operations and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of a nationally-recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP consistently applied. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Material Subsidiary's records and shall be unqualified as to the status of the Company as a going concern; and (b) as soon as available, but not later than 50 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of operations and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to the absence of footnotes and ordinary, good faith year-end 43. audit adjustments), the financial position and the results of operations of the Company and the Subsidiaries. 6.02 Certificates; Other Information. The Company shall furnish to the Agent and each Bank: (a) concurrently with the delivery of the financial statements referred to in subsection 6.01(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 6.01(a) and (b), a Compliance Certificate executed by a Responsible Officer; (c) promptly, but in no event later than 10 days of filing the same, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; and (d) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Agent, at the request of any Bank, may from time to time reasonably request. 6.03 Notices. The Company shall promptly notify the Agent and each Bank: (a) of the occurrence of any Default or Event of Default; (b) as soon as a Responsible Officer becomes aware thereof, of any matter that could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Material Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Agent and each Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; 44. (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability; and (d) upon the request from time to time (but not more frequently than once each fiscal quarter unless a Default or an Event of Default exists) of the Agent, the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Swap Contracts to which the Company or any of its Subsidiaries is party. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 6.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been breached or violated, but the reasonable failure to identify all such clauses or provisions shall not, of itself, constitute a failure to comply with subsection 6.03(a). 6.04 Preservation of Corporate Existence, Etc. The Company shall, and shall cause each Material Subsidiary to: (a) except as otherwise permitted by this Agreement, preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except (i) in connection with transactions permitted by Section 7.03 and sales of assets permitted by Section 7.02 or (ii) where such failure to preserve or maintain could not reasonably be expected to result in a Material Adverse Effect; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.05 Maintenance of Property. The Company shall maintain, and shall cause each Subsidiary to maintain, and preserve all of its material property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted, except as 45. permitted by Section 7.02. The Company and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 6.06 Insurance. The Company shall maintain, and shall cause each Material Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 6.07 Payment of Obligations. Unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary, the Company shall, and shall cause each Material Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property not otherwise permitted hereunder; and (c) all indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 6.08 Compliance with Laws. The Company shall comply, and shall cause each Material Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 6.09 Compliance with ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code, except in each case to the extent that any failure to maintain such compliance or qualification or to make such contributions could not reasonably be expected to have a Material Adverse Effect. 6.10 Inspection of Property and Books and Records. The Company shall maintain and shall cause each Material Subsidiary to maintain adequate books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company or such Material Subsidiary. The Company shall permit, and shall cause each Material Subsidiary to permit, representatives and independent contractors of the Agent or any Bank to visit and inspect 46. any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants at such reasonable times during normal business hours and as often as may be reasonably necessary upon reasonable advance notice to the Company and, in the case of any discussion with independent public accountants of the Company or any Material Subsidiary, upon providing the Company's representatives with a reasonable opportunity to participate in and/or be present at any such discussion; provided, however, when an Event of Default exists the Agent or any Bank may do any of the foregoing at the expense of the Company and at any time during normal business hours without advance notice (except that the Company's representatives shall be given a reasonable opportunity to participate in and/or be present at any discussions with independent public accountants of the Company or any Material Subsidiary). 6.11 Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance, in all material respects, with all Environmental Laws. 6.12 Use of Proceeds. The Company shall use the proceeds of the Loans for working capital, acquisitions and other general corporate purposes not in contravention of any Requirement of Law or of any Loan Document. ARTICLE VII NEGATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks waive compliance in writing: 7.01 Limitation on Liens. The Company shall not, and shall not suffer or permit any Material Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property (other than the stock of the Target), whether now owned or hereafter acquired, other than the following ("Permitted Liens"): (a) any Lien existing on property of the Company or any Subsidiary on the Closing Date and set forth in Schedule 7.01 securing Indebtedness outstanding on such date or which does not otherwise secure Indebtedness; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, levies, imposts, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 6.07, provided that no notice of lien has been filed or recorded under the Code; 47. (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens on the property of the Company or its Subsidiary securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, provided all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that, other than with respect to any such Lien arising from litigation involving the Company and the Target, the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $10,000,000; (h) easements, rights-of-way, zoning or use restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries; (i) Liens on assets acquired by the Company or any Subsidiary or any assets of Persons which become Subsidiaries, in each case, acquired after the date of this Agreement, provided, however, that such Liens existed at the time the respective Persons became Subsidiaries and were not created in anticipation thereof; (j) purchase money security interests on any property acquired, constructed or held by the Company or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided that (i) any such Lien attaches to such property concurrently with or within 30 days after the acquisition or construction thereof, (ii) such Lien attaches solely to the property so acquired or constructed in such transaction, (iii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such property, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed $10,000,000; (k) Liens securing obligations in respect of capital leases on assets subject to such leases, provided that such capital leases are otherwise permitted hereunder; 48. (l) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution; (m) Liens consisting of pledges of cash collateral or government securities to secure on a mark-to-market basis Permitted Swap Obligations only, provided that (i) (other than the Target's Swap Contracts outstanding as of the Funding Date) the counterparty to any Swap Contract relating to any such Permitted Swap Obligation is under a similar requirement to deliver similar collateral from time to time to the Company or the Subsidiary party thereto on a mark-to-market basis; and (ii) the aggregate value of such collateral so pledged by the Company and the Subsidiaries together in favor of any counterparty does not at any time exceed $10,000,000. (n) Liens securing Refinancing Indebtedness (as defined in subsection 7.05(e)) which were originally secured by a Lien permitted by this Section 7.01, provided that such Lien does not apply to any other property or assets of the Company or any Subsidiary other than the proceeds of the property or assets subject to such Lien; (o) other non-consensual Liens arising in the ordinary course of business the existence or enforcement of which would not result in a Material Adverse Effect; and (p) other Liens securing Indebtedness and obligations in an aggregate principal amount at any time outstanding not exceeding $5,000,000, provided that any such Lien shall not encumber cash (other than to the extent such cash constitutes proceeds of the property subject to any such Lien), inventory or accounts receivable. 7.02 Disposition of Assets. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) dispositions of inventory or equipment by the Company or any Subsidiary to the Company or any Subsidiary pursuant to reasonable business requirements; 49. (d) the sale of the Wilsonville Facility for fair market value (as determined in good faith at the time of such sale by the board of directors of the Company); provided that no Default or Event of Default then exists or would result from such sale; (e) the sale of any property listed on Schedule 7.02 for fair market value (as determined in good faith at the time of such sale by the board of directors of the Company or the applicable Subsidiary, as the case may be); provided that no Default or Event of Default then exists or would result from such sale [BofA to review and approve of Schedule]; (f) dispositions not otherwise permitted hereunder which are made for fair market value; provided that (i) at the time of any disposition, no Event of Default shall exist or shall result from such disposition, (ii) the aggregate net book value of all assets so sold by the Company and its Subsidiaries, together, shall not exceed in any fiscal year $10,000,000, and (iii) any such disposition made pursuant to this subsection (f) shall not be of accounts receivable of the Company or any of its Subsidiaries; (g) the disposition of assets owned by the Target on the Funding Date to the extent that such assets are not necessary for operating the combined businesses; and (h) dispositions to the extent permitted under Section 7.03. 7.03 Consolidations and Mergers. The Company shall not, and shall not suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) any Subsidiary may merge with (i) the Company, provided that the Company shall be the continuing or surviving corporation, or (ii) any one or more Subsidiaries, provided that if any transaction shall be between a Subsidiary (other than Target) and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or a Wholly-Owned Subsidiary; (c) the Company or any Subsidiary may merge with any Person in an Acquisition so long as (i) the Company or such Subsidiary shall be the continuing or surviving entity, (ii) such Acquisition is otherwise permitted hereunder and (iii) immediately before and after giving effect to such merger no Default or Event of Default shall exist; and (d) any Subsidiary may merge with any Person pursuant to a disposition of such Subsidiary or the assets of such Subsidiary, in each case, permitted under Section 7.02. 50. 7.04 Loans and Investments. The Company shall not purchase or acquire, or suffer or permit any Subsidiary to purchase or acquire, for cash or property, or make any commitment therefor for cash or property, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Company (together, "Investments"), except for: (a) Investments held by the Company or Subsidiary in the form of Cash Equivalents or short term marketable securities or Permitted Investments; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) Investments by the Company in any of its Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries in the Company or another of its Wholly-Owned Subsidiaries; (d) Investments incurred in order to consummate Acquisitions otherwise permitted herein, provided that (i) the cash consideration given for any such Acquisition, together with the cash consideration given for all prior Acquisitions undertaken by the Company and its Subsidiaries after the Closing Date, shall not exceed $15,000,000 in any fiscal year (other than (x) fiscal year 1998 during which the Company may only make up to three previously disclosed Acquisitions ("Additional Acquisitions") for which the initial cash consideration for each Additional Acquisition shall not exceed $10,000,000 in the aggregate and for which the total cash consideration (including contingent payments) for any one Additional Acquisition does not exceed $30,000,000 in the aggregate, and (y) fiscal year 1999, during which the Company shall make no Acquisitions with cash consideration), (ii) such Acquisitions are undertaken in accordance with all applicable Requirements of Law, (iii) the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained, and (iv) the Fixed Charge Coverage Ratio shall not be less than 1.75 to 1.00; (e) Subject to clause (i) in subsection 7.04(d) above, Investments incurred in order to consummate Acquisitions otherwise permitted herein for which all or a portion of the consideration given for any such Acquisition is common stock of the Company or any Subsidiary, provided that (i) the consideration given for all such Acquisitions in any fiscal year shall not exceed $25,000,000 (including cash consideration) in the aggregate, (ii) such Acquisitions are undertaken in accordance with all applicable Requirements of Law; and (iii) the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained (notwithstanding this clause (iii), if all of the consideration given for any such Acquisition is common stock of the Company or any Subsidiary, then the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree shall not be required hereby); 51. (f) Notwithstanding the limitations set forth in the preceding subsections (d) and (e), Investments incurred in order to consummate the Acquisition of Target pursuant to the terms of the Tender Offer, provided that such Acquisition is undertaken in accordance with all applicable Requirements of Law; (g) Investments constituting Permitted Swap Obligations or payments or advances under Swap Contracts relating to Permitted Swap Obligations; (h) Investments permitted under subsection 7.10(b); (i) Investments incurred in order to consummate Acquisitions not otherwise permitted herein subject to the prior written consent of the Majority Banks; (j) loans made by the Company or any Subsidiary in the ordinary course of business to a person not an Affiliate of the Company in an aggregate principal amount not exceeding $10,000,000 at any time outstanding; (k) loans made by the Company or any Subsidiary to employees in the ordinary course of business consistent with past practice in principal amounts not exceeding $2,500,000 in the aggregate at any time outstanding and not more than $500,000 to any individual employee; (l) other Investments not exceeding $15,000,000 in any fiscal year as to all such Investments in the aggregate; and (m) Investments of the Company or its Subsidiaries outstanding on the Closing Date and identified on Schedule 7.04. For purposes of subsections (j) and (k) hereof, "Subsidiaries" shall not include the Target for 180 days after the Funding Date. 7.05 Limitation on Indebtedness. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to Section 7.08; (c) Indebtedness existing on the Closing Date and set forth in Schedule 7.05; (d) Indebtedness secured by Liens permitted by subsection 7.01(i), (j), (k), (m) and (n); 52. (e) Indebtedness incurred in connection with leases permitted pursuant to Section 7.09; provided that Indebtedness in respect of the sale-leaseback of the Wilsonville Facility shall not exceed its fair market value; (f) extensions, renewals or refinancings of Indebtedness permitted under this Section 7.05, so long as (i) such Indebtedness (the "Refinancing Indebtedness") is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being extended, renewed or refinanced plus the amount of any premiums required to be paid therefor and fees and expenses associated therewith, (ii) such Refinancing Indebtedness has a later or equal final maturity and a longer or equal weighted average life as the Indebtedness being extended, refinanced or renewed, (iii) the interest rate applicable to such Refinancing Indebtedness shall be a market rate (as determined in good faith by the board of directors of the Company or the relevant Subsidiary, as the case may be) as of the time of such extension, renewal or refinancing, (iv) if the Indebtedness being extended, renewed or refinanced is subordinated to the Obligations, such Refinancing Indebtedness is subordinated to the Obligations to the same extent as the Indebtedness being extended, renewed or refinanced and (v) at the time of and after giving effect to such extension, renewal or refinancing, no Default or Event of Default shall exist; (g) Indebtedness incurred by the Company or any Subsidiary as consideration given for an Acquisition permitted hereunder in an aggregate principal amount at any time outstanding not to exceed (i) $10,000,000 plus (ii) any additional Indebtedness that is subordinated to the Obligations pursuant to a subordination agreement in substantially the form of Exhibit G (a "Subordination Agreement"), with such changes as the Agent or the Majority Banks may reasonably request or desire; (h) unsecured Indebtedness not to exceed $100,000,000 in the aggregate for the sole and exclusive purpose of refinancing any Indebtedness owing hereunder; and (i) other unsecured Indebtedness in an aggregate principal amount outstanding not exceeding $10,000,000 at any time. 7.06 Transactions with Affiliates. Except as otherwise expressly permitted hereunder, the Company shall not, and shall not suffer or permit any Subsidiary to, enter into any transaction with any Affiliate of the Company, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary; provided that the loans permitted by subsection 7.04(k) and the Company's or any Subsidiary's employee relocation program as in effect on the Closing Date, as such programs may be amended or otherwise modified after the Closing Date in the ordinary course of business, shall not be subject to the application of this Section 7.06. 7.07 Use of Proceeds. 53. (a) The Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin Stock (other than purchasing stock of the Target), (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock (other than purchasing stock of the Target), (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, in each case, in violation of Regulation G, T or X of the FRB, or (iv) to acquire any security in any transaction that is subject to Section 13(d) or 14(d) of the Exchange Act (other than purchasing stock of the Target). (b) The Company shall not, directly or indirectly, use any portion of the Loan proceeds (i) knowingly to purchase Ineligible Securities from the Arranger during any period in which the Arranger makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by the Arranger, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by the Arranger and issued by or for the benefit of the Company or any Affiliate of the Company. The Arranger is a registered broker-dealer and permitted to underwrite and deal in certain Ineligible Securities; "Ineligible Securities" means securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. ss. 24, Seventh), as amended. 7.08 Contingent Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Permitted Swap Obligations; (c) Contingent Obligations of the Company and its Subsidiaries existing as of the Closing Date and listed in Schedule 7.08; (d) Contingent Obligations with respect to Surety Instruments incurred in the ordinary course of business; (e) Guaranty Obligations by the Company of Indebtedness and other obligations of a Subsidiary, or by any Subsidiary of the Indebtedness and other obligations of the Company or any other Subsidiary, provided that, in each case, such Indebtedness and other obligations are otherwise permitted hereunder; and (f) Contingent Obligations under the Company's or any Subsidiary's employee relocation plan as in effect on the Closing Date, as such plans may be amended or otherwise modified after the Closing Date in the ordinary course of business. 7.09 Lease Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under lease or agreement to lease, except for: 54. (a) operating leases existing on or entered into by the Company or any Subsidiary after the Closing Date in the ordinary course of business and reported in the Company's consolidated financial statements in accordance with GAAP; provided that payments in respect of all such operating leases, together with all payments in respect of capital leases permitted under clause (c) of this Section, do not exceed $30,000,000 in the aggregate in any fiscal year (such amount to be increased by the amount of the Target's operating leases at the end of the fiscal quarter immediately preceding the Funding Date); (b) leases entered into by the Company or any Subsidiary after the Closing Date pursuant to sale-leaseback transactions (i) permitted under subsection 7.02(f) and (ii) in connection with a sale of the Wilsonville Facility permitted under subsection 7.02(d); (c) capital leases, other than those permitted under clause (b) of this Section, entered into by the Company or any Subsidiary after the Closing Date to finance the acquisition of equipment; provided that the aggregate annual rental payments for all such capital leases, together with all payments in respect of operating leases permitted under clause (a) of this Section, shall not exceed $30,000,000 in the aggregate in any fiscal year (such amount to be increased by the amount of the Target's capital leases at the end of the fiscal quarter immediately preceding the Funding Date); and (d) leases entered into by Persons which become Subsidiaries after the date of this Agreement, provided that such leases existed at the time the respective Persons became Subsidiaries and were not created in anticipation thereof. 7.10 Restricted Payments. The Company shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that: (a) the Company may declare and make dividend payments or other distributions payable solely in its common stock; and (b) so long as no Default or Event of Default exists or would result therefrom, the Company may purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares pursuant to any employee stock purchase plan; provided that all such purchases, redemptions or other acquisitions otherwise permitted under this subsection (b) do not exceed $5,000,000 in the aggregate in any fiscal year. 7.11 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan or engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA which has resulted or could reasonably be expected to result in liability of the Company in an aggregate amount in excess of $5,000,000. 55. 7.12 Change in Business. The Company shall not, and shall not suffer or permit any Material Subsidiary to, engage in any material line of business substantially different from design automation and reasonably related lines of business. 7.13 Accounting Changes. The Company shall not make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company. 7.14 Financial Covenants. (a) Adjusted Quick Ratio. The Company shall not as of the end of any fiscal quarter suffer or permit its ratio (determined in respect of the Company and its Subsidiaries on a consolidated basis) of (i) cash plus the value (valued in accordance with GAAP) of all Cash Equivalents, other than cash and Cash Equivalents subject to a Lien securing Indebtedness, plus net current accounts receivable (valued in accordance with GAAP) to (ii) Consolidated Current Liabilities (other than liabilities secured by a Lien on cash or Cash Equivalents), to be less than (A) 0.50 to 1.00 from the Funding Date through the last day of the second fiscal quarter end following the Funding Date or, should the Funding Date take place during the last thirty (30) days of a fiscal quarter, for that fiscal quarter through the two fiscal quarter ends thereafter, but in no event later than September 30, 1999, (B) 0.60 to 1.00 from such date through the last day of fiscal year-end 1999, (C) 0.70 to 1.00 from the fiscal quarter ending March 31, 2000 through the fiscal quarter ending September 30, 2000, and (D) 0.90 to 1.00 for the fiscal quarter ending December 31, 2000 and thereafter. In the event that the Company or any its Subsidiaries receives net cash proceeds from the incurrence of additional Funded Debt in an aggregate amount greater than or equal to (1) $50,000,000, then each of the above minimum ratios shall increase by 0.10, or (2) $75,000,000, then each of the above minimum ratios shall increase by 0.20. (b) Minimum Tangible Net Worth. The Company shall not permit Consolidated Tangible Net Worth as of the end of any fiscal quarter to be less than (i) Consolidated Tangible Net Worth at June 30, 1998 less $17,500,000 plus (ii) 75% of consolidated net income (before merger and acquisition related expenses incurred in respect of the Acquisition of Target or expenses (relating to in-process research and development, goodwill and other intangibles associated with such Acquisition) for other permitted Acquisitions consummated with common stock of the Company or any Subsidiary, as well as special charges of up to $8,000,000 relating principally to the relocation of the Company's billing center in the Netherlands to Ireland taken in the third or fourth fiscal quarter of year-end 1998) earned in each quarterly accounting period beginning with the quarter ended September 30, 1998 (to the extent such number is positive), plus (iii) 100% of the Net Issuance Proceeds of any new equity the Company issues after June 30, 1998, minus (iv) any acquisition-related write-offs (relating to in-process research and development, goodwill and other intangibles associated with the Acquisition) for permitted Acquisitions financed with the issuance of the stock, minus (v) up to $215,000,000 for acquisition-related write-offs resulting from the Acquisition of Target, minus (vi) any acquisition-related write-offs (relating to in-process research and development, goodwill 56. and other intangibles associated with the Acquisition) for permitted Acquisitions paid for in cash or cash and stock. (c) Leverage Ratio. The Company shall not as of the end of any fiscal quarter suffer or permit its Leverage Ratio to be greater than (i) 3.50 to 1.00 from the Funding Date through the last day of the second fiscal quarter end following the Funding Date or, should the Funding Date take place during the last thirty (30) days of a fiscal quarter, for that fiscal quarter through the two fiscal quarter ends thereafter, but in no event later than September 30, 1999 (and defined for these two or three fiscal quarters only as a ratio of Total Funded Debt minus cash or Cash Equivalents in excess of $40,000,000 to Adjusted EBITDA), (ii) 3.25 to 1.00 for the third or fourth fiscal quarter, as the case may be, ending immediately following the Funding Date, (iii) 2.50 to 1.00 for the fourth or fifth fiscal quarter, as the case may be, ending immediately following the Funding Date, (iv) 2.00 to 1.00 for the fifth or sixth fiscal quarter, as the case may be, ending immediately following the Funding Dated and each fiscal quarter thereafter and (v) 1.25 to 1.00 commencing at fiscal quarter ending December 31, 2000 and thereafter. (d) Fixed Charge Coverage Ratio. The Company shall not as of the end of any fiscal quarter suffer or permit its Fixed Charge Coverage Ratio to be less than (i) 3.00 to 1.00 from the fiscal quarter ending March 31, 2000 through the fiscal quarter ending September 30, 2000, and (ii) 5.00 to 1.00 for the fiscal quarter ending December 31, 2000 and thereafter. (e) Minimum Adjusted EBITDA to Interest Ratio. The Company shall not as of the end of any fiscal quarter suffer or permit its ratio of Adjusted EBITDA to interest expense (calculated on an annualized basis) to be less than (i) 2.75 to 1.00 from the Funding Date through the last day of the second fiscal quarter end following the Funding Date or, should the Funding Date take place during the last thirty (30) days of a fiscal quarter, for that fiscal quarter through the two fiscal quarter ends thereafter, but in no event later than September 30, 1999, (ii) 4.50 to 1.00 for the third or fourth fiscal quarter, as the case may be, immediately following the Funding Date and (iii) 6.00 to 1.00 for the fourth or fifth fiscal quarter, as the case may be, immediately following the Funding Date and thereafter but only if the fourth or fifth fiscal quarter following the Funding Date occurs in 1999. 7.15 Maximum Capital Expenditures. The Company shall not make capital expenditures in excess of $45,000,000 for the fiscal year ending 1999. ARTICLE VIII EVENTS OF DEFAULT 8.01 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Company fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within five days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or 57. (b) Representation or Warranty. Any representation or warranty by the Company or any Subsidiary made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company fails to perform or observe any term, covenant or agreement contained in any of Section 6.01, 6.03(a) or 6.12 or in Article VII; or (d) Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which a Responsible Officer knew of such failure or (ii) the date upon which written notice thereof is given to the Company by the Agent or any Bank; or (e) Cross-Acceleration. (i) The Company or any Material Subsidiary (A) fails to make any payment in respect of any Indebtedness or Contingent Obligation (other than in respect of Swap Contracts), having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure, or (B) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition under the preceding clauses (A) or (B) is to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (1) any event of default under such Swap Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (2) any Termination Event (as so defined) as to which the Company or any Subsidiary is an Affected Party (as so defined), and, in either event, the Swap Termination Value owed by the Company or such Subsidiary as a result thereof is greater than $10,000,000; or (f) Insolvency; Voluntary Proceedings. The Company or any Material Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or 58. (g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Material Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $10,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $10,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $10,000,000; or (i) Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary (other than with respect to any judgment, order, decree or arbitration award with respect to any litigation or arbitration proceeding involving the Company and the Target) involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $10,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which has a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Change of Control. There occurs any Change of Control; or (l) Adverse Change. There occurs a Material Adverse Effect; or (m) Invalidity of Subordination Provisions. Any Subordination Agreement or the subordination provisions of any agreement or instrument governing any Indebtedness which is subordinated to the Indebtedness hereunder is for any reason revoked, invalidated or otherwise breached by the Company or any Subsidiary, or otherwise ceases to be in full force and effect as 59. a result of any act or omission of the Company or any Subsidiary, or the Company or any Subsidiary otherwise contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder. 8.02 Remedies. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) declare the commitment of each Bank and the Swingline Bank to make Loans to be terminated, whereupon such commitments shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. 8.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE IX THE AGENT 9.01 Appointment and Authorization; "Agent." Each Bank hereby irrevocably (subject to Section 9.09) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, 60. obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 9.02 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.03 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. 61. (b) For purposes of determining compliance with the conditions specified in Section 4.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 9.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article VIII; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 9.06 Credit Decision. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and credit worthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and credit worthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or credit worthiness of the Company which may come into the possession of any of the Agent-Related Persons. 9.07 Indemnification of Agent. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any 62. portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 9.08 Agent in Individual Capacity. BofA and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though BofA were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, BofA shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" include BofA in its individual capacity. 9.09 Successor Agent. The Agent may, and at the request of the Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be approved by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX and Sections 10.04 and 10.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, BofA may not be removed as the Agent at the request of the Majority Banks unless BofA shall also simultaneously be replaced as Swingline Bank hereunder pursuant to documentation in form and substance reasonably satisfactory to BofA. 9.10 Withholding Tax. 63. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. 64. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. ARTICLE X MISCELLANEOUS 10.01 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Agent at the written request of the Majority Banks) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to Section 8.02); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (ii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; or (e) amend this Section, or Section 2.14, or any provision herein providing for consent or other action by all Banks; 65. and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Bank in addition to the Majority Banks or all the Banks, as the case may be, increase the Swingline Commitment or otherwise affect the rights or duties of the Swingline Bank under this Agreement, and (iii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 10.02 Notices. (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 10.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 10.02; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II or IX to the Agent shall not be effective until actually received by the Agent. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 10.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, 66. remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.04 Costs and Expenses. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse BofA (including in its capacity as Agent) within thirty (30) calendar days after demand (subject to subsection 4.01(e)) for all reasonable costs and expenses incurred by BofA (including in its capacity as Agent) in connection with the development, preparation, delivery, administration, syndication and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by BofA (including in its capacity as Agent) with respect thereto; and (b) pay or reimburse the Agent, the Arranger and each Bank within five Business Days after demand (subject to subsection 4.01(e)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 10.05 Company Indemnification. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify, defend and hold the Agent-Related Persons, and each Bank and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Agent or replacement of any Bank) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, with respect to any demand, claim, investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 10.06 Payments Set Aside. To the extent that the Company makes a payment to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or 67. the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent. 10.07 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank. 10.08 Assignments, Participations, etc. (a) Any Bank may, with the written consent of the Company at all times other than during the existence of an Event of Default, the Agent and the Swingline Bank, which consents shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company, the Agent or the Swingline Bank shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations of such Bank hereunder, in a minimum amount of $10,000,000; provided, however, that the Company and the Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of Exhibit E ("Assignment and Acceptance"); (iii) the assignor Bank or Assignee has paid to the Agent a processing fee in the amount of $4,000; and (iv) the Agent, the Swingline Bank and the Company each consents to such assignment in accordance with this Section. In connection with any assignment by BofA, its Swingline Commitment may be assigned in whole (and not in part) and only in connection with an assignment transaction involving an assignment of all of its Commitment and Loans, and the Assignment and Acceptance may be appropriately modified to include an assignment and delegation of its Swingline Commitment and any outstanding Swingline Loans. (b) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such 68. Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance and payment of the processing fee, (and provided that the Swingline Bank and the Company each consent to such assignment in accordance with subsection 10.08(a)), the Company shall, if requested by the Agent or any Bank, execute and deliver to the Agent new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. (d) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (i) the originating Bank's obligations under this Agreement shall remain unchanged, (ii) the originating Bank shall remain solely responsible for the performance of such obligations, (iii) the Company and the Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to Section 10.01. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 3.01, 3.03 and 10.05 (provided that the Participant shall not be entitled to receive any greater payment under Sections 3.01 or 3.03 than the originating Bank would have been entitled to receive with respect to the participation sold to such Participant and the Participant shall not be entitled to indemnification for Attorney Costs of counsel selected solely by and representing the interests only of the Participant) as though it were also a Bank hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss. 203.14, and such Federal 69. Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 10.09 Confidentiality. Each Bank agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, or by the Agent on the Company's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process (provided that such Bank shall use its good faith efforts to give the Company notice of such subpoena or other court process); (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party (provided that the such Bank shall use its good faith efforts to provide notice to the Company of such litigation or proceeding); (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to be subject to the provisions of this Section 10.09; (H) as to any Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I) to its Affiliates. 10.10 Set-off. In addition to any rights and remedies of the Banks provided by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 70. 10.11 Automatic Debits of Fees. With respect to any commitment fee, arrangement fee, or other fee, or any other cost or expense (including Attorney Costs) due and payable to the Agent, BofA or the Arranger under the Loan Documents, the Company hereby irrevocably authorizes BofA to debit any deposit account of the Company with BofA in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in BofA's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 10.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 10.13 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 10.14 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.15 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Banks, the Agent and the Agent-Related Persons and the Indemnified Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 10.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OREGON OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA OR OREGON, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, 71. THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 10.17 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 10.18 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Company, the Banks, the Swingline Bank and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 72. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in San Francisco, California, by their proper and duly authorized officers as of the day and year first above written. MENTOR GRAPHICS CORPORATION By: ------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, Swingline Bank and a Bank By: ------------------------- Name: Kevin McMahon Title: Managing Director 73. ANNEX I PRICING GRID LIBOR Base Rate Commitment Leverage Margin Margin Fee -------- ------ --------- ---------- 1. x > = 3.50 2.500 1.250 0.500 2. 3.00 < = x < 3.50 2.250 1.000 0.500 3. 2.50 < = x < 3.00 2.000 0.750 0.375 4. 2.00 < = x < 2.50 1.750 0.500 0.375 5. 1.50 < = x < 2.00 1.500 0.250 0.375 6. 1.00 < = x < 1.50 1.250 0.000 0.350 7. x < 1.00 1.000 0.000 0.325 The Leverage Ratio (for purposes of this pricing grid, the Leverage Ratio shall not be subject to the adjustment for cash and Cash Equivalents in excess of $40,000,000 as set forth in Section 7.14(c)(i)) used to compute the Commitment Fee and the Applicable Margin shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Company to the Agent pursuant to Section 6.02(b) of the Credit Agreement; changes in the Commitment Fee and the Applicable Margin resulting from a change in the Leverage Ratio shall become effective on the date of delivery by the Company to the Agent of a new Compliance Certificate and accompanying financial statements pursuant to Section 6.02(b). If the Company shall fail to deliver a Compliance Certificate and accompanying financial statements within the number of days after the end of any fiscal quarter or fiscal year as required pursuant to Section 6.02(b) (without giving effect to any grace period), the Commitment Fee and the Applicable Margin from the first day after the date on which such Compliance Certificate was required to be delivered to the Agent until the day on which the Company delivers to the Agent a Compliance Certificate and accompanying financial statements shall conclusively equal the highest Commitment Fee and Applicable Margin set forth above. Notwithstanding the foregoing, during the period from the Funding Date until the date of the Agent's receipt of a Compliance Certificate and accompanying financial statements for the fiscal quarter in which the Acquisition of Target is consummated (or for the fiscal year, as the case may be, if the Acquisition of Target is consummated in the fourth fiscal quarter), the Commitment Fee and Applicable Margin shall be locked in at level 1 above. Notwithstanding the foregoing, to the extent that the Company has not reduced the aggregate Commitment pursuant to Section 2.06(a) by at least $25,000,000 by the first day following the first anniversary of the Funding Date or by an additional $25,000,000 by the first day following the second anniversary of the Funding Date then, in each case, the Applicable Margin shall be increased by 0.25 until such reductions shall have occurred. 1 ANNEX I SCHEDULE 2.01 COMMITMENTS AND PRO RATA SHARES Bank Commitment Pro Rata Share - ---- ---------- -------------- Bank of America National Trust $200,000,000 100% and Savings Association TOTAL $200,000,000 100% 1 SCHEDULE 2.01 SCHEDULE 10.02 OFFSHORE AND DOMESTIC LENDING OFFICES, ADDRESSES FOR NOTICES MENTOR GRAPHICS CORPORATION Address for Notices: Mentor Graphics Corporation 8005 SW Boeckman Road Wilsonville, OR 97070 Attention: Dennis Weldon Telephone: (503) 685-7830 Facsimile: (503) 685-7707 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Borrowing Notices: Bank of America National Trust and Savings Association Agency Administrative Services #5596 1850 Gateway Boulevard, 5th Floor Concord, California 94520-3281 Attention: Mentor Graphics AO Telephone: (925) 675-8432 Facsimile: (925) 675-8500 Agent's Payment Office: Bank of America National Trust and Savings Association ABA 121-000-358 Attention: PSO #5693 1850 Gateway Boulevard Concord, California 94520-3281 1 SCHEDULE 10.02 For Credit to Account No.: 12336-16087 All Other Notices: Bank of America National Trust and Savings Association, High Technology #3697 555 California Street - 41st Floor San Francisco, California 94104 Attention: Kevin McMahon, Managing Director Telephone: (415) 622-8088 Facsimile: (415) 622-2385 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Bank Domestic and Offshore Lending Office: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION Global Payment Operations Customer Service Americas (#5693) 1850 Gateway Boulevard Concord, California 94520-3281 Attention: John Sanchez Telephone: (925) 675-7331 Facsimile: (925) 675-7256 ABA: 121-000-358 SF Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Bank of America National Trust and Savings Association, High Technology #3697 555 California Street - 41st Floor San Francisco, California 94104 Attention: Kevin McMahon, Managing Director Telephone: (415) 622-8088 Facsimile: (415) 622-4585 2 SCHEDULE 10.02 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Swingline Bank BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION Global Payment Operations Customer Service Americas (#5693) 1850 Gateway Boulevard Concord, California 94520-3281 Attention: John Sanchez Telephone: (925) 675-7331 Facsimile: (925) 675-7256 ABA: 121-000-358 SF 3 SCHEDULE 10.02 EXHIBIT A NOTICE OF BORROWING Date: ________________ To: Bank of America National Trust and Savings Association as Agent for the Banks parties to the Credit Agreement dated as of __________ ___, 1998 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Mentor Graphics Corporation, certain Banks which are signatories thereto and Bank of America National Trust and Savings Association, as Agent Ladies and Gentlemen: The undersigned, Mentor Graphics Corporation (the "Company"), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section [2.05] of the Credit Agreement, of the Borrowing specified below: 1. The Business Day of the proposed Borrowing is ____________. 2. The aggregate amount of the proposed Borrowing is $_____________. 3. The Borrowing is to be comprised of $___________ of [Base Rate] [Offshore Rate] Loans. [4. The duration of the Interest Period for the Offshore Rate Loans included in the Borrowing shall be [_____] months]. [5. The duration of the Swingline Loans included in the Borrowing shall be [____] days.] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Company contained in Article V of the Credit Agreement are true and correct in all material respects as though made on and as of such date (except to the extent such representations and warranties relate solely to an earlier date, in which case they are true and correct as of such date); (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing; and A-1 (c) the proposed Borrowing will cause neither the aggregate principal amount of all outstanding Loans to exceed the combined Commitments of the Banks nor the aggregate principal amount of all outstanding Swingline Loans to exceed the Swingline Commitment. MENTOR GRAPHICS CORPORATION By: ----------------------------------- Title: ----------------------------------- A-2 EXHIBIT B NOTICE OF CONVERSION/CONTINUATION Date: ________________ To: Bank of America National Trust and Savings Association, as Agent for the Banks parties to the Credit Agreement dated as of _________ ___, 1998 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Mentor Graphics Corporation, certain Banks which are signatories thereto and Bank of America National Trust and Savings Association, as Agent Ladies and Gentlemen: The undersigned, Mentor Graphics Corporation (the "Company"), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 2.04 of the Credit Agreement, of the [conversion] [continuation] of the Loans specified herein, that: 1. The Conversion/Continuation Date is ____________. 2. The aggregate amount of the Loans to be [converted] [continued] is $_____________. 3. The Loans are to be [converted into] [continued as] [Offshore Rate] [Base Rate] Loans. 4. [If applicable:] The duration of the Interest Period for the Offshore Rate Loans included in the [conversion] [continuation] shall be [____ months]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed Conversion/Continuation Date, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Company contained in Article V of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate solely to an earlier date, in which case they are true and correct as of such date); (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation]; and B-1 (c) the proposed [conversion][continuation] will not cause the aggregate principal amount of all outstanding Loans to exceed the combined Commitments of the Banks. MENTOR GRAPHICS CORPORATION By: ----------------------------------- Title: ----------------------------------- B-2 EXHIBIT C MENTOR GRAPHICS CORPORATION COMPLIANCE CERTIFICATE Financial Statement Date: ____________ Reference is made to that certain Credit Agreement dated as of _________ ___, 1998 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Mentor Graphics Corporation, an Oregon corporation (the "Company"), the several financial institutions from time to time parties to the Credit Agreement (the "Banks") and Bank of America National Trust and Savings Association, as agent for the Banks (in such capacity, the "Agent"). Unless otherwise defined herein, capitalized terms used herein have the respective meanings assigned to them in the Credit Agreement. The undersigned Responsible Officer of Mentor Graphics Corporation, hereby certifies as of the date hereof that he/she is the __________________ of the Company, and that, as such, he/she is authorized to execute and deliver this Certificate to the Banks and the Agent on the behalf of the Company and its consolidated Subsidiaries, and that: [Use the following paragraph if this Certificate is delivered in connection with the financial statements required by subsection 6.01(a) of the Credit Agreement.] 1. Attached as Schedule 1 hereto are (a) a true and correct copy of the audited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of the fiscal year ended _______________ and (b) the related consolidated statements of operations and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit and accompanied by the opinion of _________________ (the "Independent Auditor") which report states that such consolidated financial statements have been prepared in accordance with GAAP consistently applied, and fairly present, in all material respects, the financial position of the Company and its consolidated Subsidiaries for the periods indicated. or [Use the following paragraph if this Certificate is delivered in connection with the financial statements required by subsection 6.01(b) of the Credit Agreement.] C-1 1. Attached as Schedule 1 hereto are (a) a true and correct copy of the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as of the end of the fiscal quarter ended __________, and (b) the related unaudited consolidated statements of operations and cash flows for the period commencing on the first day and ending on the last day of such quarter, setting forth in each case in comparative form the figures for the previous year, which financial statements were prepared in accordance with GAAP (subject only to ordinary, good faith year-end audit adjustments and the absence of footnotes) and fairly present, in all material respects, the financial position and the results of operations of the Company and its consolidated Subsidiaries. 2. The undersigned has reviewed and is familiar with the terms of the Credit Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and conditions (financial or otherwise) of the Company during the accounting period covered by the attached financial statements. 3. To the best of the undersigned's knowledge, the Company is in compliance with all of its covenants, other agreements, and conditions in the Credit Agreement to be observed, performed or satisfied by the Company, and the undersigned has no knowledge of any Default or Event of Default. 4. The financial covenant analyses and information set forth on Schedule 2 attached hereto are a fair presentation of the Company's financial covenant compliance on and as of the date of this Certificate. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of ________________. MENTOR GRAPHICS CORPORATION By: -------------------------------- Title: -------------------------------- C-2 EXHIBIT D-1 FORM OF OPINION OF LATHAM & WATKINS Opinion to be in substantially the form of Stoel Rives LLP's opinion delivered in connection with the Existing Facility with exceptions to be reasonably satisfactory to the parties to the Credit Agreement. D-1 EXHIBIT D-2 FORM OF OPINION OF GENERAL COUNSEL OF COMPANY Opinion to be in substantially the form of the General Counsel's opinion letter delivered in connection with the Existing Facility. D-1 EXHIBIT E FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance") dated as of __________ is made between __________________ (the "Assignor") and ______________________ (the "Assignee"). RECITALS WHEREAS, the Assignor is party to that certain Credit Agreement dated as of _______ ___, 1998 (as amended, amended and restated, modified, supplemented or renewed, the "Credit Agreement") among Mentor Graphics Corporation, an Oregon corporation (the "Company"), the several financial institutions from time to time party thereto (including the Assignor, the "Banks"), and Bank of America National Trust and Savings Association, as agent for the Banks (the "Agent"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans (the "Committed Loans") to the Company in an aggregate amount not to exceed $__________ (the "Commitment"); WHEREAS, [the Assignor has made Committed Loans in the aggregate principal amount of $__________ to the Company] [no Committed Loans are outstanding under the Credit Agreement]; WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, [together with a corresponding portion of each of its outstanding Committed Loans] in an amount equal to $__________ (the "Assigned Amount") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "Assignee's Percentage Share") of (A) the Commitment [and the Committed Loans] of the E-1 Assignor and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [If appropriate, add paragraph specifying payment to Assignor by Assignee of outstanding principal of, accrued interest on, and fees with respect to, Committed Loans assigned.] (b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Article III or Section 10.05 of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $__________. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $__________. 2. Payments. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing the Assignee's Pro Rata Share of the principal amount of all Committed Loans. (b) The [Assignor] [Assignee] further agrees to pay to the Agent a processing fee in the amount specified in Section 10.08(a) of the Credit Agreement. 3. Reallocation of Payments. Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment[,] [and Committed Loans] shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may E-2 receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Independent Credit Decision. The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section 6.01(___) of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement. 5. Effective Date; Notices. (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, 199__ (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section 10.08(a) of the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; (iv) the Assignee shall have complied with Section 10.09(g) of the Credit Agreement (if applicable); (v) the processing fee referred to in Section 2(b) hereof and in Section 10.08(a) of the Credit Agreement shall have been paid to the Agent; and (vi) the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee's Percentage Share of the rights and obligations of the Assignor under the Credit Agreement (if such agreement exists). (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company and the Agent for acknowledgement by the Agent, a Notice of Assignment substantially in the form attached hereto as Schedule 1. E-3 6. Agent. (a) The Assignee hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the Banks pursuant to the terms of the Credit Agreement. [(b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent or as the Swingline Bank under the Credit Agreement.] [INCLUDE ONLY IF ASSIGNOR IS AGENT] 7. Withholding Tax. The Assignee (a) represents and warrants to the Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Agent or the Company with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Company prior to the time that the Agent or Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. E-4 (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. Further Assurances. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. E-5 (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in California over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such California State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). [Other provisions to be added as may be negotiated between the Assignor and the Assignee, provided that such provisions are not inconsistent with the Credit Agreement.] IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: ---------------------------- Title: ----------------------------------- Address: E-6 [ASSIGNEE] By: ---------------------------- Title: ----------------------------------- Address: E-7 SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE _______________, 19__ Bank of America National Trust and Savings Association, as Agent 555 California Street, 41st Floor High Technology #3697 San Francisco, CA 94104 Attn: Kevin McMahon, Managing Director Mentor Graphics Corporation 8005 SW Boeckman Road Wilsonville, OR 97070 Attn: Dennis Weldon, Treasurer Ladies and Gentlemen: We refer to the Credit Agreement dated as of _________ ___, 1998 (as amended, amended and restated, modified, supplemented or renewed from time to time the "Credit Agreement") among Mentor Graphics Corporation (the "Company"), the Banks referred to therein and Bank of America National Trust and Savings Association as agent for the Banks (the "Agent"). Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by __________________ (the "Assignor") to _______________ (the "Assignee") of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including, without limitation, the right, title and interest of the Assignor in and to the Commitments of the Assignor[,] [and] all outstanding Loans made by the Assignor pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and Acceptance"). Before giving effect to such assignment the Assignor's Commitment is $ ___________[,] [and] the aggregate amount of its outstanding Loans is $_____________. 2. The Assignee agrees that, upon receiving the consent of the Agent, the Swingline Bank and, if applicable, Mentor Graphics Corporation to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. E-8 3. The following administrative details apply to the Assignee: Notice Address: Assignee name: ____________________________________ Address: ____________________________________ ____________________________________ ____________________________________ Attention: ____________________________________ Telephone: (___) ______________________________ Telecopier: (___) ______________________________ Telex (Answerback): ____________________________________ Payment Instructions: Account No.: ____________________________________ At: ____________________________________ ____________________________________ ____________________________________ Reference: ____________________________________ Attention: ____________________________________ 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. [NAME OF ASSIGNOR] By: -------------------------------- Title: -------------------------------- [NAME OF ASSIGNEE] By: -------------------------------- Title: -------------------------------- E-9 ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: MENTOR GRAPHICS CORPORATION By: -------------------------------- Title: -------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent and as Swingline Bank By: -------------------------------- Its: -------------------------------- E-10 EXHIBIT F FORM OF PROMISSORY NOTE $____________ _____________, 199_ FOR VALUE RECEIVED, the undersigned, Mentor Graphics Corporation, an Oregon corporation (the "Company"), hereby promises to pay to the order of ___________________ (the "Bank") the principal sum of ____________ Dollars ($___________) or, if less, the aggregate unpaid principal amount of all Loans made by the Bank to the Company pursuant to the Credit Agreement, dated as of _________ ___, 1998 (such Credit Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time, being hereinafter called the "Credit Agreement"), among the Company, the Bank, the other banks parties thereto, and Bank of America National Trust and Savings Association, as Agent for the Banks, on the dates and in the amounts provided in the Credit Agreement. The Company further promises to pay interest on the unpaid principal amount of the Loans evidenced hereby from time to time at the rates, on the dates, and otherwise as provided in the Credit Agreement. The Bank is authorized to endorse the amount and the date on which each Loan is made, the maturity date therefor and each payment of principal with respect thereto on the schedules annexed hereto and made a part hereof, or on continuations thereof which shall be attached hereto and made a part hereof; provided that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect any obligation of the Company under the Credit Agreement and this Promissory Note (the "Note"). This Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Terms defined in the Credit Agreement are used herein with their defined meanings therein unless otherwise defined herein. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of California applicable to contracts made and to be performed entirely within such State. MENTOR GRAPHICS CORPORATION By: -------------------------------- Title: -------------------------------- F-1 Schedule A to Note BASE RATE LOANS AND REPAYMENT OF BASE RATE LOANS (1) (2) (3) (4) (5) Amount of Maturity Date Amount of Base of Base Rate Loan Notation Date Rate Loan Base Rate Loan Repaid Made By - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- F-2 Schedule B to Note OFFSHORE RATE LOANS AND REPAYMENT OF OFFSHORE RATE LOANS (1) (2) (3) (4) (5) Maturity Date Amount of Amount of of Offshore Base Offshore Rate Offshore Base Rate Loan Notation Date Loan Rate Loan Repaid Made By - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- F-3 EXHIBIT G to the Credit Agreement FORM OF SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of _______________, is made among Mentor Graphics Corporation, an Oregon corporation (the "Borrower"), each of the financial institutions named on the signature pages hereof under the heading "BANKS" (each a "Bank" and, collectively, the "Banks") Bank of America National Trust and Savings Association, as agent for the Banks (in such capacity, the "Agent") and _____________________, a _____________ corporation (the "Creditor"). The Borrower, the Banks and the Agent are parties to a Credit Agreement dated _________ ___, 1998 (as amended, modified, renewed, extended, restated or replaced from time to time, the "Credit Agreement"), pursuant to which the Banks have agreed to make certain revolving loans to the Borrower. Additionally, the Borrower intends to become indebted to the Creditor in the principal amount of $________________, [pursuant to a __________ Agreement, dated [as of] ____________ (as amended, modified, renewed, extended, restated or replaced from time to time, the "________ Agreement") and the _________ Note dated ________________ (the "Subordinated Note") outstanding thereunder] [pursuant to a ___________ Note dated _____________ (as amended, modified, renewed, extended, restated or replaced from time to time, the "Subordinated Note")]. It is a requirement under the Credit Agreement that the Borrower deliver this Agreement to the Agent and the Banks to provide for the subordination of the Borrower's indebtedness to the Creditor. The Creditor has agreed to the subordination of such indebtedness to it, upon the terms and subject to the conditions set forth in this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1 Definitions; Interpretation. (a) Terms Defined in Credit Agreement. All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. (b) Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Creditor Collateral" means any property now existing or hereafter acquired which may at any time be or become subject to a Lien in favor of the Creditor pursuant to the [____________ Agreement,] the Subordinated Note or otherwise, securing payment and performance of the Subordinated Debt. "Insolvency Event" has the meaning set forth in Section 3. G-1 "Net Cash Flow from Operations" means net cash flow from operations less capital expenditures less cash dividends, in each case, of the Subsidiary whose Acquisition is financed in whole or in part by the Subordinated Debt. "Senior Debt" means the indebtedness, liabilities and other obligations of the Borrower to the Agent and the Banks under or in connection with the Credit Agreement, the Notes and the other Loan Documents, including all unpaid principal of the Loans, all interest accrued thereon, all fees due under the Credit Agreement and all other amounts payable by the Borrower to the Agent and the Banks thereunder or in connection therewith, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined. "Subordinated Debt" means all indebtedness, liabilities and other obligations of the Borrower to the Creditor, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined, including all principal on [the credit extensions made by the Creditor to the Borrower under the __________ Agreement] [the Subordinated Note], all interest accrued thereon, all fees and all other amounts payable by the Borrower to the Creditor under or in connection with [the _________ Agreement,] the Subordinated Note and any other documents or instruments related thereto. "Subordinated Debt Payment" means any payment or distribution by or on behalf of the Borrower, directly or indirectly, of assets of the Borrower of any kind or character, whether in cash, property or securities, including on account of the purchase, redemption or other acquisition of Subordinated Debt, as a result of any collection, sale or other disposition of collateral, or by setoff, exchange or in any other manner, for or on account of the Subordinated Debt. (c) Interpretation. In this Agreement, except to the extent the context otherwise requires: (i) Any reference in this Agreement to an Article, a Section, a Schedule or an Exhibit is a reference to an article hereof, a section hereof, a schedule hereto or an exhibit hereto, respectively, and to a subsection hereof or a clause hereof is, unless otherwise stated, a reference to a subsection or a clause of the Section or subsection in which the reference appears. (ii) The words "hereof," "herein," "hereto," "hereunder" and the like mean and refer to this Agreement as a whole and not merely to the specific Article, Section, subsection, paragraph or clause in which the respective word appears. (iii) The meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined. (iv) The words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation." G-2 (v) References to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto. (vi) References to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation referred to. (vii) The captions and headings are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 2 Agreement of Subordination. (a) Subordination to Payment of Senior Debt. All payments on account of the Subordinated Debt shall be subject, subordinate and junior, in right of payment and exercise of remedies, to the extent and in the manner set forth herein, to the prior indefeasible payment in full in cash or cash equivalents of the Senior Debt. (b) Subordination of Liens. All Liens now or hereafter existing of the Creditor in any Creditor Collateral shall be subject, subordinate and junior in all respects and at all times to the Liens now or hereafter existing of the Banks (or the Agent on behalf of the Banks) therein, regardless of the time or order of attachment or perfection of such Liens, the time or order of filing of financing statements, the acquisition of purchase money or other Liens, the time of giving or failure to give notice of the acquisition or expected acquisition of any purchase money or other Liens, or any other circumstances whatsoever. SECTION 3 Subordination Upon Any Distribution of Assets of the Borrower. In the event of any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, upon the dissolution, winding up or total or partial liquidation or reorganization, readjustment, arrangement or similar proceeding relating to the Borrower or its property, whether voluntary or involuntary or in bankruptcy, insolvency, receivership, arrangement or similar proceedings or upon an assignment for the benefit of creditors, or upon any other marshalling or composition of the assets and liabilities of the Borrower, or otherwise (such events, collectively, the "Insolvency Events"): (i) all amounts owing on account of the Senior Debt shall first be indefeasibly paid in full in cash, or payment provided for in cash or in cash equivalents, before any Subordinated Debt Payment is made; and (ii) to the extent permitted by applicable law, any Subordinated Debt Payment to which the Creditor would be entitled except for the provisions hereof, shall be paid or delivered by the trustee in bankruptcy, receiver, assignee for the benefit of creditors or other liquidating agent making such payment or distribution directly to the Agent (on behalf of the Banks) for application to the payment of the Senior Debt in accordance with clause (i), after giving effect to any concurrent payment or distribution or provision therefor to the Agent or the Banks in respect of such Senior Debt. G-3 SECTION 4 Payments on Subordinated Debt. (a) Permitted Payments. Prior to the occurrence of any Event of Default, the Borrower may make, and the Creditor shall be entitled to accept and receive, only regularly scheduled payments on account of principal of and interest on the Subordinated Debt, in accordance with the terms of [the ______________ Agreement and] the Subordinated Note; provided, however, that notwithstanding the foregoing provisions of this Section 4 the Borrower shall not make, and the Creditor shall not accept or receive, in any fiscal quarter of the Borrower, any payments on account of the Subordinated Debt in an aggregate amount in excess of 50% of Net Cash Flow from Operations for such fiscal quarter. (b) No Payment Upon Senior Debt Defaults. Upon the occurrence of any Event of Default, and until such Event of Default is cured or waived, the Borrower shall not make, and the Creditor shall not accept or receive, any Subordinated Debt Payment. SECTION 5 Subordination of Remedies. As long as any Senior Debt shall remain outstanding and unpaid, the Creditor shall not, without the prior written consent of the Agent (acting on instructions from the Majority Banks): (i) accelerate, make demand or otherwise make due and payable prior to the original stated maturity thereof any Subordinated Debt or bring suit or institute any other actions or proceedings to enforce its rights or interests under or in respect of [the ___________ Agreement and] the Subordinated Note; (ii) exercise any rights under or with respect to (A) any guaranties of the Subordinated Debt, or (B) any Creditor Collateral, including causing or compelling the pledge or delivery of any Creditor Collateral, any attachment of, levy upon, execution against, foreclosure upon or the taking of other action against or institution of other proceedings with respect to any Creditor Collateral, notifying any account debtors of the Borrower or asserting any claim or interest in any insurance with respect to the Creditor Collateral, or attempt to do any of the foregoing; (iii) exercise any rights to set-offs and counterclaims in respect of any indebtedness, liabilities or obligations of the Creditor to the Borrower against any of the Subordinated Debt; or (iv) commence, or cause to be commenced, or join with any creditor other than the Banks in commencing, any bankruptcy, insolvency or receivership proceeding against the Borrower. SECTION 6 Payment Over to Agent. In the event that, notwithstanding the provisions of Sections 3, 4 and 5, any Subordinated Debt Payments shall be received in contravention of such Sections 3, 4 and 5 by the Creditor before all Senior Debt is indefeasibly paid in full in cash or cash equivalents, such Subordinated Debt Payments shall be held in trust for the benefit of the Banks and the Agent and shall be paid over or delivered to the Agent for G-4 application to the payment in full in cash or cash equivalents of all Senior Debt remaining unpaid to the extent necessary to give effect to such Sections 3, 4 and 5, after giving effect to any concurrent payments or distributions to the Agent and the Banks in respect of the Senior Debt. SECTION 7 Authorization to Agent. If, while any Subordinated Debt is outstanding, any Insolvency Event shall occur relating to the Borrower or its property: (i) the Agent, when so instructed by the Majority Banks, is hereby irrevocably authorized and empowered (in the name of the Banks or in the name of the Creditor or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution in respect of the Subordinated Debt and give acquittance therefor and to file claims and proofs of claim and take such other action (including voting the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Agent and the Banks; and (ii) the Creditor shall promptly take such action as the Agent (on instruction from the Majority Banks) may reasonably request (A) to collect the Subordinated Debt for the account of the Banks and to file appropriate claims or proofs of claim in respect of the Subordinated Debt, (B) to execute and deliver to the Agent such powers of attorney, assignments and other instruments as it may request to enable it to enforce any and all claims with respect to the Subordinated Debt, and (C) to collect and receive any and all Subordinated Debt Payments. SECTION 8 Representations and Warranties. The Creditor represents and warrants to each Bank and the Agent that: (a) Organization and Powers. The Creditor is a corporation duly organized, validly existing and in good standing under the law of the jurisdiction of its incorporation and has all requisite power and authority to own its assets and carry on its business and to execute, deliver and perform its obligations under this Agreement. (b) Authorization; No Conflict. The execution, delivery and performance by the Creditor of this Agreement have been duly authorized by all necessary corporate action of the Creditor, and do not and will not: (i) contravene the terms of the certificate or articles, as the case may be, of incorporation and the bylaws of the Creditor, (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Creditor is a party or by which it or its properties may be bound or affected; or (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding on or affecting the Creditor. (c) Binding Obligation. This Agreement constitutes the legal, valid and binding obligation of the Creditor, enforceable against the Creditor in accordance with its terms. (d) Consents. No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval or consent of any other Person, is required for the due execution, delivery or performance by the Creditor of this Agreement. G-5 (e) No Prior Assignment. The Creditor has not previously assigned any interest in the Subordinated Debt or any Creditor Collateral, no Person other than the Creditor owns an interest in the Subordinated Debt or Creditor Collateral (whether as joint holders of the Subordinated Debt, participants or otherwise), and the entire Subordinated Debt is owing only to the Creditor. (f) Independent Investigation. The Creditor hereby acknowledges that it has undertaken its own independent investigation of the financial condition of the Borrower and all other matters pertaining to this Agreement and further acknowledges that it is not relying in any manner upon any representation or statement of the Agent or the Banks with respect thereto. The Creditor represents and warrants that it is aware of the terms of the Loan Documents and that it is in a position to obtain, and it hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of the Borrower and any other matters pertinent hereto that the Creditor may desire. The Creditor is not relying upon or expecting the Agent or the Banks to furnish to the Creditor any information now or hereafter in the Agent's or the Banks' possession concerning the financial condition of the Borrower or any other matter. SECTION 9 Certain Agreements of the Creditor. (a) No Benefits. The Creditor understands that there may be various agreements among the Agent, the Banks and the Borrower evidencing and governing the Senior Debt, and the Creditor acknowledges and agrees that such agreements are not intended to confer any benefits on the Creditor and that the Agent and the Banks shall have no obligation to the Creditor or any other Person to exercise any rights, enforce any remedies, or take any actions which may be available to it under such agreements. (b) No Interference. The Creditor acknowledges that the Borrower has granted or may hereafter grant the Agent and the Banks a security interest in all or certain of the Borrower's assets, including the Creditor Collateral, and agrees not to interfere with or in any manner oppose a disposition of any such collateral by the Agent or the Banks in accordance with applicable law. (c) Reliance by Agent and Banks. The Creditor acknowledges and agrees that the Agent and the Banks will have relied upon and will continue to rely upon the subordination provisions provided for herein and the other provisions hereof in entering into the Loan Documents and making the Loans thereunder. (d) Waivers. The Creditor waives any and all notice of the incurrence of the Senior Debt or any part thereof and any right to require marshalling of assets. (e) Obligations of Creditor Not Affected. The Creditor agrees that at any time and from time to time, without notice to or the consent of the Creditor, without incurring responsibility to the Creditor, and without impairing or releasing the subordination provided for herein or otherwise impairing the rights of the Agent and the Banks hereunder: G-6 (i) the time for the Borrower's performance of or compliance with any of its agreements contained in the Loan Documents may be extended or such performance or compliance may be waived by the Agent and the Banks in accordance with the Loan Documents; (ii) the agreements of the Borrower with respect to the Loan Documents may from time to time be modified by the Borrower, the Banks and the Agent in accordance with the Loan Documents for the purpose of adding any requirements thereto or changing in any manner the rights and obligations of the Borrower, the Banks or the Agent thereunder; (iii) the manner, place or terms for payment of Senior Debt or any portion thereof may be altered or the terms for payment extended, or the Senior Debt may be renewed in whole or in part; (iv) the maturity of the Senior Debt may be accelerated in accordance with the terms of any present or future agreement by the Borrower, the Agent and the Banks; (v) any collateral may be sold, exchanged, released or substituted and any Lien in favor of the Agent or the Banks may be terminated, subordinated or fail to be perfected or become unperfected; (vi) any Person liable in any manner for Senior Debt may be discharged, released or substituted; and (vii) all other rights against the Borrower, any other Person or with respect to any collateral may be exercised (or the Agent and the Banks may waive or refrain from exercising such rights). (f) Rights of Agent and Banks Not to Be Impaired. No right of the Agent or the Banks to enforce the subordination provided for herein or to exercise their other rights hereunder shall at any time in any way be prejudiced or impaired by any act or failure to act by the Borrower, the Agent or the Banks hereunder or under or in connection with the other Loan Documents or by any noncompliance by the Borrower with the terms and provisions and covenants herein or in any other Loan Document, regardless of any knowledge thereof the Agent or the Banks may have or otherwise be charged with. (g) Financial Condition of Borrower. The Creditor shall not have any right to require the Agent or the Banks to obtain or disclose any information with respect to: (i) the financial condition or character of the Borrower or the ability of the Borrower to pay and perform Senior Debt; (ii) the Senior Debt; (iii) any collateral or other security for any or all of the Senior Debt; (iv) the existence or nonexistence of any guarantees of, or any other subordination agreements with respect to, all or any part of the Senior Debt; (v) any action or inaction on the part of the Agent, the Banks or any other Person; or (vi) any other matter, fact or occurrence whatsoever. G-7 (h) Acquisition of Liens or Guaranties. The Creditor shall not, without the prior consent of the Agent and the Majority Banks, acquire any right or interest in or to any Creditor Collateral or accept any guaranties for the Subordinated Debt. SECTION 10 Subrogation. (a) Subrogation. Until the indefeasible payment and performance in full of all Senior Debt, the Creditor shall not have, and shall not directly or indirectly exercise, any rights that it may acquire by way of subrogation under this Agreement, by any payment or distribution to the Agent or the Banks hereunder or otherwise. Upon the indefeasible payment and performance in full of all Senior Debt, the Creditor shall be subrogated to the rights of the Agent and the Banks to receive payments or distributions applicable to the Senior Debt until the Subordinated Debt shall be paid in full. For the purposes of the foregoing subrogation, no payments or distributions to the Agent or the Banks of any cash, property or securities to which the Creditor would be entitled except for the provisions of Section 3, 4 or 5 shall, as among the Borrower, its creditors (other than the Banks and the Agent) and the Creditor, be deemed to be a payment by the Borrower to or on account of the Senior Debt. (b) Payments Over to Creditor. If any payment or distribution to which the Creditor would otherwise have been entitled but for the provisions of Section 3, 4 or 5 shall have been applied pursuant to the provisions of Section 3, 4 or 5 to the payment of all amounts payable under the Senior Debt, the Creditor shall be entitled to receive from the Agent and the Banks any payments or distributions received by the Agent and the Banks in excess of the amount sufficient to pay in full all amounts payable under or in respect of the Senior Debt. If any such excess payment is made to the Agent and the Banks, the Agent and the Banks shall promptly remit such excess to the Creditor and until so remitted shall hold such excess payment for the benefit of the Creditor. SECTION 11 Continuing Agreement; Reinstatement. (a) Continuing Agreement. This Agreement is a continuing agreement of subordination and shall continue in effect and be binding upon the Creditor until indefeasible payment and performance in full of the Senior Debt and termination of the Commitments. The subordinations, agreements, and priorities set forth herein shall remain in full force and effect regardless of whether any party hereto in the future seeks to rescind, amend, terminate or reform, by litigation or otherwise, its respective agreements with the Borrower. (b) Reinstatement. This Agreement shall continue to be effective or shall be reinstated, as the case may be, if, for any reason, any payment of the Senior Debt by or on behalf of the Borrower shall be rescinded or must otherwise be restored by the Agent or any Bank, whether as a result of an Insolvency Event or otherwise. SECTION 12 Payments. The Creditor shall make each payment hereunder unconditionally in full without set-off, counterclaim or other defense, on the day when due to the Agent in Dollars and in same day or immediately available funds, to the Agent's Payment Office. G-8 SECTION 13 Transfer of Subordinated Debt. The Creditor may not assign or transfer its rights and obligations under the [__________ Agreement or the] Subordinated Note or any interest in the Subordinated Debt or any Creditor Collateral without the prior written consent of the Majority Banks, and any such transferee or assignee, as a condition to acquiring the Subordinated Note or interest in the Subordinated Debt or Creditor Collateral shall agree to be bound hereby, in form satisfactory to the Agent. SECTION 14 Amendments of Subordinated Debt. Each of the Borrower and the Creditor shall not, without the prior written consent of the Majority Banks, agree to or permit any amendment, modification or waiver of any material provisions of [the ____________ Agreement,] the Subordinated Note or any other agreement relating to any Subordinated Debt (including any amendment, modification or waiver pursuant to an exchange of other securities or instruments for outstanding Subordinated Debt) if the effect of such amendment, modification or waiver is to: (i) increase the interest rate on the Subordinated Debt or change (to earlier dates) the dates upon which principal and interest are due thereon; (ii) alter the redemption, prepayment or subordination provisions thereof; (iii) alter the covenants and events of default in a manner which would make such provisions more onerous or restrictive to the Borrower or any Subsidiary; or (iv) otherwise increase the obligations of the Borrower in respect of the Subordinated Debt or confer additional rights upon the Creditor which individually or in the aggregate would be adverse to the Borrower, its Subsidiaries or the Banks. SECTION 15 Obligations of Borrower Not Affected. The provisions of this Agreement are intended solely for the purpose of defining the relative rights against the Borrower of the Creditor, on the one hand, and the Agent and the Banks, on the other hand. Nothing contained in this Agreement shall (i) impair, as between the Borrower and the Creditor, the obligation of the Borrower to pay the principal of or interest on the Subordinated Note and its other obligations with respect to the Subordinated Debt as and when the same shall become due and payable in accordance with the terms thereof, or (ii) otherwise affect the relative rights against the Borrower of the Creditor, on the one hand, and the creditors of the Borrower (other than the Banks and the Agent), on the other hand. SECTION 16 Endorsement of Subordinated Notes; Further Assurances and Additional Acts. (a) Endorsement of Subordinated Note. At the request of the Agent, the Subordinated Note and all other documents and instruments evidencing any of the Subordinated Debt shall be endorsed with a legend noting that the Subordinated Note and such other documents and instruments are subject to this Agreement, and the Creditor shall promptly deliver to the Agent evidence of the same. (b) Further Assurances and Additional Acts. Each of the Creditor and the Borrower shall execute, acknowledge, deliver, file, notarize and register at its own expense all such further agreements, instruments, certificates, financing statements, documents and assurances, and perform such acts as the Agent or the Majority Banks shall deem necessary or appropriate to effectuate the purposes of this Agreement, and promptly provide the Agent with G-9 evidence of the foregoing satisfactory in form and substance to the Agent and the Majority Banks. SECTION 17 Notices. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including by facsimile transmission) and shall be mailed, sent or delivered at or to the address or facsimile number of the respective party or parties set forth on the signature pages hereof, or at or to such other address or facsimile number as such party or parties shall have designated in a written notice to the other party or parties. All such notices and communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail, upon the earlier of the date of receipt or five Business Days after deposit in the mail, first class (or air mail, with respect to communications to be sent to or from the United States), postage prepaid; and (iii) if sent by facsimile transmission, when sent. SECTION 18 No Waiver; Cumulative Remedies. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights and remedies under this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be available to the Agent or any Bank. SECTION 19 Costs and Expenses. (a) Payments by Borrower. The Borrower agrees to pay to the Agent on demand the reasonable out-of-pocket costs and expenses of the Agent, and the reasonable fees and disbursements of counsel to the Agent (including allocated costs of internal counsel), in connection with the negotiation, preparation, execution, delivery and administration of this Agreement, and any amendments, modifications or waivers of the terms thereof. (b) Payments by Borrower and Creditor. Each of the Borrower and the Creditor jointly and severally agrees to pay to the Agent on demand all costs and expenses of the Agent and the Banks, and the fees and disbursements of counsel (including allocated costs of internal counsel), in connection with the enforcement or attempted enforcement of, and preservation of rights or interests under, this Agreement, including any losses, costs and expenses sustained by the Agent and any Bank as a result of any failure by the Creditor to perform or observe its obligations contained in this Agreement. SECTION 20 Survival. All covenants, agreements, representations and warranties made in this Agreement shall, except to the extent otherwise provided herein, survive the execution and delivery of this Agreement, and shall continue in full force and effect so long as any Senior Debt remains unpaid or the Banks have any Commitments. Without limiting the generality of the foregoing, the obligations of the Borrower and the Creditor under Section 19 shall survive the satisfaction of the Senior Debt and the termination of the Commitments. G-10 SECTION 21 Benefits of Agreement. This Agreement is entered into for the sole protection and benefit of the parties hereto and their successors and assigns, and no other Person shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause of action or claim in connection with, this Agreement. SECTION 22 Binding Effect. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Creditor, the Agent and each Bank and their respective successors and assigns. SECTION 23 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. SECTION 24 Submission to Jurisdiction. (a) Submission to Jurisdiction. The Creditor hereby (i) submits to the non-exclusive jurisdiction of the courts of the State of California and the Federal courts of the United States sitting in the State of California for the purpose of any action or proceeding arising out of or relating to this Agreement, (ii) agrees that all claims in respect of any such action or proceeding may be heard and determined in such courts, (iii) irrevocably waives (to the extent permitted by applicable law) any objection which it now or hereafter may have to the laying of venue of any such action or proceeding brought in any of the foregoing courts, and any objection on the ground that any such action or proceeding in any such court has been brought in an inconvenient forum and (iv) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner permitted by law. [(b) Appointment of Process Agent. The Creditor hereby irrevocably appoints ___________________________ (the "Process Agent"), with an office on the date hereof at ________________________________, as its authorized agent with all powers necessary to receive on its behalf service of copies of the summons and complaint and any other process which may be served in any action or proceeding arising out of or relating to this Agreement in any of the courts in and of the State of California. Such service may be made by mailing or delivering a copy of such process to the Creditor in care of the Process Agent at the Process Agent's above address, and the Creditor hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf and agrees that the failure of the Process Agent to give any notice of any such service to the Creditor shall not impair or affect the validity of such service or of any judgment rendered in any action or proceeding based thereon. As an alternative method of service, the Creditor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Creditor at its address specified in Section 17. If for any reason ______________ shall cease to act as Process Agent, the Creditor shall appoint forthwith, in the manner provided for herein, a successor Process Agent qualified to act as an agent for service of process with respect to all courts in and of the State of California and acceptable to the Agent.] G-11 (c) No Limitation. Nothing in this Section 24 shall limit the right of the Agent or the Banks to bring any action or proceeding against the Creditor or its property in the courts of other jurisdictions. SECTION 25 Entire Agreement; Amendments and Waivers. (a) Entire Agreement. This Agreement constitutes the entire agreement of the Borrower, the Banks, the Agent and the Creditor with respect to the matters set forth herein and supersedes any prior agreements, commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. (b) Amendments and Waivers. No amendment to any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by the Borrower, the Creditor, the Agent and the Majority Banks (or the Agent with the written consent of the Majority Banks); and no waiver of any provision of this Agreement, or consent to any departure by the Borrower or the Creditor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Majority Banks (or the Agent with the consent of the Majority Banks). Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 26 Conflicts. In case of any conflict or inconsistency between any terms of this Agreement, on the one hand, and [the __________ Agreement,] the Subordinated Note or any other document or instrument relating to the Subordinated Debt, on the other hand, then the terms of this Agreement shall control. SECTION 27 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Agreement shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Agreement or the validity or effectiveness of such provision in any other jurisdiction. SECTION 28 Interpretation. This Agreement is the result of negotiations between, and have been reviewed by counsel to, the Agent, the Creditor, the Borrower and other parties, and is the product of all parties hereto. Accordingly, this Agreement shall not be construed against any of the Banks or the Agent merely because of the Agent's or any Bank's involvement in the preparation thereof. SECTION 29 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. G-12 SECTION 30 Termination of Agreement. Upon indefeasible payment and performance in full in cash or cash equivalents of the Senior Debt and the termination of the Commitments, this Agreement shall terminate and the Agent and the Banks shall promptly execute and deliver to the Borrower and the Creditor such documents and instruments as shall be necessary to evidence such termination; provided, however, that the obligations of the Borrower and the Creditor under Section 19 shall survive such termination. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. THE BORROWER MENTOR GRAPHICS CORPORATION By: ------------------------- Title: Address: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Fax No. ---------------------- THE AGENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ------------------------- Title: Address: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Fax No. ---------------------- G-13 THE BANKS [BANK] By: ------------------------- Title: Address: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Fax No. ---------------------- [BANK] By: ------------------------- Title: Address: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Fax No. ---------------------- [BANK] By: ------------------------- Title: Address: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Fax No. ---------------------- G-14 THE CREDITOR [CREDITOR] By: ------------------------- Title: Address: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Fax No. ---------------------- G-15 EX-99.(G)(1) 11 COMPLAINT IN MENTOR GRAPHICS CORP VS. QUICKTURN Exhibit 99(g)(1) IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY MENTOR GRAPHICS CORPORATION, ) an Oregon corporation, and MGZ CORP., a ) Delaware corporation, ) ) Plaintiffs, ) ) Civil Action No. __________ 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 to solicit agent designations 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 51.6% 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 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 outstanding 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 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. 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 -2- consummation of the fully-financed, all-cash, all-shares, non-coercive, non-discriminatory Tender 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 -3- electronic systems. Mentor Graphics is the beneficial owner of more than three percent of the outstanding shares of Quickturn common stock. 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. Hasler 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 common share of Quickturn stock outstanding as of the close of business on January 22, 1996. The Rights are distributed and become exercisable for one one-thousandth share of Quickturn's Series A Participating Preferred Stock (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 -4- 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 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 stock 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 -5- to be, in the opinion of a majority of Continuing Directors, "both adequate and otherwise in the best 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." -6- 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. 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 -7- 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 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 in the 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 shareholders." 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: 1. Section 303, which restricts the ability of stockholders to remove directors without cause; 2. Section 708, which provides stockholders a right to cumulative voting in the election of directors; -8- 3. Section 710, which permits supermajority voting requirements; 4. Section 1101, which imposes limitations on mergers; and 5. 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. At this meeting, Rhines presented Mentor -9- 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 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 defenses 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 solicitation 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 -10- Proposed Merger under Section 203, and take such other actions as may be required to facilitate the prompt consummation of the Proposed Acquisition. 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. -11- 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 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 -12- of the current bylaws or purport to amend the bylaws in order to delay the Special Meeting or 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 I (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. -13- 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 Director Defendants' failure to redeem the Rights or to render the Rights Plan inapplicable to the Proposed Acquisition deprives 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 -14- Proposed Acquisition. Such failures only have the effect of withholding from Quickturn 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 provisions of Section 2115 of the California General Corporation Law and thereby hinder and/or delay the consummation of the -15- Proposed Acquisition would be a breach of the Director Defendants' fiduciary duties to Quickturn's stockholders. 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's 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- 1. 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; 2. compel Quickturn and its Director Defendants to redeem the Rights or to render the Rights Plan inapplicable to the Proposed Acquisition; 3. 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; 4. 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; 5. 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; 6. 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; 7. 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; 8. 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; 9. 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; 10. 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; 11. 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; 12. 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; 13. 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; 14. 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; 15. award plaintiffs their costs and disbursements in this action, including reasonable attorneys' and experts' fees; and 16. grant plaintiffs such other and further relief as this Court may deem just and proper. -21- /s/ Kevin G. Abrams --------------------------------- 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-99.(G)(2) 12 COMPLAINT IN MENTOR GRAPHICS CORP VS. QUICKTURN Exhibit 99(g)(2) IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE MENTOR GRAPHICS CORPORATION ) and MGZ CORP., ) ) Plaintiffs, ) ) No. ____________ 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. Section 78aa, 28 U.S.C. Section 1331(a) and 28 U.S.C. Section 1337(a). 2. Venue in this Court is proper pursuant to 15 U.S.C. Section 78aa and 28 U.S.C. Section 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. Section 78L(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 -2- Quickturn's stockholder rights plan, (ii) the exemption of the Tender Offer from Section 203 of the 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 -3- Offer from restrictions imposed by Section 203, Delaware's Business Combination Statute. Section 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 2/3% 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. Sections 78n(d) and (e), and the rules and regulations promulgated thereunder by the Securities and Exchange Commission ("SEC"). In accordance with the Exchange Act and the 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 14d-3 promulgated thereunder, 17 C.F.R. Section 240.14d-3. -4- 12. Section 14(d) of the Exchange Act, 15 U.S.C. Section 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. Section 78n(e), makes it "unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statement made, in light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practice in connection with any tender offer." 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: 1. the solicitation of agent designations being undertaken by Mentor Graphics to call a special meeting of Quickturn stockholders, as more fully described below; -5- 2. 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 3. 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 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 -6- 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. 19. Section 14(a) of the Exchange Act, 15 U.S.C. Section 78n(a), and the rules and regulations promulgated thereunder by the SEC, require that a person soliciting an authorization with respect -7- to any registered security file and disclose certain specific information with respect to the solicitation. Any such solicitor must disclose, among other things, its identity, the date, time and place of the meeting at which the proposed action will be taken, and any substantial interest of the solicitor in the matters to be acted upon. In addition, Rule 14a-9, 17 C.F.R. Section 240.14a-9, promulgated by the SEC under Section 14(a) of the Exchange Act, provides that "[n]o solicitation subject to this regulation shall be made . . . containing any statement of which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier 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: 1. 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; 2. 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 -8- 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; 3. 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; 4. 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 5. 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. Section 2201, provides that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration." Plaintiffs are entitled to a declaratory judgment that the Schedule 14D-1 and all -9- 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. 25. Plaintiffs therefore request pursuant to the Declaratory Judgment Act, 28 U.S.C. Sections 2201 and 2202, that this Court enter a declaratory judgment that the 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 -10- applicable provisions of law. WHEREFORE, Plaintiffs respectfully request that this Court: 1. 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; 2. award plaintiffs their costs and disbursements in this action, including reasonable attorneys' fees; and 3. grant plaintiffs such other and further relief as this Court may deem just and proper. -11- /s/ Kevin G. Abrams 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- -----END PRIVACY-ENHANCED MESSAGE-----