EXHIBIT 14
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, )
)
v. ) Civil Action No. 16584-NC
)
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, WILLLAM A. HASLER and )
CHARLES D. KISSNER, )
)
Defendants. )
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VERIFIED AMENDED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
---------------------------------
Plaintiffs Mentor Graphics Corporation ("Mentor Graphics") and MGZ Corp.
("Purchaser") for their amended complaint/1/ against defendants Quickturn Design
System, 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. On August 12, 1999, 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"). That same day,
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1. Pursuant to Chancery Court Rule 15(aa), a black-lined copy of the
amended complaint. reflecting changes from the complaint filed on August 12,
1998 is attached hereto as Exhibit A.
Mentor Graphics also filed 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," declaring ineffective certain amendments to Quickturn's by laws
and poison pill adopted in response to the Tender Offer, and enjoining the
Quickturn Board from taking any further 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. On August 24, 1998, Quickturn announced its rejection of Mentor's
fully-financed all shares premium offer, characterizing the Proposed Acquisition
as an "opportunistic and inadequate" offer, made "at a moment of weakness for
Quickturn's stock price and a moment of desperation for Mentor's design
strategy." 8/24/98 Quickturn Press Release (hereinafter "8/24/98 Press
Release") at 1). Later that day, Quickturn filed its Schedule 14D-9 (the "14D-
9") with the SEC, disclosing the Quickturn Board's rejection of the Proposed
Acquisition and recommending that the Quickturn stockholders not tender shares
in the Tender Offer.
4. In January 1996, the Board of Directors of Quickturn (the "Quickturn
Board") adopted a stockholder rights plan (the "Rights Plan"), commonly known as
a "poison pill," which is designed to thwart any acquisition of Quickturn that
does not have the approval of the Quickturn Board. The Rights Plan provides the
Quickturn Board with the power to prevent summarily the consummation of the
fully-financed, all-cash, all shares, non-coercive, non-discriminatory Tender
Offer. After Mentor Graphics announced the Proposed Acquisition, on August 21,
1998, the Quickturn Board amended the Rights Plan to prohibit further amendment
of the Rights Plan or redemption of the Rights for a period of 180 days
following any annual or special meeting in which a majority of the Board is
elected, if such amendment or redemption is likely to facilitate a change in
control transaction. The original Rights Plan and the recent amendment were
both adopted without the approval -of Quickturn's stockholders and if the Rights
Plan, as amended, remains in effect and applicable to the Tender Offer, it will
impede the right of Quickturn's stockholders to decide whether to accept this
premium offer for their shares and will impose an insurmountable obstacle to
Purchaser's consummation of the Tender Offer long after the stockholders of
Quickturn have expressed their support for the Proposed Acquisition by voting to
remove the current Quickturn Board and elect Mentor Graphics' nominees to the
Quickturn Board. Moreover, the Quickturn Board will be able to prevent Mentor
Graphics and Purchaser from consummating the Proposed Merger for a least three
years unless the Board exempts the Tender Offer from restrictions imposed by
Section 203 of the Delaware General Corporation Law ("Section 203").
5. 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 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
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6. 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,
stimulate, model, implement and verify the components of electronic systems.
Mentor Graphics is the beneficial owner of approximately three percent of the
outstanding shares of Quickturn common stock.
7. 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.
8. 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.
9. Defendant Keith R. Lobo has been President, Chief Executive Officer
and a director of Quickturn since November 1992.
10. 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 of Quickturn's stockholders.
FACTUAL BACKGROUND
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A. The Quickturn Rights Plan
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11. 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 tens days after the earlier of (i) the first date of
public announcement that any person (other than Quickturn, any subsidiary of
Quickturn or any employee benefit plan of Quickturn or any subsidiary of
Quickturn)
has acquired or obtained the right to acquire beneficial ownership of
15% or more of Quickturn's common stock (an "Acquiring Person"), or (ii) the
publication pursuant to Rule 14d 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..
12. 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.
13. 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." Under the
Rights Plan as originally adopt, a Permitted Offer is a tender or exchange
offer, issued pursuant to Section 14(d) of the Exchange Act, made when
"Continuing Directors" are in office, and determined to be, in the opinion of a
majority of Continuing Directors, 'both adequate and otherwise in the best
interests of the Company and its stockholders (taking into account all factors
that such Continuing Directors deem relevant)."
14. Under the original Rights Plan, the Quickturn Board could 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 had become
an Acquiring Person, the Rights could be redeemed by the Quickturn Board only if
Continuing Directors remained on the Board and the redemption was approved by a
majority of the Continuing Directors. Continuing Directors were defined as (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.
15. On August 24, 1998, Quickturn announced that the Quickturn Board had
adopted a resolution to amend the Rights Plan to:
(x) delete all provisions requiring the concurrence of a majority of
Continuing Directors for (1) the redemption or exchange of the Rights
at or after the time a person becomes an Acquiring Person or (2) the
amendment of the Rights Agreement on or after the Distribution Date,
(y) add a requirement that if a majority of the Company's Board is
elected at an annual or special meeting of stockholders, then for a
period of 180 days following such election (1) the Rights cannot be
redeemed or exchanged and (2) the Rights Agreement cannot be amended,
if such redemption, exchange or amendment is reasonably likely to have
the purpose or effect of facilitating an acquisition of the Company by
a person or entity who proposed, nominated or supported a director of
the Company so elected at the annual or special meeting, and (z) ...
add a clause to the definition of Distribution Date pursuant to which
the Board may determine the Distribution Date applicable to Mentor and
MGZ in connection with the Offer or any amendment to the offer or any
subsequent tender offer by Mentor or its Affiliates or Associates
(each as defined in the Rights Agreement).
14D-9 at 8. This amendment, if effective, would preclude the Quickturn Board
from redeeming or exchanging the Rights or amending the Rights Plan to
facilitate an acquisition transaction for a period of 6 months following any
annual or special meeting at which a majority of the Quickturn Board was
replaced.
16. 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 redeem the Rights or exempts Purchaser's
Tender Offer from the triggering provisions of the Rights Plan by declaring that
the Tender Offer is a "Permitted Offer."
B. The Delaware Business Combination Statute
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17. 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.
18. 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 662/3% of the outstanding voting stock which is not owned by the
interested stockholder.
19. 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
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20. Section 2115 ("Section 2115") of the California General Corporation
Law (the "CGCL") provides that if a foreign corporation has (i) more than one-
half of the average of the corporation's property, payroll and sales in
California, and (ii) more than half of its outstanding securities held by
persons with California addresses then such foreign corporation shall be subject
to certain enumerated provisions of the CGCL, as set forth in Section 2115(b),
to the exclusion of the
law of the jurisdiction in which the corporation is incorporated. Corporations
with then 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.
21. 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 that Quickturn has at least 800 stockholders
and, as a corporation with outstanding securities qualified for trading on
NASDAQ as a national market security, would not be a "quasi-California"
corporation and would not be subject to the provisions of the CGCL identified in
Section 2115(b). Such provisions include, but are not limited to:
a. Section 303, which restricts the ability of stockholders to
remove directors without cause,
b. Section 708, which provides stockholders a right to cumulative
voting in the election of directors;
c. Section 710, which permits supermajority voting requirements;
d. Section 1101, which imposes limitations on mergers; and
e. Chapter 12, which applies to all transactions termed
"reorganizations" as defined in the CGCL, which includes mergers and/or
acquisitions financed by the exchange of equity securities.
22. 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.
23. 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
----------------------------------------
24. Despite the clear-cut and significant economic benefits for the
Quickturn stockholders, from the start Quickturn and its Board have steadfastly
indicated that Quickturn will not accept the Proposed Acquisition, nor will the
Quickturn Board allow the Quickturn stockholders the opportunity to consider the
Proposed Acquisition for themselves.
25. On August 11. 1998, Dr. Walden C. Rhines ("Rhines"), Mentor Graphics'
Chief Executive Officer met with the Chairman of the Quickturn Board, Glen M.
Antle ("Antle"). At this meeting, Rhines presented Mentor Graphics' proposal to
acquire Quickturn. Rhines also delivered a letter to Antle outlining Mentor
Graphics' proposal to acquire all outstanding shares of Quickturn common stock
at a price, of $12.125 per share in a 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 Quickturn to remove its takeover
defenses or to cause Quickturn to refrain from taking actions to prevent the
consummation of the Tender Offer.
26. On August 14.1998, Dr. Rhines telephoned Keith R. Lobo ("Lobo"),
President and Chief Executive Officer and a director of Quickturn to discuss the
Proposed Acquisition. In this conversation, Dr. Rhines, emphasized that Mentor
Graphics' interest in the Proposed Acquisition stemmed from the strategic
benefits of the transaction, and was not motivated by a desire to moot the
pending patent litigation between the companies. Lobo merely stated that he
would communicate Dr. Rhines' position to the Quickturn Board.
27. On August 24, 1998, and without ever meeting with any representative
of Mentor Graphics to discuss the Proposed Acquisition, Quickturn announced that
on August 21, 1998, the Quickturn Board had rejected the Proposed Acquisition,
on the grounds that the Board considered the Tender Offer to be inadequate, not
reflective of the long-term value of Quickturn, and not in the best interests of
Quickturn or its stockholders. 14D-9 at 3. The Board further announced that it
had determined that Quickturn's business plan offered the potential for
obtaining higher long-term benefits for Quickturn's stockholders than the Tender
Offer. 14D-9 at 3. This is determination is belied, however, by both the past
performance of Quickturn and by the decision made by the Board in June 1998 to
reprice employee options having original exercise prices of up to $19.00 per
share to the reduced exercise price of $7.438 per share.
28. In addition to its rejection of the Proposed Acquisition, Quickturn
also announced that on August 21, 1998, the Quickturn Board had adopted a number
of defensive measures designed to thwart the Proposed Acquisition.
29. Specifically, the Board announced that it had adopted an amendment to
the Quickturn bylaws specifying procedures for the calling of a special meeting
by stockholders holding at least 10% of the Quickturn shares, which, if
effective, would strip from the shareholders the right to set the date of a
special meeting and would have the effect of-inequitably delaying the call of
any special meeting by at least three months. As set forth in Quickturn's 14D-
9, the amended bylaw adopted by the Quickturn Board provides as follows:
A special meeting of the stockholders may be called at any time by (i)
the board of directors, (ii) the chairman of the board, (iii) the
president, (iv) the chief executive officer or (v) subject to the
procedures set forth in this Section 2.3, one or more stockholders
holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting.
Upon request in writing sent by registered mail to the president or
chief executive officer by any stockholder or stockholders entitled to
call a special meeting of stockholders pursuant to this Section 2.3,
the board of directors shall determine a place and time for such
meeting. which time shall be not less than ninety (90) nor more than
one hundred (100)
days after the receipt and determination of the validity of such
request, and a record date for the determination of stockholders
entitled to vote at such meeting in the manner set forth in Section
2.12 hereof. Following such receipt and determination, it shall be the
duty of the secretary to cause notice to be given to the stockholders
entitled to vote at such meeting, in the manner set forth in Section
2.4 hereof that a meeting will be held at the place and time so
determine.
14D-9 at 8. By contrast, prior to this amendment, Section 2.3 of the Quickturn
bylaws simply provided that a special meeting could be called 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."
30. Additionally, as described above the Quickturn Board also adopted an
amendment to the Rights Plan, which, if effective, would preclude any change of
control for another 6 months following any annual or special meeting, regardless
of the expressed will of the stockholders.
31. Taken together, these two provisions effectively preclude the
Quickturn stockholders from taking action to effect a change in control against
the wishes of management for minimum of 9 months. Such a delay may preclude a
change in control entirely by putting at risk- the ability of a potential
acquiror to obtain financing commitments for such a lengthy period of time,
and/or by virtue of the substantially increased costs associated with such a
lengthy financing commitment.
32. Quickturn's 14D-9 also disclosed that the Quickturn, Board's financial
advisor, Hambrecht & Quist, was retained pursuant to a letter agreement which
structures Hambrecht & Quist's fees to create an incentive for Hambrecht, &
Quist to opine that the Mentor Graphic's offer or any other unsolicited offer is
inadequate. Specifically, under the retention agreement, Hambrecht & Quist is
entitled to a fee of 1.0% of the aggregate consideration to be received in a
Consensual Acquisition (defined as an acquisition approved by the Quickturn
Board), but only .75% of the consideration received in an acquisition not
approved in advance by the Quickturn Board. Notably, although the 14D-9 stated
that the Quickturn Board relied upon the opinion of Hambrecht & Quist in
rejecting the Proposed Acquisition, the Hambrecht & Quist opinion was not filed
as an exhibit to the 14D-9.
E. Mentor Graphics' Solicitation Of Agent Designations To Call
A Special Meeting And To Replace Quickturn's Board Of Directors
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33. In light of Quickturn's unwillingness to accept or even to discuss
Mentor Graphics' proposal and its recent implementation of additional takeover
defenses, the current Quickturn Board cannot be expected to facilitate the
Proposed Acquisition, but can be expected to maintain and add to 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.
34. Mentor Graphics filed with the SEC on August 12, 1998 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. Definitive agent designation
solicitation materials were filed with the SEC on August 20, 1998 and
immediately mailed to Quickturn's largest stockholders. If elected, the Mentor
Graphics nominees intend, subject to their fiduciary duties and assuming the
invalidity of the August 21, 1998 amendment to the Rights Plan to redeem the
Rights (or amend the Rights Plan to make the Rights inapplicable to the Tender
Offer and the Proposed Merger), approve the Tender Offer and the Proposed Merger
under Section 203, and take such other actions as may be required to facilitate
the prompt consummation of the Proposed Acquisition.
35. Upon the commencement of the Tender Offer, Mentor Graphics announced
its intention to solicit and 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"). At that time Mentor Graphics expected, and Quickturn's management
must also have known, that sufficient agent designations to call the meeting
would be obtained within days of the mailing of definitive agent designation
materials to the Quickturn stockholders. As of the date of that Mentor Graphics
commenced its solicitation of agent designations, Section 2.3 of Quickturn's
bylaws as publicly-filed provided 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 as in effect when Mentor
Graphics commenced its solicitation, Mentor Graphics believed that (i) a special
meeting could be called by the holders of not law 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, had 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.
36. The Bylaw amendments adopted by Quickturn on August 21, 1998 are
targeted to derail Mentor Graphics' previously-announced plans to call a special
meeting on a date to be set by the stockholders calling the meeting, such date
to be within 45 days of receipt of sufficient agent designations to call the
special meeting.
37. In furtherance of the solicitation of agent designations to call the
Special Meeting, Purchaser demanded on August 12, 1998 that Quickturn produce a
list of its stockholders and related stock list materials. Quickturn responded
to Purchaser's demand on August 19, 1998, stating that the stock list materials
would be made available beginning at 12:00 noon on August 25, 1998. Given the
timing of Quickturn rejection of the Proposed Acquisition and the amendment of
the bylaws regarding the call of a special meeting. Quickturn's refusal to make
the stock fist available immediately constitutes improper maneuvering to ensure
that Mentor Graphics would not be able to mail its agent designation
solicitation materials to all of Quickturn's stockholders or to call the special
meeting before Quickturn's Board adopted its new defensive measures.
38. 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 existed at the time Mentor Graphics' commenced its acquisition
bid. These bylaw provisions, with which Mentor Graphics has complied My and
with which it will continue to comply, authorize the holders of ten percent of
Quickturn's common stock to call a special meeting without undue delay, at a
time and place designated by the stockholders calling the meeting.
39. Mentor Graphics believes that under the bylaws-as they existed prior
to the recent amendment (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 intend to,
and if the bylaw amendment is deemed ineffective, will call the Special Meeting,
fix the date and time of the Special Meeting and give notice of the Special
Meeting.
40. 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. Al the
Special Meeting, Quickturn's stockholders also will be presaged 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, including, without limitation the bylaw amendment purportedly
adopted on August 21, 1998.
41. 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.
42. Because Mentor Graphics' solicitation of agent designations and
solicitation of proxies in reliance on Quickturn's current bylaws threaten the
incombency of Quickturn's Baud of Directors, Mentor Graphics believed,
correctly, that Quickturn would seek to impose a constrained interpretation of
the current bylaws and purport to amend the bylaws in order to delay the Special
Meeting and frustrate the ability of Quickturn's stockholders to exercise their
voting rights. Any determinations by Quickturn that Mentor Graphics Wed to
comply with Quickturn's then-existing bylaws would lack
a good fifth basis. The 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 serve no
legitimate purpose and constitute inequitable manipulation and unlawful
entrenchment by the Director Defendants in violation of their fiduciary duties
under Delaware law.
IRREPARABLE INJURY
------------------
43. The unlawful actions of Quickturn, in its failure to accept the
Proposed Acquisition, its failure to redeem the Rights Plan, its failure to
exempt the Tender Offer from Section 203, and its adoption of additional,
unreasonable defensive measures arc 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)
--------------------------------------------
44. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 43 as if fully set forth herein.
45. The Director Defendants owe Quickturn's stockholders the highest
duties of cam, loyalty and good faith.
46. 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.
47. The Director Defendants' failure to redeem the Rights or to render the
Rights Plan applicable 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 pow 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.
48. Moreover, the Quickturn Board's amendment of the Rights Plan, which if
effective, would preclude the stockholders from effectively utilizing the
stockholder franchise to facilitate an offer which they believe to be in their
best interests by disabling the Quickturn Board from approving any acquisition
for 6 months after the election of new directors, serves no legitimate corporate
interest, has no economic justification and is an unreasonable response to the
Proposed Acquisition. As such, the amendment to the Rights Plan constitutes a
breach of the fiduciary duties the Director Defendants owe to Quickturn's
stockholders under applicable law.
49. Further, because the amendment to the Rights Plan permits the
stockholders to effect a change of the composition of the Quickturn Board only
at the cost of restricting the ability of the Quickturn Board to approve an
acquisition transaction, the amendment constitutes an improper infringement upon
the voting rights of the stockholders without compelling justification. As
such, the amendment to the Rights Plan constitutes a breach of the fiduciary
duties the Director Defendants owe to Quickturn's stockholders under applicable
law.
50. Mentor Graphics and Purchaser have no adequate remedy at law-
COUNT II
--------
(Breach of Fiduciary Duty: Section 203)
--------------------------------------
51. Plaintiffs repeat and reallege each and every allegation SK forth in
paragraphs I through 50 as if fully set forth herein.
52. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
53. 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.
54. In light of the superior value offered to Quickturn Stockholders by
the Proposed Acquisition, there is no legitimate reason for the Quickturn Board
of Directors to fail to approve the Tender Offer or to fail to take any other
steps necessary to render Section 203 inapplicable to the Proposed Acquisition.
Such failures only have the effect of withholding from Quickturn stockholders
the right to maximize their wealth by selling their Quickturn sham at the
premium price offered by the Proposed Acquisition.
55. 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 am 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 am in breach of
the fiduciary "duties the Director Defendants owe to Quickturn's stockholders
under applicable Delaware law.
56. Mentor Graphics and Purchaser have, no adequate remedy at law.
COUNT III
---------
(Declaratory and Injunctive Relief: Section 2115 of the California General
---------------------------------------------------------------------------
Corporation Law)
---------------
57. Plaintiffs repeat and reallege each and every allegation set forth in
Paragraphs I through 56 as if full orth herein.
58. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
59. 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.
60. 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 Proposed Acquisition would be a breach of the
Director Defendants' fiduciary duties to Quickturn's stockholders.
61. Mentor Graphics and Purchaser have no adequate remedy at law.
COUNT IV
--------
(Declaratory and Injunctive Relief: Anti-Takeover Devices)
---------------------------------------------------------
62. Plaintiffs repeat and reallege each and every allegation act forth in
paragraphs 1 through 61 as if fully set forth herein.
63. The Director Defendants owe Quickturn's stockholders the highest
duties of cart loyalty and good faith.
64. 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
Quick-turn common stock prior to the public announcement of the Tender Offer.
65. Adoption of any defensive measures against the Tender Offer, the
Proposed Merger, Motor 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, change 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.
66. Specifically, the adoption by the Board of the amendment to Section
2.3 of ft Quickturn bylaws, which has the effect of (1) removing from the
stockholders the right to det the date and place of, and to give notice of, a
---
special meeting and (2) unreasonably delaying the call of a special meeting,
serves no legitimate corporate purpose and is an unreasonable response to Mentor
Graphics' agent designation solicitation and non-coercive, fully-financed,
premium Tender Offer. Moreover, the amendment to the Quickturn bylaws
constitutes an inequitable manipulation of the corporate franchise designed for,
and with the primary affect of, entrenchment of management.
67. Further, the amendment to the Rights Plan in concert with the
amendments to the bylaws would preclude the Stockholders from utilizing the
stockholder franchise to facilitate an offer which they believe to be in their
best interests for a period of more than 9 months, and are clearly intended to
coerce stockholders into voting against Mentor Graphics' nominees by threatening
the stockholders with a 6-months standstill should they vote to remove the
incumbent board. As such. the amendments serve no legitimate corporate interest
and are an unreasonable response to the
Proposed Acquisition, and are therefore a breach of the Director Defendants'
fiduciary duties to Quickturn's stockholders. Further, such amendments will
delay or thwart the exercise of the corporate franchise without compelling
justification and thereby cause irreparable harm.
68. Mentor Graphics and Purchaser have no adequate remedy at law.
COUNT V
-------
(Declaratory of Injunctive Relief: The Call of Special Meeting)
----------------------------------------------------------------
69. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 68 as if fully set forth herein.
70. The Director Defendants owe Quickturn's stockholders the highest
duties of care, loyalty and good faith.
71. Mentor Graphics' solicitation of agent designations to call the
Special Meeting complied and will continue to comply with Quickturn's bylaws in
effect at the time the agent designation solicitation was commenced. Mentor
Graphics' disclosures regarding the agent designations, which were filed on
August 12, 1998 with the SEC, are complete and accurate.
72. Quickturn's actions to hinder the procedure for or ability of its
stockholders to the Special Meeting, and to dispute Mentor Graphics method of
determining whether it has obtained sufficient unrevoked agent designations to
call the Special Meeting, and -to affect the selected date of the call to refuse
to recognize the date of the call, the stockholders' ability to fix the date and
time of the Special Meeting set forth in the call and to interfere with Mentor
Graphics giving notice of the Special Meeting, and to impede consideration by
Quickturn's stockholders at the Special Meeting of Mentor Graphics' proposals
impermissibly impede and delay Quickturn's stockholders from exercising their
rights. Specifically, the August 21, 1998 amendments to the Quickturn bylaws
and the Rights Plan impermissibly interfere with the ability of Quickturn's
stockholders to utilize the corporate franchise. As such, these actions,
including the bylaw Rights Plan amendments delay and/or thwart the exercise of
stockholder voting rights without compelling justification and thereby cause
irreparable harm.
73. Mentor Graphics and Purchaser have no adequate remedy at law.
COUNT VI
--------
(Declaratory and Injunctive Relief: Nomination of Directors)
-------------------------------------------------------------
74. Plaintiffs repeat and reallege each and every allegation set forth in
paragraphs 1 through 73 as if fully set forth herein.
75. The Director Defendants owe Quickturns stockholders the highest duties
of care, loyalty and good faith.
76. 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.
77. Mentor Graphics and Purchaser have no adequate remedy at law.
WHEREFORE, plaintiffs respectfully that this Court:
a. declare that the Director Defendants have breached their
fiduciary obligations to Quickturn stockholders under Delaware law by failing to
redeem the Rights in response to the Tender Offer;
b. compel Quickturn and its Director Defendants to redeem the Fights
or to render the Fights Plan inapplicable to the Proposed Acquisition;
c. declare that the Director Defendants have breached their
fiduciary obligations to Quickturn stockholders under Delaware law by failing to
render Section 203 inapplicable to the Proposed Acquisition;
d. compel the Director Defendants to approve the Proposed
Acquisition for purposes of Section 203 and enjoin them from taking any action
to enforce or apply Section 203 that would impede, thwart, frustrate or
interfere with the Proposed Acquisition;
e. temporarily, preliminarily and permanently enjoin Quickturn its
employees. agents and all persons acting on its behalf or in concert with it
from taking any action with, respect to the Rights Plan, except to redeem the-
Rights or render the Rights-Plan inapplicable to the Tender Offer, and from
adopting any other Rights Plan or other measures, or taking any other action
designed to impede, or which has the effect of impeding, the Tender Offer or the
efforts of Mentor Graphics to acquire control of Quickturn;
f. Declare that the taking of any action to bring Quickturn within
the provisions of Section 2115 of the California General Corporation Law,
thereby impeding, thwarting, frustrating or interfering with the Proposed
Acquisition, constitutes a breach of the Director Defendants, fiduciary duties;
g. enjoin Quickturn and the Director Defendants from taking any
action which would bring Quickturn within the provisions of Section 21 15 of the
California General Corporation Law and thereby have the effect of impeding,
thwarting, frustrating or interfering with the Proposed
h. declare that the August 21, 1999 amendments to the Quickturn
bylaws and the Rights Plan are ineffective and that the adoption thereof
constituted a breach of fiduciary duty by the Director Defendants, and enjoin
Quickturn from, enforcing the amendments to the bylaws
i. 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;
j. declare that the adoption of any further 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;
k. enjoin Quickturn and the Director Defendants from adopting any
further 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;
l. enjoin Quickturn and the Director Defendant 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-,
m. 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 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;
n. 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;
o. declare that Mentor Graphics' and Purchaser's disclosure in
connection with its solicitation of agency designations and proxies for the
Special Meeting are complete and accurate;
p. award plaintiffs their costs and disbursements in this action,
including reasonable attorneys' and experts' fees; and
q. grant plaintiffs such other and further relief as this Court may
dean just and proper.
OF COUNSEL: __________________________________
Kevin G. Abrams
Christopher L. Kaufman Thomas A. Beck
David A. York Catherine G. Dearlove
Latham & Watkins Holly June Stiefel
75 Willow Road Thad J. Bracegirdle
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 Frucisco, CA 94111
(415) 391-0600
H. Steven Wilson
Latham & Watkins
2100, 701 B Street
San Diego, CA 92101-8197
(619) 236-1234
Dated: August 24, 1998
VERIFICATION
------------
I, Gregory K. Hinckley, having beca duly sworn according to law, verifies
as follows:
1. I am the Executive Vice President, Chief Operating Officer and Chief
Financial Officer of the plaintiff Mentor Graphics Corporation, an Oregon
corporation, with specific authority to make this verification on behalf of
Mentor Graphics Corporation.
2. I am also the Chief Financial Officer and Secretary and a director of
plaintiff MGZ Corp. (collectively with Mentor Graphics Corporation, the
"Plaintiffs"), a Delaware corporation with specific authority to make this
verification on behalf of MGZ Corp.
3. I have personally reviewed the attached Verified Amended Complaint For
Declaratory and Injunctive Relief (the "Amended Complaint"). filed by The
Plaintiff in the Court of Chancery of the State of Delaware.
4. Insofar as the matters contained in the Amended Complaint concern the
acts and deeds of the Plaintiffs, I know the allegations to be true and correct.
5. Insofar as the matters contained in the Amended Complaint concern the
acts and deeds of persons or entities other than the Plaintiff, I believe the
allegations to be true and correct
Mentor Graphics Corporation
By: ___________________________________
Name: Gregory K. Hinckley
Title: Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
Sworn to and subscribed before me
this 25th day of August, 1998
MGZ Corp.
_________________________________
Notary Public
By: ___________________________________
My Commission expires ___________ Name: Gregory K. Hinckley
Title: Chief Financial Officer and
Secretary