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QUICKTURN DESIGN SYSTEMS, INC.
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MENTOR GRAPHICS CORPORATION
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December 15, 1998
Mr. Keith R. Lobo
President and Chief Executive Officer
Quickturn Design Systems, Inc.
55 West Trimble Road
San Jose, California 96131
Dear Keith:
You and your fellow Quickturn directors have once again seriously breached
your fiduciary duties to Quickturn's stockholders.
Less than two weeks ago, the Delaware Court of Chancery found that you and
the other Quickturn directors violated your fiduciary duties to the Quickturn
stockholders in your attempt to defeat Mentor's all-cash offer by amending your
poison pill. The Court found that you and the other Quickturn directors were
"unable to articulate a cogent reason" for your poison pill amendment.
That ruling should have caused you and the other Quickturn directors to act
responsibly and to maximize value for your stockholders.
After we received the Chancery Court's ruling, I called your Chairman Glen
Antle to assure him that Mentor remained willing to discuss a combination of our
companies and to consider an increased offer if due diligence showed greater
value. Our advisers also called Quickturn representatives who invited us on
December 8 to consider presenting a higher offer, even as they denied Mentor the
opportunity to conduct any due diligence. Our investment banker and lawyer each
separately informed Quickturn on December 8 that Mentor would respond to
Quickturn's invitation the very next day. Your investment banker confirmed that
responding on December 9 would be acceptable. The last of these conversations
between the representatives occurred on the evening of December 8. Instead of
waiting to see Mentor's higher offer so as to maximize stockholder value, you
went ahead and signed a merger agreement with Cadence the same night, closing
the door on the response we promised by 5:00 p.m. the next day.
The actions of the Quickturn Board show that you and your fellow directors
learned nothing from the Court's recent finding that you breached your fiduciary
duty. When you learned that Mentor was likely to respond to your invitation to
submit a higher bid, you rushed to sign a deal with Cadence, instead of waiting
less than 24 hours for Mentor's higher offer. To make matters worse, you signed
up for a transaction at a price representing only a small increase above our
initial offer at a cost to Quickturn stockholders of an excessive break-up fee
of 6.9% of the Cadence merger
consideration, a lock-up option for Cadence to purchase 19.9% of Quickturn
common stock, employment agreements for you and other members of management, and
a peculiar provision that gives you the potential power to cause termination of
the entire deal if you're not personally happy. To put it simply, you appear to
have been willing to sign any deal - no matter how bad it might be for your
stockholders -- as long as you got the autonomy and perquisites you wanted.
We are prepared to pay more for Quickturn in a negotiated merger
transaction than the $14 per share price being proposed by Cadence. The size of
our merger proposal will be influenced by Mentor's due diligence demonstrating
greater value for Quickturn and the invalidation of the $10.6 million
termination fee, the $3.5 million expense reimbursement fee and the lock-up
option for Cadence to purchase 19.9% of Quickturn's common stock contained in
the Cadence merger agreement that was entered into in breach of your fiduciary
duties. Furthermore, we are continuing to evaluate our alternatives with
respect to our existing tender offer.
We are also filing suit against you and the other Quickturn directors as
well as Cadence in connection with your new breach of your fiduciary duty to
your stockholders.
Very truly yours,
/s/ Walden C. Rhines
Walden C. Rhines
President and
Chief Executive Officer