-----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, JdJsM4PyFkNbLldj7bjH8pxoyjmOEF/BeiTTdC5Nm6U/J5ynqzavslujTbYyMUh8 GRop5AsTP6zeOrOcGfOeow== 0000907687-97-000003.txt : 19970401 0000907687-97-000003.hdr.sgml : 19970401 ACCESSION NUMBER: 0000907687-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTEL CORP CENTRAL INDEX KEY: 0000907687 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 770097724 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21970 FILM NUMBER: 97571246 BUSINESS ADDRESS: STREET 1: 955 EAST ARQUES AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087391010 MAIL ADDRESS: STREET 2: 955 EAST ARQUES AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 10-K 1 ANNUAL REPORT ON FORM 10-K FOR 1996 FISCAL YEAR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-21970 -------------------------------------- ACTEL CORPORATION (Exact name of Registrant as specified in its charter) California 77-0097724 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 955 East Arques Avenue Sunnyvale, California 94086-4533 (Address of principal executive offices) (Zip Code) (408) 739-1010 (Registrant's telephone number, including area code) -------------------------------------- Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value (Title of class) -------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price for shares of the Registrant's Common Stock on March 27, 1997, as reported by the National Market System of the National Association of Securities Dealers Automated Quotation System, was approximately $281,810,000. In calculating such aggregate market value, shares of Common Stock owned of record or beneficially by all officers, directors, and persons known to the Registrant to own more than five percent of any class of the Registrant's voting securities were excluded because such persons may be deemed to be affiliates. The Registrant disclaims the existence of control or any admission thereof for any other purpose. Number of shares of Common Stock outstanding as of March 30, 1997: 20,814,611. -------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference in Parts II, III, and IV of this Annual Report on Form 10-K: (i) portions of Registrant's annual report to security holders for the fiscal year ended December 29, 1996 (Parts II and IV), and (ii) portions of Registrant's proxy statement for its annual meeting of shareholders to be held on May 2, 1997 (Part III). PART I ITEM 1. BUSINESS Overview Actel designs, develops, and markets field programmable gate arrays ("FPGAs") and associated development system software and programming hardware. FPGAs are used by designers of communications, computer, industrial, military/aerospace, and other electronic systems to differentiate their products and get them to market faster. The Company is the leading supplier of FPGAs based on antifuse switching elements, which are smaller than alternative switching elements (such as static random access memories ("SRAMs") or erasable programmable read only memories ("EPROMs")), permitting reduced circuit size and cost and increased design efficiencies. Actel shipped its first products in 1988 and has sold more than 7,500 development systems to customers, including Allen Bradley/Rockwell, AST Computer, Alcatel, Bay Networks, Cabletron, DSC Communications, Hughes Aircraft, Lockheed-Martin, Lucent Technologies, and Siemens. The Company has foundry relationships with Chartered Semiconductor Manufacturing Pte Ltd ("Chartered Semiconductor") in Singapore, Lockheed-Martin Federal Systems Company ("Lockheed-Martin FSC") in the United States, Matsushita Electronics Company and Matsushita Electrical Industry Company Ltd. (collectively, "Matsushita") in Japan, Texas Instruments Incorporated ("TI") in the United States, and Winbond Electronics Corp. ("Winbond") in Taiwan, permitting Actel to focus its resources on its core strengths of designing, developing, and marketing FPGAs. The Company's FPGAs are based on two proprietary technologies: the Actel antifuse and a circuit architecture that takes advantage of the Company's antifuse. The principal advantages of the antifuse over alternative switching elements are smaller size and lower electrical resistance. The smaller size of the antifuse generally permits Actel to make programmable circuits that are smaller, and hence less costly, than circuits of comparable performance and capacity made under comparable design rules using alternative switch technologies. Similarly, for circuits of comparable size and capacity manufactured under comparable design rules, the antifuse facilitates the design of circuits with a greater number of switches, which, in combination with the lower electrical resistance of the antifuse, tends to enhance flexibility and/or performance. In addition, the Company believes that its antifuse-based architecture is better suited for the high-level tools generally employed to design higher capacity devices than existing architectures using other types of switching elements. Actel believes that the advantages of its antifuse and architecture become more pronounced in higher capacity devices and that the demand for higher capacity devices will increase faster than that for programmable devices as a whole. Accordingly, the Company is focusing its attention on the transition to higher capacity devices and the associated high-level design methodologies. Actel's strategy is to provide the best FPGA solutions by giving logic designers the capability to move up to higher capacity designs with confidence and be successful. The Company's product line currently consists of six families of FPGAs, Designer Series Development System and CoreHDL software, Activator Device Programmers, and a family of mask-programmed gate arrays ("MPGAs"). To meet the diverse customer requirements in the broad FPGA market, each member of a product family generally is offered in a variety of speed grades, package types, reliability screenings, and ambient temperature tolerances. Designers typically use popular third-party software for circuit design and then translate the design into a programmed FPGA using Actel's proprietary, highly automated software (Designer Series Development System) and hardware (Activator Device Programmers). Customers with high-volume Actel FPGA designs may choose to convert to lower-cost MPGAs. In 1996, Actel introduced its CorePCI models, which are Peripheral Component Interface (PCI) compliant blocks or "cores" that can be used to save development time by being "dropped into" designs for ACT 3 PCI devices, which were also introduced in 1996. In addition, the Company announced agreements with two core providers to offer Actel-optimized cores, the first six of which were immediately available. In 1996, Actel also announced an alliance with Synopsys Inc. ("Synopsys") to produce a new category of logic devices called system programmable gate arrays ("SPGAs"), which will permit designers to combine complex system elements with traditional programmable logic to implement programmable "systems-on-a-chip." In addition, the Company announced that its first SPGA offering will be an "ES" product family that permits designers to target system functional cores into Actel's new ES reprogrammable architecture. The Company believes the ES product family will eventually include devices containing embedded mask-programmed functional blocks for improved performance, efficiency, and cost. Actel markets its products through a worldwide, multi-tiered sales and distribution network. The North American network includes 11 sales management offices, 21 manufacturers' representative firms, and three distributors. The European network includes sales management offices in England, France, and Germany, as well as 23 distributors and two manufacturers' representatives. In Japan, the Company markets its products through three distributors. Nine additional distributors serve the remaining international markets in which Actel offers its products. The Company was incorporated in California in 1985. Actel's principal facilities and executive offices are located at 955 East Arques Avenue, Sunnyvale, California 94086-4533, and its telephone number at that address is (408) 739-1010. The Company's World Wide Web address is http://www.actel.com. As used in this Annual Report on Form 10-K, "Actel" and the "Company" mean Actel Corporation and its consolidated subsidiaries. "Actel" and the Actel logo are registered trademarks of the Company. This Annual Report on Form 10-K also includes unregistered trademarks of the Company and trademarks of companies other than Actel. Industry Background The three principal types of integrated circuits used in most digital electronic systems are microprocessor, memory, and logic circuits. Microprocessors are used for control and computing tasks; memory devices are used to store program instructions and data; and logic devices are used to adapt these processing and storage capabilities to a specific application. Logic circuits are found in virtually every electronic system. The logic design of competing electronic systems is often a principal area of differentiation. Unlike the microprocessor and memory markets, which are dominated by a relatively few standard designs, the logic market is highly fragmented and includes, among many other segments, low-density standard transistor-transistor logic circuits ("TTLs") and custom-designed application specific integrated circuits ("ASICs"). TTLs are standard logic circuits that can be purchased "off the shelf" and interconnected on a printed circuit board, but they tend to limit system performance and increase system size and cost compared with logic functions integrated at the circuit (rather than the board) level. ASICs are customized circuits that offer electronic system manufacturers the benefits of higher levels of circuit integration: improved system performance, reduced system size, and lower system cost. ASICs include conventional gate arrays and programmable logic circuits. Conventional gate arrays are customized to perform desired logical functions at the time the device is manufactured. Since they are "hard wired" at the wafer foundry, conventional gate arrays are subject to the time and expense risks associated with any development cycle involving a foundry. Typically, conventional gate arrays are first delivered in production volumes months after the successful production of acceptable prototypes. In addition, conventional gate arrays cannot be modified after they are manufactured, which subjects them to the risk of inventory obsolescence and constrains the system manufacturer's ability to change the logic design. Programmable logic circuits, on the other hand, are manufactured as standard devices and customized "in the field" by electronic system manufacturers using computer-aided engineering ("CAE") design and programming systems. Programmable logic circuits are being used by a growing number of electronic system manufacturers as a solution to their increasing demands for differentiation, rapid time to market, and manufacturing flexibility. While conventional gate array designs are generally more complex than programmable logic circuit designs, the average capacity (or "gates" per circuit) of both conventional gate arrays and programmable logic circuits has increased over time. This indicates that long-term growth in sales within each market segment has increased faster for circuits with higher capacities. Programmable logic circuits include programmable logic devices ("PLDs") and FPGAs. The market for complex PLDs ("CPLDs") and FPGAs has grown rapidly because they generally offer greater capacity, lower total cost, and lower power consumption than TTLs and simple PLDs, and faster time to market and lower development costs than conventional gate arrays. For many electronic system manufacturers, the time-to-market and manufacturing-flexibility benefits of CPLDs and FPGAs outweigh their price premium over conventional gate arrays of comparable capacity. This is particularly true with respect to communications applications. Electronic system manufacturers customize programmable logic circuits to perform the desired logical functions by using CAE systems to change the state of the device's programming elements (such as fuses, antifuses, or transistors) through the application of an electrical signal. Most CPLDs currently are programmed with EPROM or other "floating gate" technologies. Many FPGAs currently are programmed with SRAM technology. The principal limitation on the wider use of CPLDs and FPGAs has been the difficulty in developing devices with price and performance factors approaching those of conventional gate arrays. On current architectures, programming elements based on EPROM or SRAM technologies occupy relatively large amounts of area within a circuit, which tends to increase the overall size and, in turn, the cost of each circuit. In addition, on current architectures the size of the EPROM and SRAM programming elements tends to limit the number of interconnect points in a circuit, which, in combination with the relatively high electrical resistance of EPROM and SRAM programming elements, tends to limit performance. Before an FPGA can be programmed there are various steps that must be accomplished by a designer using CAE design software. These steps include defining the function of the FPGA, verifying the design, and laying out the circuit. Traditionally, logic functions have been defined using schematic capture tools, which essentially permit the designer to construct a circuit diagram on the computer. As FPGA designers have begun to design higher capacity circuits, the time required to create schematic diagrams using schematic capture tools has become prohibitive. To address this problem, designers are increasingly turning to hardware description languages ("HDLs), also known as high-level description ("HLD"). VHDL and Verilog are the most common HDLs, which permit the designer to describe the circuit functions at an abstract level and to verify the performance of logic functions at that level. The HDL can then be fed into logic synthesis software that automatically converts the abstract or high-level description to a gate-level representation equivalent to that produced by schematic capture tools. After a gate-level representation of the logic function has been created and verified, it must be translated or "laid out" onto the generic logic modules of the FPGA. This is achieved by placing the logic gates and routing their interconnections, a process referred to as "place and route." As designers have begun to design higher capacity circuits, the need for automatic (instead of manual) place and route capability has become increasingly important. This transition to the use of HDLs presents a challenge to the designer to learn new design methods and to use new design tools. In addition, not all programmable logic circuit architectures are equally well suited for use with logic synthesis and place and route tools. Technology Actel's FPGAs are based on two proprietary technologies: the Actel antifuse and a circuit architecture that takes advantage of the Company's antifuse. The antifuse is a two-terminal switch that is open before being programmed. In contrast to a conventional fuse, the application of sufficient voltage to an antifuse causes the switch to close permanently, allowing current to pass. Actel is the leading supplier of FPGAs based on antifuses. Antifuse Actel believes that it was first to achieve volume production of antifuse-based FPGAs. The patented antifuse structure used by Actel in its current product families consists of a "sandwich" of silicon oxide, silicon nitride, and silicon oxide ("ONO"). This structure is similar to that of ONO capacitors employed in the volume manufacture of many dynamic random access memory (DRAM) circuits. The Company believes that the benefits of the antifuse include the following: Small Size Antifuses are smaller than alternative switching elements (such as SRAMs and EPROMs), so antifuse-based circuits tend to be smaller, and hence less costly, than circuits of comparable performance and capacity manufactured under comparable design rules with alternative switching elements. This is particularly true of higher capacity circuits. Similarly, for circuits of comparable size and capacity manufactured under comparable design rules, the antifuse facilitates the design of circuits with a greater number of switches, which tends to enhance flexibility and/or performance. Low Resistance Antifuses typically exhibit lower electrical resistance than alternative switching elements. Lower electrical resistance also tends to enhances circuit performance. High Reliability The Company has performed extensive reliability testing on its antifuses over many years with excellent results. The negligible rate of individual antifuse failure permits antifuses to be used in substantial numbers without degrading overall circuit reliability, which in turn permits the small size and low resistance attributes of the antifuse to be fully exploited. Nonvolatility After an antifuse-based FPGA is programmed, it retains its circuit configuration permanently, even in the absence of electrical power. This is not true of SRAM-based FPGAs. Although the reprogrammability of SRAM and EPROM switches is desirable in some applications, nonvolatility is necessary in certain military, aerospace, and communications applications. Circuit Architecture The Company believes that the principal advantages of its proprietary circuit architecture include the following: Synthesisizability All of Actel's FPGAs are "synthesis friendly" by virtue of their use of many, relatively simple logic building blocks (referred to as "fine granularity") made possible by the antifuse. The Company believes that this characteristic will become increasingly important to designers as circuit capacities increase. Few Programming Elements in Interconnect Path Actel's circuit architecture usually provides for the minimum number of antifuses in an interconnect path (two), and never permits more than four antifuses in any interconnect path. In general, the fewer the number of switches in an interconnect path, the faster the connection. Many competing FPGAs include interconnect paths with more than four programming elements, which increase resistance and therefore impede circuit performance. Routability The plentiful number of antifuses and the patented segmented routing tracks of different lengths in Actel's products provide numerous routing alternatives and generally facilitate efficient results with automatic place and route software, even when a high percentage of the FPGA's potential gate capacity is used. Actel believes that these features make its circuits easier to design with than most competing FPGAs. Flexibility and Utilization A key competitive factor in the programmable logic market is utilization, or the extent to which a particular design can use the potential number of gates available on the circuit. In the case of SRAM-based FPGAs and EPROM-based CPLDs, utilization can vary substantially from design to design, so that a "8,000-gate" circuit may in practice use only a fraction of that number. By contrast, Actel's circuit architecture permits its products to have a more predictable capacity over a broad range of applications. This permits Actel's customers to select with a relatively high degree of confidence the product that is most economical for a desired application. Actel's circuit architecture also provides significant flexibility in utilizing the logic capacity of the circuit to boost performance. The Company believes that the advantages of its antifuse and architecture described above generally increase as circuit capacity increases, and that the greatest growth in the programmable logic market will occur in higher capacity devices. Accordingly, Actel is focusing its attention on the transition to higher capacity devices and associated high-level design methodologies. The Company's strategy is to provide the best FPGA solutions by giving logic designers the capability to move up to higher capacity designs with confidence and be successful. Products Actel's product line currently consists of six families of FPGAs, Designer Series Development System and Core HDL software, Activator Device Programmers, and a family of MPGAs. In 1996, the first member of the RadHard FPGA family was shipped for revenue and an important software update was released. FPGAs Currently, all six of the Company's FPGA families are in production. To meet the diverse customer requirements in the broad high-capacity programmable logic market, each member of a family (except RadHard) is offered in a variety of speed grades, package types, reliability screenings, and ambient temperature tolerances. The five members of the ACT 1 and ACT 2 families, for example, can be ordered in more than 100 speed, packaging, screening, and tolerance variations. ACT 1 The ACT 1 family consists of two products: the 1,200-gate A1010, which was first shipped for revenue in 1988; and the 2,000-gate A1020, which was first shipped for revenue in 1989. The A1020 is capable of integrating the equivalent of 60 TTLs into a single package. This family of circuits was introduced at 2.0 micron and currently is manufactured under 1.0 and 0.9 micron design rules. The Company offers 3.3-volt versions of its ACT 1 products. ACT 2 The ACT 2 family consists of three products: the 4,000-gate A1240 and the 8,000-gate A1280, which were first shipped for revenue in 1991; and the 2,500-gate A1225, which was first shipped for revenue in 1992. The A1280 is capable of integrating the equivalent of 240 TTLs into a single package. This family of circuits was introduced at 1.2 micron and currently is manufactured under 1.0 micron design rules. ACT 3 The ACT 3 family consists of five products: the 2,500-gate A1425 and the 6,000-gate A1460, which were first shipped for revenue in 1993; and the 1,500-gate A1415, the 4,000-gate A1440, and the 10,000-gate A14100, which were first shipped for revenue in 1994. The ACT 3 family was designed for applications requiring high speed and a high number of inputs and outputs ("I/Os"). The five members of the ACT 3 family can be ordered in more than 70 speed, packaging, screening, and tolerance variations. The Company offers 3.3-volt and, beginning in 1996, PCI-compliant versions of its ACT 3 products. The ACT 3 family was introduced at 0.8 micron and currently is manufactured under 0.6 micron design rules. 1200XL The 1200XL family, which was first shipped for revenue in 1995, consists of three members ranging from 2,500 to 8,000 gates that can be ordered in more than 50 speed, packaging, screening, and tolerance variations. Taking advantage of 0.6 micron design rules and redesigned I/O modules and clock distribution networks, 1200XL products offer system performance significantly in excess of that offered by pin-compatible ACT 2 devices, which the 1200XL family will eventually replace. In 1996, Actel began offering the 8,000-gate A1280XL in a 208-pin plastic quad flat pack ("PQFP") and the 4,000-gate A1240XL in a 100-pin PQFP. Designers using the new packages will be able to migrate to higher density devices without changing packages. 3200DX The 3200DX family currently consists of the 6,500-gate A3265DX, which was first shipped for revenue in 1995; and the 14,000-gate A32140DX and the 20,000-gate A32200DX, which were first shipped for revenue in 1996. The 3200DX family, which may range up to 40,000 gates, permits designers to integrate the register-intensive datapath functions of FPGAs, the control and decode modules commonly implemented in CPLDs, and the fast dual-port SRAM typically used for high-speed buffering. Supported by the Company's extensive selection of automated design tools, the 3200DX family is optimized for synthesis design methodologies to yield predictable performance for system logic integration. To further assist designers, most members of the family offer JTAG boundary scan logic, which permits testing of the design during manufacture. In 1996, Actel began offering the A32140DX in a 176-pin thin quad flat pack (TQ176), which will enable designers to easily migrate from smaller TQ176 devices. The 3200DX family is based on 0.6 micron design rules. RadHard The RadHard family currently consists of the 8,000-gate RH1280, which was first shipped for revenue in 1996 and ramped more quickly than any other product in the Company's history. Actel and Lockheed-Martin FSC are jointly developing the RadHard family to meet the demands of applications requiring guaranteed levels of performance and radiation immunity, including the growing commercial satellite market. The RadHard family is based on 0.8 micron design rules. Software A key element of the Company's strategy is to support users' electronic design automation ("EDA") tools of choice by establishing and maintaining relationships with leading synthesis software vendors for the purpose of permitting such tools to be used as a "front end" to Actel's proprietary Designer Series Development System. Rather than developing this capability alone, the Company has established the Actel Industry Alliance, which Actel uses to establish relationships with EDA vendors for the purpose of developing interfaces between such vendors' EDA tools and Actel's proprietary software. Under the Alliance program, Actel provides members with, among other things, access to its proprietary software specifications, early access to software revisions, verification services, and participation in joint marketing efforts. The Alliance currently has more than 20 members, including all major EDA vendors supporting HLD for both VHDL and Verilog. The Company provides comprehensive HDL solutions for the EDA environments of Cadence Design Systems, Mentor Graphics, Synopsys, and Viewlogic. Designer Series Development System In 1996, the Company began to offer, and distributed as a free upgrade to Actel customers who subscribe to the Company's support program, an important software release, Designer Series 3.1, which supports all Actel FPGA families. Designer Series 3.1 includes improvements to ACTmap, the VHDL synthesis and optimization tool shipped with all versions of Actel's Designer Series Development System, and ACTgen, an automatic VHDL macro builder. In Designer Series 3.1, ACTmap handles the industry-standard array of VHDL constructs. ACTgen enhancements include multipliers for improved generation of digital signal processing ("DSP") functions and enhanced synthesis of the SRAM and control and decode blocks available in the newer members of the 3200DX family, including the A32200DX. By combining ACTmap's VHDL behavioral language features with ACTgen's reusable functional modules, Designer Series 3.1 permits designers to more quickly and easily design and verify complex, high-capacity designs for applications such as networking and telecommunications. CoreHDL Intellectual Property As integrated circuits move to ever higher levels of capacity and integration, the use of intellectual property ("IP"), in the form of cores, becomes more important. In offering CoreHDL IP, the Company is targeting high-density FPGA designers who are interested in combining customized logic with predefined functions optimized for high performance applications. By using predefined cores, designers save engineering resources for the value-added portions of their designs while shortening the design cycle. In addition, the portable nature of cores enables design reuse across multiple product versions. Actel's CoreHDL IP portfolio currently consists of CorePCI, three telecommunications cores, and three industrial cores, all of which were introduced in 1996, and a Universal Serial Bus (USB) Interface. The Company offers seven CorePCI models, which were developed internally, in both VHDL and Verilog-HDL. The remaining cores were developed by Inicore AG, a Swiss IP provider. The telecommunications cores include an ISDN G704-EI Framer, an Asynchronous Transfer Mode (ATM) UTOPIA receiver interface, and an ATM UTOPIA transmitter interface. The cores targeted to industrial control applications are a Universal Asynchronous Receiver/Transmitter (UART), a Controller Area Network (CAN) Interface, and a Serial Control Bus Interface. Activator Device Programmers The Company's Activator Device Programmers are used to program Actel's FPGAs. The Activator accepts data from Designer Series Development System software, converts the data to the proper protocol, and applies the appropriate electrical signals to the device so as to permanently imprint the user's circuit design on the device. There are currently two Activator Device Programmers, Activator 2 and Activator 2S, both of which execute all programming, verification, and debugging functions. Customized programming adapters for each device type permit different packages to be programmed by switching adapters. Activator 2 programs up to four FPGAs at a time; Activator 2S programs one at a time. Actel also supports programmers manufactured by third parties, including Data I/O, the leading supplier of third-party programmers. In 1996, BP Microsystems Inc. became the first vendor to successfully receive support certification for all of the Company's FPGAs. MPGAs The Company offers a family of MPGAs, which provides high-volume users of Actel FPGA designs with a fast, convenient, low-cost alternative to traditional gate array conversions. Market and Applications FPGAs can be used in a broad range of applications across nearly all electronic system market segments. Most customers use the Company's FPGAs in low- to medium-volumes in the final production form of their products. Some high-volume electronic system manufacturers use Actel's FPGAs as a prototyping vehicle and convert production to lower-cost conventional gate arrays, while others with time-to-market constraints use the Company's FPGAs in the initial production and then convert to conventional gate arrays. As product life cycles continue to shorten, some high-volume electronic system manufacturers are electing to retain FPGAs in volume production because conversion to conventional gate arrays may not yield sufficiently attractive savings before the electronic system reaches the end of its life. Communications The high capacity, high performance, and low power consumption of FPGAs make them well suited for use in communications equipment. Increasingly complex equipment must frequently be designed to fit in the space occupied by previous product generations. The rapidly changing communications environment rewards short development times and early market entry. Representative Actel customers in the communications market include: 3Com, ADC Kentrox, Advanced Fibre Communications, Alcatel, Ascend Communications, Bay Networks, Cabletron, Cascade, Cisco Systems, Chipcom, DSC Communications, Hughes Network Systems, Lucent Technologies, Motorola, and Nortel. Computer Systems and Peripherals The computer systems markets are intensely competitive, placing a premium on early market entry for new products. FPGAs decrease the time to market and facilitate early completion of production models so that development of hardware and software can occur in parallel. Representative Actel customers in the computer market include: AST Computer, Hewlett-Packard, IBM, Olivetti, Sky Computer, and Tandem Computer. Industrial Control Equipment Industrial Control Equipment Industrial control and instrumentation applications often require complex electronic functions tailored to specific needs. FPGAs offer programmability and high capacity, making them attractive to this segment of the electronic equipment market. Representative Actel customers in the industrial market include: Allen Bradley/Rockwell, Eastman Kodak, General Electric, Hewlett-Packard, Marquette, and Siemens. Military and Aerospace Rigorous quality and reliability standards, stringent volume requirements, and the need for design security are characteristics of the military and aerospace market. The Company's FPGAs have high quality, reliability, and capacity, and are virtually impossible to reverse engineer, making them suitable for many military and aerospace applications. Actel's FPGAs are especially well suited for space applications, due to the high radiation tolerance of the Company's antifuse, and for many aircraft and missile flight applications, due to the high density and performance of Actel's FPGAs. Representative Actel customers in the military market include: Alliant Technology, Boeing, E-Systems, Harris, Honeywell, Hughes Aircraft, Jet Propulsion Labs (JPL), Lockheed-Martin, Loral, National Aeronautics Space Administration (NASA), Northrup, Olin Corporation, Raytheon, SCI Systems, TI, and TRW. Sales and Distribution The Company maintains a worldwide, multi-tiered selling organization that includes a direct sales force, independent manufacturers' representatives, and electronics distributors. Actel's domestic sales force currently consists of 48 sales and administrative personnel and field application engineers ("FAEs") operating from 11 sales offices located in major metropolitan areas. Direct sales personnel call on target accounts and support direct original equipment manufacturers ("OEMs"). Besides overseeing the activities of direct sales personnel, the Company's sales managers also oversee the activities of 21 manufacturers' representative firms that operate from approximately 43 office locations. The manufacturers' representatives concentrate on selling to major industrial companies in North America. To service smaller, geographically dispersed accounts in North America, Actel has distributor agreements with Pioneer-Standard Electronics, Inc. ("Pioneer"), Arrow Electronics, Inc. and Zeus Electronics (collectively, "Arrow"), and Wyle Laboratories ("Wyle"). Arrow has approximately 50 branch offices in North America; Pioneer and Wyle have a total of approximately 60 branch locations in North America. The Company generates a significant portion of its revenues from international sales. Sales to customers outside the United States accounted for approximately 33%, 38%, and 32% of net revenues in 1996, 1995, and 1994, respectively. Actel's European sales organization currently consists of 23 distributors (including Arrow, which has 10 subsidiary companies in Europe) having approximately 52 branch offices. The activities of these distributors are supervised from sales management offices in Basingstoke (England), Paris (France), and Munich (Germany), where a total of 17 people are employed. Matsushita, which is a foundry and strategic partner of the Company, markets Actel's products in Japan under the Company's brand name. The Company has two additional distributors in Japan, including Innotech Corporation. Actel also has distributors in Australia, China, Egypt, Hong Kong, India, Korea, Malaysia, Singapore, South Africa, and Taiwan. In 1996, the Company added Dae Jin Semiconductor Company as a new distributor. Dae Jin is a dominant distributor in Korea's telecommunications market. After the Company's sales representatives and distributors evaluate a customer's logic design requirements and determine if there is an application suitable for Actel's FPGAs, the next step typically is a visit to the qualified customer by a regional sales manager or the FAE from the Company or its distributor. The sales manager or FAE may then determine that additional analysis is required by engineers based at Actel's headquarters. The Company's sales cycle for the initial sale of a design system is generally lengthy and requires the continued participation of salespersons, FAEs, engineers, and management. In 1996, more than half of Actel's sales in the United States and virtually all of the Company's sales outside the United States were made through distributors. As is common in the semiconductor industry, Actel generally grants price protection to distributors. Under this policy, distributors are granted a credit upon a price reduction for the difference between their original purchase price for products in inventory and the reduced price. From time to time, distributors are also granted credit on an individual basis for Company-approved price reductions on specific transactions to meet competition. The Company also generally grants distributors limited rights to return products. To date, product returns under this policy have not been material. Actel maintains reserves against which these credits and returns are charged. Because of its price protection and return policies, the Company generally does not recognize revenue on products sold to distributors until the products are resold to end customers. Backlog At December 31, 1996, Actel's backlog was approximately $27.0 million, compared with approximately $34.4 million at December 31, 1995. The Company includes in its backlog all OEM orders scheduled for delivery over the next nine months and all distributor orders scheduled for delivery over the next six months. Actel produces standard products that may be shipped from inventory within a short time after receipt of an order. The Company's business, and to a large extent that of the entire semiconductor industry, is characterized by short-term order and shipment schedules, rather than volume purchase contracts. In accordance with industry practice, Actel's backlog may be cancelled or rescheduled by the customer on short notice without significant penalty. As a result, the Company's backlog may not be indicative of actual sales and therefore should not be used as a measure of future revenue. Customer Service and Support Actel believes that superior customer service and technical support are essential for success in the FPGA market. The Company facilitates service and support through service team meetings that address particular aspects of the overall service strategy and support. The most significant areas of customer service and technical support are regularly measured. Actel's customer service organization emphasizes prompt, accurate responses to questions about product delivery and order status. The Company's FAEs provide technical support to customers in the United States and Europe. This network of experts is augmented by FAEs working for Actel's sales representatives and distributors throughout the world. Customers in any stage of design can also obtain assistance from the Company's technical support hotline. In addition, Actel offers technical seminars on its products and comprehensive training classes on its software. The Company generally warrants its products against defects in material and workmanship for one year. Actel also warrants that its automatic place and route software will achieve gate utilization at not less than the rates advertised. The Company has not experienced significant warranty returns to date. Manufacturing and Assembly Actel's current strategy is to utilize third-party manufacturers for its wafer requirements, which permits the Company to allocate its resources to product design, development, and marketing. Wafers used in Actel's FPGAs are manufactured by Chartered Semiconductor in Singapore, by Lockheed-Martin FSC in the United States, by Matsushita in Japan, by TI in the United States, and by Winbond in Taiwan. The Company historically purchased wafers from Matsushita and TI. Chartered Semiconductor, Lockheed-Martin FSC, and Winbond were added in 1994. Actel's FPGAs are currently manufactured by Chartered Semiconductor using 0.6 micron design rules; by Lockheed-Martin FSC using 0.8 micron design rules; by Matsushita using 0.8, 0.9, and 1.0 micron design rules; by TI using 1.0 micron design rules; and by Winbond using 0.6 and 0.8 micron design rules. Wafers purchased by the Company from its suppliers are assembled, tested, marked, and inspected by Actel and/or a subcontractor of the Company before shipment to customers. Actel assembles most of its plastic commercial products in Hong Kong and Korea. Ceramic package assembly, which is generally required for military applications, currently is performed at one or more subcontractor manufacturing facilities, some of which are in the United States. Research and Development In 1996, 1995, and 1994, the Company spent $23.9 million, $20.6 million, and $14.4 million, respectively, on research and development, which represented approximately 16%, 19%, and 19%, of net revenues, respectively, for such periods. Actel's research and development expenditures are currently divided among circuit design, software development, and process technology activities. In the areas of circuit design and process technology, the Company's research and development activities include continuing efforts to reduce the cost and improve the performance of current products, principally by reducing the design rules under which such products are manufactured, and to develop new families of FPGA products based on existing or emerging technologies. Actel's software research and development activities are dedicated to providing customers with access to a wide variety of CAE tools and HDL cores in a complete and automated desktop design environment on popular personal computer and workstation platforms, with the objective of giving logic designers the capability to move up to higher complexity designs with confidence and be successful. The research and development projects that the Company announced in 1996 are summarized below. ES Architecture and ES Reprogrammable SPGA Products On March 6, 1995, Actel and BTR, Inc. ("BTR") entered into a License Agreement pursuant to which BTR licensed its proprietary technology to the Company for development and use in FPGAs and certain multichip modules. As partial consideration for the grant of the license, the Company is paying to BTR non-refundable advance royalties. Actel has also employed the principals of BTR to assist the Company in its development and implementation of the licensed technology. The ES architecture combines a new, fine-grained cell structure with a routing-centric architecture. The expected result is logic cells that are more readily synthesized and more efficient than current programmable architectures. The key to the architectural efficiencies is a technology Actel calls MutliDrive active routing. Separate transistors are used to implement logic and to drive the interconnects. By separating these functions, Actel believes that more transistors can be included per chip, which should translate to smaller die size and more efficient and lower-cost designs. In addition, the interconnect drivers are tailored to routing length, which should provide high performance even for cross-chip routing. The ES architecture also makes greater use of hierarchy than current programmable architectures. A constant, maximum routing delay is associated with each level of hierarchy, which should provide the device with fanout independent delays. This means that, regardless of the number of logic elements being driven, the delay should always be constant, making the chip's performance predictable. The ES architecture is switch-technology independent, so products can utilize SRAM, antifuse, flash, or any other basic programming element. The Company currently intends to introduce the initial ES family based on reprogrammable, three-layer metal SRAM technology manufactured using 0.35 micron design rules. Actel envisions further products based on antifuse or flash technologies in the future. Embedded SPGA Products On June 1, 1996, Actel and the Silicon Architects Group of Synopsys entered into a Technology License and Services Agreement pursuant to which Synopsys licensed its cell-based array ("CBA") architecture to Actel. The two companies will jointly adapt CBA technology specifically to support SPGAs and jointly develop Synopsys' synthesis technology to support the new device class. Embedded SPGAs will combine the performance, efficiency, and cost advantages of conventional gate arrays with the time-to-market and flexibility advantages of the ES architecture by embedding mask-programmed elements within the device. The programmable portion of the Embedded SPGA will provide all the features and functionality of the Reprogrammable SPGA described above. The embedded mask-programmed portion of the device will be based on CBA technology, which is a gate array architecture with cell-based efficiencies. CBA supports the implementation of multiple industry-standard or proprietary functions, including DPS filters, datapaths, memories, and preconfigured kits of specific functional blocks. The Company believes that the Embedded SPGA will enable two fundamentally different business models. In the first, the Actel Embedded SPGA is an application-specific device available to multiple customers as an off-the-shelf, field-programmable technology that is sold and supported like an FPGA. An application-specific core (such as a PCI core, for example) is already embedded in the device, creating significant value for customers who desire such cores but cannot or do not wish to design them from scratch. In the second business model, the Actel Embedded SPGA is a customer-specific device in which proprietary functions are embedded and field-programmability is available for later design variations. Under this scenario, the device is sold and supported like a conventional gate array, and the customer uses the field-programmability of the device to support varying industry standards or to offer differentiated product derivatives. Competition The FPGA market is highly competitive, and the Company expects that competition will continue to increase as the market grows. Actel's competitors include suppliers of TTLs and ASICs, including conventional gate arrays, PLDs, and FPGAs. Of these, the Company competes principally with suppliers of conventional gate arrays, CPLDs, and FPGAs. The primary advantages of conventional gate arrays are high capacity, high speed, and low production cost in high volume. Actel competes with conventional gate array suppliers by offering lower design costs, shorter design cycles, and reduced inventory risks. However, some customers elect to design and prototype with the Company's products and then convert to conventional gate arrays to achieve lower costs for volume production. For this reason, Actel faces competition from companies that specialize in converting CPLDs and FPGAs, including the Company's products, into conventional gate arrays. Actel's MPGA family offers designers a fast, convenient, low-cost alternative to traditional gate array conversions. The Company also competes with suppliers of CPLDs. Suppliers of these devices include Altera Corporation ("Altera"), Advanced Micro Devices, and Lattice Semiconductor. The circuit architecture of CPLDs gives them a performance advantage in certain lower capacity applications, but Actel believes that its products are better suited for higher capacity designs. Altera, however, has a larger installed base of development systems than the Company. In addition, CPLDs are reprogrammable, which permits customers to reuse a circuit multiple times during the design process (unlike antifuse-based FPGAs, which permanently retain the programmed configuration). No assurance can be given that Actel will be able to overcome these competitive disadvantages. The Company competes most directly with established FPGA suppliers, such as Xilinx, Inc. ("Xilinx") and Lucent Technologies (which is a licensed second source of some Xilinx products). While Actel believes its products and technology are superior to those of Xilinx in many applications requiring greater speed, lower cost, or nonvolatility, Xilinx came to market with its FPGAs approximately three years before the Company, has a larger installed base of development systems, and its SRAM-based products are reprogrammable. No assurance can be given that Actel will be able to overcome these competitive disadvantages. Several companies have either already marketed antifuse-based FPGAs, including QuickLogic Corporation ("QuickLogic"), or announced their intention to do so. See "Legal." On March 31, 1995, the Company completed its acquisition of the antifuse FPGA business of TI, which was the only second-source supplier of the Company's products. Xilinx, which is a licensee of certain of the Company's patents, introduced antifuse-based FPGAs in 1995 and terminated its antifuse FPGA business in 1996. Cypress Semiconductor Corporation, which was a licensed second source of QuickLogic, sold its antifuse FPGA business to QuickLogic in the first quarter of 1997. Actel expects significant additional competition from major domestic and international semiconductor suppliers, such as Motorola, which has announced its intention to enter the FPGA market. All such companies are larger, offer broader product lines, and have substantially greater financial and other resources than the Company, including the capability to manufacture their own wafers. Additional competition could adversely affect Actel's business, financial condition, or results of operations. The Company may also face competition from suppliers of logic products based on new or emerging technologies. For example, there are other known techniques for manufacturing antifuses that offer certain advantages over Actel's current fuse. The Company seeks to monitor developments in existing and emerging technologies. No assurance can be given that Actel will be able to compete successfully with suppliers offering products based on new or emerging technologies. Patents and Licenses The Company currently has 107 United States patents and applications pending for an additional 48 United States patents. Actel has one European patent and has applications pending for an additional 40 patents outside the United States. The Company's patents cover, among other things, Actel's basic circuit architecture, antifuse structure, and programming method. The Company expects to continue filing patent applications when appropriate to protect its proprietary technologies. Actel believes that patents, along with such factors as innovation, technological expertise, and experienced personnel, will become increasingly important. The Company attempts to protect its circuit designs, software, trade secrets, and other proprietary information through patent and copyright protection, agreements with customers and suppliers, proprietary information agreements with employees, and other security measures. No assurance can be given that the steps taken by Actel will be adequate to protect its proprietary rights. See "Business -- Research and Development" for summaries of certain licensing agreements to which the Company is a party. Employees At the end of 1996, the Company had 356 full-time employees, including 113 in marketing, sales, and customer support; 122 in research and development; 94 in operations; and 27 in administration and finance. None of the Company's employees is represented by a labor union nor does Actel have employment agreements with any of its employees. The Company has not experienced any work stoppages, and believes that its employee relations are satisfactory. Risk Factors Shareholders and prospective shareholders of Actel should carefully consider, along with the other information in this Annual Report on Form 10-K, the following risk factors: Fluctuations In Operating Results The Company's quarterly and annual operating results are subject to general economic conditions and a variety of risks specific to Actel or characteristic of the semiconductor industry, including booking and shipment uncertainties, supply problems, and price erosion. Booking and Shipment Uncertainties Actel typically generates a large percentage of its quarterly revenues from orders received during the quarter and shipped in the final weeks of the quarter, making it difficult to accurately estimate quarterly revenues. The Company's backlog (which may be cancelled or deferred by customers on short notice without significant penalty) at the beginning of a quarter accounts for only a fraction of Actel's revenues during the quarter. This means that the Company generates the rest of its quarterly revenues from orders received during the quarter and "turned" for shipment within the quarter, and that any shortfall in "turns" orders will have an immediate and adverse impact on quarterly revenues. There are many factors that could cause a shortfall in "turns" orders, including but not limited to a decline in general economic conditions or the businesses of end users, excess inventory in the channel, conversion to conventional (or non-programmable) grate arrays, or the loss of business to other competitors for price or other reasons. Historically, Actel has shipped a disproportionately large percentage of its quarterly revenues in the final weeks of the quarter. Any failure by the Company to effect scheduled shipments by the end of the quarter, therefore, could have a materially adverse effect on revenues for such quarter. Since Actel generally does not recognize revenue on the sale of a product to a distributor until the distributor resells the product, the Company's quarterly revenues are also dependent on, and subject to fluctuations in, shipments by Actel's distributors. When there is a shortfall in revenues, operating results are likely to be adversely affected because most of the Company's expenses do not vary with revenues. Supply Problems In a typical semiconductor manufacturing process, silicon wafers produced by a foundry are sorted and cut into individual die, which are then assembled into individual packages and tested for performance. The manufacture, assembly, and testing of semiconductor products is highly complex and subject to a wide variety of risks, including defects in masks, impurities in the materials used, contaminants in the environment, and performance failures by personnel and equipment. Semiconductor products intended for military and aerospace applications are particularly susceptible to these conditions, any of which could have a materially adverse effect on Actel's business, financial condition, or results of operations. As is common in the semiconductor industry, Actel's independent wafer suppliers from time to time experience lower than anticipated yields of usable die. For example, the Company experienced a yield problem at one of its foundries in the fourth quarter of 1993 that was severe enough to have a materially adverse effect on Actel's results of operations. To the extent yields of usable die decrease, the average cost to the Company of each usable die increases, which reduces gross margin. Wafer yields can decline without warning and may take substantial time to analyze and correct, particularly for a company such as Actel that does not operate its own manufacturing facility, but instead utilizes independent facilities, most of which are offshore. Yield problems may also increase the time to market for the Company's products and create inventory shortages and dissatisfied customers. In addition, Actel typically experiences difficulties or delays in achieving satisfactory, sustainable yields on new processes or at new foundries. Although the Company has been able eventually to overcome these difficulties in the past, no assurance can be given that it will be able to do so with respect to its current or future new processes and/or new foundries. No assurance can be given that the Company will not experience wafer supply problems in the future, or that any such problem would not have a materially adverse effect on Actel's business, financial condition, or results of operations. Price Erosion The semiconductor industry is characterized by intense competition. Historically, average selling prices in the semiconductor industry generally, and for the Company's products in particular, have declined significantly over the life of each product. While Actel expects to reduce the average selling prices of its products over time as the Company achieves manufacturing cost reductions, Actel is sometimes required by competitive pressures to reduce the prices of its products more quickly than such cost reductions can be achieved. In addition, the Company sometimes approves price reductions on specific sales to meet competition. If not offset by reductions in manufacturing costs or by a shift in the mix of products sold toward higher-margin products, declines in the average selling prices of Actel's products will reduce gross margins and could have a materially adverse effect on the Company's business, financial condition, or results of operations. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year ends on the Sunday closest to December 31. Fiscal 1996, 1995, and 1994 ended on December 29, 1996, December 31, 1995, and January 1, 1995, respectively. For ease of presentation, December 31 has been utilized as the fiscal year-end, and March 31, June 30, and September 30 have been utilized as the end of the first, second, and third fiscal quarters, respectively, in this Annual Report on Form 10-K and the portions of the Company's 1996 Annual Report to security holders incorporated herein by reference. The results of operations for fiscal 1996 or any other year are not necessarily indicative of results that may be expected for any ensuing year. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ materially from those estimates. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Given the volatility of the market for the Company's products, the Company makes inventory provisions for potentially excess and obsolete inventory based on backlog and forecast demand. However, such backlog demand is subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such backlog and forecast demand, and such differences may be material to the financial statements. Excess inventory increases handling costs and the risk of obsolescence, is a non-productive use of capital resources, and delays realization of the price and performance benefits associated with more advanced manufacturing processes. Dependence on Independent Wafer Manufacturers Actel does not manufacture any of the wafers used in the production of its FPGAs. Currently, such wafers are manufactured by Chartered Semiconductor in Singapore, Lockheed-Martin FSC in the United States, Matsushita in Japan, TI in the United States, and Winbond in Taiwan. The Company's reliance on independent wafer manufacturers to fabricate its wafers involves significant risks, including the risk of events limiting production and reducing yields, such as technical difficulties or damage to production facilities, lack of control over capacity allocation and delivery schedules, and potential lack of adequate capacity. These risks are particularly pronounced with respect to wafers intended for use in military and aerospace applications. Actel has from time to time experienced delays in obtaining wafers from its foundries, and there can be no assurance that the Company will not experience similar or more severe delays in the future. In addition, although Actel has supply agreements with most of its wafer manufacturers, a shortage of raw materials or production capacity could lead any of the Company's wafer suppliers to allocate available capacity to customers other than Actel, or to internal uses, which could interrupt the Company's capability to meet its product delivery obligations. These risks are particularly pronounced with respect to wafers intended for use in military and aerospace applications. Any inability or unwillingness of Actel's wafer suppliers to provide adequate quantities of finished wafers to satisfy the Company's needs in a timely manner would delay production and product shipments and could have a materially adverse effect on Actel's business, financial condition, or results of operations. If the Company's current independent wafer manufacturers were unable or unwilling to manufacture Actel's products as required, the Company would have to identify and qualify additional foundries. The qualification process typically takes one year or longer. No assurance can be given that any additional wafer foundries would become available or be able to satisfy Actel's requirements on a timely basis or that qualification would be successful. In addition, the semiconductor industry has from time to time experienced shortages of manufacturing capacity. To secure an adequate supply of wafers, the Company has considered, and continues to consider, various possible transactions, including the use of substantial nonrefundable deposits to secure commitments from foundries for specified levels of manufacturing capacity over extended periods, equity investments (such as Actel's investment in Chartered Semiconductor) in exchange for guaranteed production, and the formation of joint ventures to own foundries. No assurance can be given as to the effect of any such transaction on the Company's business, financial condition, or results of operations. Dependence on Customized Manufacturing Process Actel's FPGAs are manufactured using customized steps that are added to otherwise standard manufacturing processes of its independent wafer suppliers. There is considerably less operating history for the Company's customized process steps than for the foundries' standard manufacturing processes. The dependence of Actel on customized processing steps means that, in contrast with competitors using standard manufacturing processes, the Company has more difficulty establishing relationships with independent wafer manufacturers, takes longer to qualify a new wafer manufacturer, takes longer to achieve satisfactory, sustainable wafer yields on new processes, may experience a higher incidence of production yield problems, must pay more for wafers, and generally will not obtain early access to the most advanced processes. These risks are particularly pronounced with respect to wafers intended for use in military and aerospace applications. Any of the above factors could be a material disadvantage against the competing non-antifuse products of Actel's competitors, which use standard manufacturing processes. As a result of these factors, the Company's products typically have been fabricated using processes one or two generations behind the processes used on competing products. As a consequence, Actel to date has not fully realized the price and performance benefits of its antifuse technology. The Company is attempting to accelerate the rate at which its products are reduced to finer geometries and is working with its wafer suppliers to obtain earlier access to advanced processes, but no assurance can be given that such efforts with be successful. Technological Change and Dependence on New Product Development The market for Actel's products is characterized by rapidly changing technology, frequent new product introductions, and declining average selling prices over product life cycles, each of which makes the timely introduction of new products a critical objective of the Company. Actel's future success is highly dependent upon the timely completion and introduction of new products at competitive price and performance levels. In evaluating new product decisions, Actel must anticipate well in advance both the future demand and the technology that will be available to supply such demand. Failure to anticipate customer demand, delays in developing new products with anticipated technological advances, and failure to coordinate the design and development of silicon and associated software products each could have a materially adverse effect on Actel's business, financial condition, or results of operation. In addition, there are greater technological and operational risks associated with new products. The inability of the Company's wafer suppliers to produce advanced products, delays in commencing or maintaining volume shipments of new products, the discovery of product, process, software, or programming failures, and any related product returns could each have a materially adverse effect on Actel's business, financial condition, or results of operation. Actel is currently scheduled to introduce new members of the 3200DX and RadHard families in 1997. In addition, a new family of FPGAs, based on a "metal-to-metal" antifuse and a "sea of gates" architecture, is being brought into production and is currently scheduled for introduction late in 1997. No assurance can be given that the Company's design and introduction schedules for such products or the supporting software will be met or that such products will be well-received by customers. No assurance can be given that any other new products will gain market acceptance or that the Company will respond effectively to new technological changes or new product announcements by others. Any failure of Actel to successfully define, develop, market, manufacture, assemble, or test competitive new products could have a materially adverse effect on its business, financial condition, or results of operations. The Company must also continue to make significant investments in research and development to develop new products and achieve market acceptance for such products. Actel currently conducts most of its research and development activities at facilities operated by Matsushita in Japan and Extel Semiconductor, Inc. in the United States. Although the Company has not to date experienced any significant difficulty in obtaining access to its current facilities, no assurance can be given that access will not be limited or that such facilities will be adequate to meet Actel's needs in the future. Dependence on Independent Software Developers Actel is dependent upon independent software developers for the development, maintenance, and support of certain elements of its Designer Series Development Systems software. The Company's reliance on independent software developers involves certain risks, including lack of control over development and delivery schedules and the availability of customer support. Actel is aware that certain of its independent developers are currently experiencing severe financial difficulties. No assurance can be given that the Company's independent developers will be able to complete software currently under development, or provide updates, or customer support in a timely manner, which could delay future releases and disrupt Actel's ability to provide customer support services. Any significant delays in the availability of the Company's software would be detrimental to the capability of the Company's new families of products to win designs, which could have a materially adverse effect on Actel's business, financial condition, or results of operations. Dependence on Design Wins In order for the Company to sell an FPGA to a customer, the customer must incorporate the FPGA into the customer's product in the design phase. Actel therefore devotes substantial resources, which it may not recover through product sales, in support of potential customer design efforts (including, among other things, providing development system software) and to persuade potential customers to incorporate the Company's FPGAs into new or updated products. These efforts usually precede by many months (and sometimes a year or more) the generation of volume FPGA sales, if any, by Actel. The value of any design win, moreover, will depend in large part upon the ultimate success of the customer's product. No assurance can be given that the Company will win sufficient designs or that any design win will result in significant revenues. Dependence on Military and Aerospace Customers Although Actel is unable to determine with certainty the ultimate uses of its products, the Company estimates that sales of its products to customers in the military and aerospace industries, which sometimes carry higher profit margins than sales of products to commercial customers, accounted for approximately 10% to 15% of net revenues from 1992 through the first half of 1996. The Company believes that the military and aerospace industries accounted for a significantly greater percentage of the Company's net revenues in the second half of 1996, following the introduction of the RH1280. No assurance can be given that future sales to customers in the military and aerospace industries will continue at current volume or margin levels. Orders from the military and aerospace customers tend to be large and irregular, which creates operational challenges and contributes to fluctuations in Actel's net revenues and gross margins. These sales are also subject to more extensive governmental regulations, including greater import and export restrictions. In addition, products for military and aerospace applications require processing and testing that is more lengthy and stringent than for commercial applications, increasing the risk of failure. It is often not possible to determine before the end of processing and testing whether products intended for military or aerospace applications will fail and, if they do fail, a significant period of time is often required to process and test replacements, each of which makes it difficult to accurately estimate quarterly revenues and could have a materially adverse effect on Actel's business, financial condition, or results of operations. Semiconductor Industry Risks The semiconductor industry has historically been cyclical and periodically subject to significant economic downturns, which are characterized by diminished product demand, accelerated price erosion, and overcapacity. The Company may in the future experience substantial period-to-period fluctuations in business and results of operations due to general semiconductor industry conditions, overall economic conditions, or other factors, including legislation and regulations governing the import or export of semiconductor products. Dependence on International Operations Actel buys a majority of its wafers from foreign foundries and has most of its commercial products assembled by subcontractors located outside the United States. These activities are subject to the uncertainties associated with international business operations, including trade barriers and other restrictions, changes in trade policies, foreign governmental regulations, currency exchange fluctuations, reduced protection for intellectual property, war and other military activities, terrorism, changes in political or economic conditions, and other disruptions or delays in production or shipments, any of which could have a materially adverse effect on the Company's business, financial condition, or results of operations. Competition The semiconductor industry is intensely competitive and is characterized by rapid rates of technological change, product obsolescence, and price erosion. Actel's existing competitors include suppliers of conventional gate arrays, CPLDs, and FPGAs. The Company's two principle competitors are Xilinx, a supplier of FPGAs based on SRAM technology, and Altera, a supplier principally of CPLDs. In connection with the settlement of patent litigation in 1993, Actel granted Xilinx a license under certain of Actel's patents that permits Xilinx to manufacture and market antifuse-based products. Xilinx announced in 1996 that it had discontinued its antifuse-based FPGA product line. The Company also faces competition from companies that specialize in converting FPGAs, including Actel's products, into conventional gate arrays. In addition, the Company expects significant competition in the future from major domestic and international semiconductor suppliers, and Actel's patents may not bar competitors to which it has not granted a license from manufacturing other antifuse-based products. The Company may also face competition from suppliers of logic products based on new or emerging technologies. Given the intensity of the competition and the research and development being done, no assurance can be given that Actel's antifuse and architecture technology will remain competitive. The Company believes that important competitive factors in its market are price, performance, number of usable gates, ease of use and functionality of development system software, installed base of development systems, adaptability of products to specific applications, length of development cycle (including reductions to finer micron design rules), number of I/Os, reliability, adequate wafer fabrication capacity and sources of raw materials, protection of products by effective utilization of intellectual property laws, and technical service and support. Failure of Actel to compete successfully in any of these or other areas could have a materially adverse effect on its business, financial condition, or results of operations. In addition, all existing FPGAs and CPLDs not based on antifuse technology are reprogrammable, a feature that makes them more attractive to many designers. The Company also believes that, if there were a downturn in the market for CPLDs and FPGAs, companies that have broader product lines and longer standing customer relationships may be in a stronger competitive position than Actel. Many of the Company's current and potential competitors offer broader product lines and have significantly greater financial, technical, manufacturing, and marketing resources than Actel. Patent Infringement As is typical in the semiconductor industry, the Company has been and expects to be from time to time notified of claims that it may be infringing patents owned by others. No assurance can be given that such claims against Actel will not result in litigation. In January 1994, the Company brought a patent infringement lawsuit against QuickLogic, which in turn brought a patent infringement counterclaim against Actel in May 1995. Management of the Company believes that Actel has meritorious claims and defenses in this matter, and that its resolution will not have a materially adverse effect on the Company's business, financial condition, or results of operations, but no assurance can be given to that effect. All litigation, whether or not determined in favor of Actel, can result in significant expense to the Company and can divert the efforts of Actel's technical and management personnel from productive tasks. Although the Company has obtained patents covering aspects of its FPGA architecture logic modules and certain techniques for manufacturing its antifuse, no assurance can be given that Actel's patents will be determined to be valid or that the claims of QuickLogic or any assertions of infringement or invalidity by other parties (or claims for indemnity from customers resulting from any infringement claims) will not be successful. In the event of an adverse ruling in the QuickLogic case or any other litigation involving intellectual property, the Company could suffer significant (and possibly treble) monetary damages, which could have a materially adverse effect on Actel's business, financial condition, and results of operations. The Company may also be required to discontinue the use of infringing processes; cease the manufacture, use, and sale of infringing products; expend significant resources to develop non-infringing technology; or obtain licenses under patents that it is infringing. Although patent holders commonly offer licenses to alleged infringers, no assurance can be given that licenses will be offered or that the terms of any offered licenses will be acceptable to Actel. In the event of a successful claim against the Company, Actel's failure to develop or license a substitute technology on commercially reasonable terms would have a materially adverse effect on the Company's business, financial condition, or results of operations. Protection of Intellectual Property Actel has historically devoted significant resources to research and development and believes that the intellectual property derived from such research and development is a valuable asset that has been and will continue to be important to the success of the Company's business. Actel relies primarily on a combination of nondisclosure agreements, other contractual provisions, and patent and copyright protection to protect its proprietary rights. No assurance can be given that the steps taken by the Company will be adequate to protect its proprietary rights. In addition, the laws of certain territories in which Actel's products are or may be developed, manufactured, or sold, including Asia and Europe, may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. Failure of Actel to enforce its patents or copyrights or to protect its trade secrets could have a materially adverse effect on the Company's business, financial condition, or results of operations. Reliance on Distributors In 1996, more than half of Actel's sales in the United States and virtually all of the Company's sales outside the United States were made through distributors. Three of Actel's distributors, Wyle, Arrow, and Pioneer, accounted for approximately 14%, 14%, and 11%, respectively, of the Company's net revenues in 1996. No assurance can be given that future sales by these or other distributors will continue at current levels or that the Company will be able to retain its current distributors on terms that are acceptable to Actel. The Company's distributors generally offer products of several different companies, including products that are competitive with Actel's products. Accordingly, there is a risk that these distributors may give higher priority to products of other suppliers, thus reducing their efforts to sell the Company's products. In addition, Actel's agreements with its distributors are generally terminable at the distributor's option. A reduction in sales efforts by one or more of the Company's current distributors or a termination of any distributor's relationship with Actel could have a materially adverse effect on the Company's business, financial condition, or results of operations. Actel generally defers recognition of revenue on shipments to distributors until the product is resold by the distributor to the end user. The Company's distributors have on occasion built inventories in anticipation of substantial growth in sales and, when such growth did not occur as rapidly as anticipated, substantially decreased the amount of product ordered from Actel in subsequent quarters. Such a slowdown in orders would generally reduce the Company's profit margins on future sales of higher cost products because Actel would be unable to take advantage of any manufacturing cost reductions while the distributor depleted its inventory at lower average selling prices. In addition, while the Company believes that its major distributors are currently adequately capitalized, no assurance can be given that one or more of Actel's distributors will not experience financial difficulties. The failure of one or more of the Company's distributors to pay for products ordered from Actel or to continue operations because of financial difficulties or for other reasons could have a materially adverse effect on the Company's business, financial condition, or results of operations. Reliance on International Sales Sales to customers located outside the United States accounted for approximately 33%, 38%, and 32%, of net revenues for 1996, 1995, and 1994, respectively. Actel expects that revenues derived from international sales will continue to represent a significant portion of its total revenues. International sales are subject to a variety of risks, including those arising from currency restrictions, tariffs, trade barriers, taxes, and export license requirements. All of the Company's foreign sales are denominated in U.S. dollars, so Actel's products become less price competitive in countries with currencies that are declining in value against the dollar. In addition, since virtually all of the Company's foreign sales are made through distributors, such sales are subject to the risks described above in "Reliance on Distributors." Dependence on Independent Assembly Subcontractors Actel relies primarily on foreign subcontractors for the assembly and packaging of its products and, to a lesser extent, for the testing of its finished products. The Company generally relies on one or two subcontractors to provide particular services and has from time to time experienced difficulties with the timeliness and quality of product deliveries. Actel has no long-term contracts with its subcontractors and certain of those subcontractors are currently operating at or near full capacity. There can be no assurance that these subcontractors will continue to be able and willing to meet the Company's requirements for such components or services. Any significant disruption in supplies from, or degradation in the quality of components or services supplied by, these subcontractors could delay shipments and result in the loss of customers or revenues or otherwise have a materially adverse effect on Actel's business, financial condition, or results of operations. Dependence on Key Personnel The success of the Company is dependent in large part on the continued service of its key management, engineering, marketing, sales, and support employees. Competition for qualified personnel is intense in the semiconductor industry, and the loss of Actel's current key employees, or the inability of the Company to attract other qualified personnel, could have a materially adverse effect on Actel. The Company does not have employment agreements with any of its key employees. Management of Growth Actel has recently experienced and expects to continue to experience growth in the number of its employees and the scope of its operations, resulting in increased responsibilities for management personnel. To manage recent and potential future growth effectively, the Company will need to continue to hire, train, motivate, and manage a growing number of employees. The future success of Actel will also depend on its ability to attract and retain qualified technical, marketing, and management personnel. In particular, the current availability of qualified design, process, and test engineers is limited, and competition among companies for skilled and experienced engineering personnel is very strong. The Company has been attempting to hire a number of engineering personnel and has experienced delays in filling such positions. During strong business cycles, Actel expects to experience continued difficulty in filling its needs for qualified engineers and other personnel. No assurance can be given that the Company will be able to achieve or manage effectively any such growth, and failure to do so could delay product development and introductions or otherwise have a materially adverse effect on Actel's business, financial condition, or results of operations. Volatility of Stock The price of the Company's Common Stock can fluctuate substantially on the basis of factors such as announcements of new products by Actel or its competitors, quarterly fluctuations in the Company's financial results or the financial results of other semiconductor companies, or general conditions in the semiconductor industry or in the financial markets. In addition, stock markets have recently experienced extreme price and volume volatility. This volatility has had a substantial effect on the market prices of the securities issued by high technology companies, at times for reasons unrelated to the operating performance of the specific companies. "Blank Check" Preferred Stock; Change in Control Arrangements Actel's Articles of Incorporation authorize the issuance of up to 5,000,000 shares of "blank check" Preferred Stock (of which 4,000,000 shares remain available for issuance), with such designations, rights, and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board is empowered, without approval by holders of the Company's Common Stock, to issue Preferred Stock with dividend, liquidation, redemption, conversion, voting, or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. Issuance of the Preferred Stock could be used as a method of discouraging, delaying, or preventing a change in control of Actel. In addition, such issuance could adversely affect the market price of the Common Stock. Although the Company does not currently intend to issue any additional shares of its Preferred Stock, there can be no assurance that Actel will not do so in the future. The Company has adopted an Employee Retention Plan that provides for payment of stock to Actel's employees who hold unvested stock options in the event of a change of control of the Company. Payment is contingent upon the employee remaining with Actel for six months after the change of control. The Company has also entered into Management Continuity Agreements with each of its executive officers, which provide for the acceleration of unvested stock options in the event an executive officer's employment is actually or constructively terminated other than for cause following a change of control. Dividend Policy Actel has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain any earnings for use in its business and does not anticipate paying any cash dividends in the future. Executive Officers of the Registrant The following table identifies each executive officer of Actel as of March 12, 1997:
Name Age Position - ----------------------------------------- ----- ----------------------------------------------------------- John C. East............................. 52 President and Chief Executive Officer David M. Sugishita....................... 49 Senior Vice President of Finance & Administration and Chief Financial Officer Esmat Z. Hamdy........................... 47 Senior Vice President of Technology & Operations Jeffrey M. Schlageter.................... 53 Senior Vice President of Engineering Michelle A. Begun........................ 40 Vice President of Human Resources Douglas D. Goodyear...................... 42 Vice President of Worldwide Sales Dennis F. Nye............................ 44 Vice President of Marketing David L. Van De Hey...................... 41 Vice President & General Counsel and Secretary
Mr. East has served as President and Chief Executive Officer of the Company since December 1988. From April 1979 until joining Actel, Mr. East served in various positions with Advanced Micro Devices, a semiconductor manufacturer, including Senior Vice President of Logic Products from November 1986 to November 1988. From December 1976 to March 1979, he served as Operations Manager for Raytheon Semiconductor. From September 1968 to December 1976, he served in various marketing, manufacturing, and engineering positions for Fairchild Camera and Instrument Corporation, a semiconductor manufacturer. Mr. Sugishita has served as Senior Vice President of Finance & Administration and Chief Financial Officer since August 1995. From April 1994 to July 1995, he was Senior Vice President of Finance and Administration, Chief Financial Officer, and Treasurer for Micro Component Technology, a semiconductor automated test equipment company. From October 1991 to March 1994, Mr. Sugishita was Vice President-Corporate Controller and Chief Accounting Officer for Applied Materials, the world's largest semiconductor wafer fabrication equipment company. From February 1982 to September 1991, he was Vice President of Finance, Semiconductor Group, for National Semiconductor, a semiconductor manufacturing company. Dr. Hamdy, a founder of the Company, has been Vice President of Technology of Actel since August 1991 and was promoted to Senior Vice President in March 1997 and to Senior Vice President of Operations in September 1997. From November 1985 to July 1991, he held a number of management positions with the Company's technology and development group. From January 1981 to November 1985, Dr. Hamdy held various positions at Intel Corporation, a semiconductor manufacturer, lastly as project manager. Mr. Schlageter joined the Company in February 1989 as Vice President of Engineering and was promoted to Senior Vice President of Engineering in November 1992. From July 1985 to January 1989, he held various positions at Advanced Micro Devices, a semiconductor manufacturer, where he last served as Managing Director of Peripheral Products. From February 1981 to July 1985, he was Vice President of Semicustom Products at Mostek Corporation, a semiconductor manufacturer. Ms. Begun joined Actel in May 1989 as Director of Human Resources, and has been Vice President of Human Resources since August 1991. From May 1984 to May 1989, she held various human resources management positions at Intel Corporation, a semiconductor manufacturer, her last position being Human Resources Manager. From October 1977 to May 1984, she held various human resources management positions at Synertek, Inc., a subsidiary of Honeywell, a semiconductor manufacturer. Mr. Goodyear joined the Company in February 1997 as Vice President of Worldwide Sales. From November 1991 until joining the Company, he served as Vice President of Sales for the components division of Sharp Electronics Corporation, a semiconductor manufacturer. From January 1987 to November 1991, Mr. Goodyear held various sales management positions at Hitachi America, a semiconductor manufacturer, lastly as Western Area Sales Manager. From June 1983 to January 1987, he held various sales and sales management. positions at Advanced Micro Devices, a semiconductor manufacturer. Mr. Nye has been Vice President of Marketing since January 1994. From October 1990 to December 1993, he served as European Business Manager with Actel Europe Ltd., the Company's United Kingdom subsidiary. From January 1990 to October 1990, Mr. Nye served as Director of Sales of Genrad Corporation, a software company. From November 1986 to January 1990, he served as European Sales Manager of Viewlogic Corporation, a software company. Mr. Van De Hey joined Actel in July 1993 as Corporate Counsel, became Secretary in May 1994, and has been Vice President & General Counsel since August 1995. From November 1988 to September 1993, he was an associate with Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, a law firm in Palo Alto, California, and the Company's outside legal counsel. From August 1985 until October 1988, he was an associate with the Cleveland office of Jones, Day, Reavis & Pogue, a law firm. Mr. Van De Hey received his Juris Doctor degree from the University of Pennsylvania in 1985. Executive officers serve at the discretion of the Board of Directors. ITEM 2. PROPERTIES Actel's principal administrative, marketing, sales, customer support, design, research and development, and testing facilities are located in Sunnyvale, California, in three buildings that comprise approximately 138,000 square feet. These buildings are leased through June 1998, and the Company has two renewal options for consecutive five-year terms. Actel also leases sales offices in the metropolitan areas of Atlanta, Baltimore, Basingstoke (England), Boston, Chicago, Dallas, Denver, Destin (Florida), Los Angeles, Munich (Germany), Ottawa (Canada), and Paris (France). The Company believes its facilities will be adequate for its needs in 1997. ITEM 3. LEGAL Actel commenced a patent infringement lawsuit against QuickLogic Corporation ("QuickLogic") in the United States District Court for the Northern District of California on January 20, 1994. The Complaint asserted four claims for infringement of Actel patents nos. 4,758,745, 4,873,459, 5,055,718, and 5,198,705 (the "'705 Patent"), respectively, each relating to FPGA technology. The Complaint sought injunctive relief, treble damages in an unspecified amount, and attorneys' fees. On February 10, 1994, QuickLogic filed an Answer and Counterclaim, denying infringement, asserting invalidity defenses, and seeking declaratory relief. On November 15, 1994, the Company moved for summary judgment of infringement of its `705 Patent. On October 4, 1996, after extensive discovery and briefing, the Special Master, to whom all pretrial matters have been referred, filed a recommendation with the Court that Actel's motion be granted. QuickLogic moved the Court to reject the Special Master's recommendation. Hearings on that motion were held on January 27, 1997, and February 3, 1997. The Court has not yet acted on that motion. On March 15, 1995, the Company filed an Amended and Supplemental Complaint against QuickLogic asserting, in addition to claims previously asserted, a claim for infringement of Actel patent no. 5,367,208. The Company's Supplemental Complaint sought injunctive relief, treble damages in an unspecified amount, and attorneys' fees. On April 14, 1995, QuickLogic filed an Answer and Counterclaim denying infringement, asserting invalidity defenses, and asserting two claims against Actel for alleged infringement of QuickLogic patents Nos. 5,220,213 and 5,396,127. QuickLogic's Counterclaim sought declaratory and injunctive relief, and treble damages in an unspecified amount. On May 25, 1995, QuickLogic filed an Amended Answer and Counterclaim, adding allegations of inequitable conduct. In response to QuickLogic's counterclaims, on June 11, 1995, the Company filed a Reply and Counterclaim, denying infringement, asserting invalidity defenses, naming John Birkner as an individual defendant, and asserting causes of action for trade secret misappropriation, breach of contract, breach of confidential business relationship, and unfair competition. Actel's Counterclaim sought declaratory and injunctive relief, damages in an unspecified amount, and an assignment to the Company of QuickLogic's two patents-in-suit. In response, both QuickLogic and Birkner denied all allegations. On January 18, 1996, Actel filed a motion seeking summary judgment of invalidity of the two QuickLogic patents-in-suit. On February 5, 1996, QuickLogic filed a motion for summary judgment of infringement of QuickLogic patent no. 5,520,213. On February 26, 1996, QuickLogic filed a motion to disqualify the Company's counsel, the law firm of Lyon & Lyon, on the ground that a Lyon & Lyon attorney, in previous employment with QuickLogic counsel, Skjerven, Morrill, MacPherson, Franklin & Friel, had access to confidential QuickLogic information and attorney work product. The Special Master issued a recommendation in favor of QuickLogic's motion, and on May 29, 1996, the Court entered an Order disqualifying Lyon & Lyon. On June 19, 1996, O'Melveny & Myers was substituted as counsel of record on behalf of Actel. On March 7, 1996, the Company filed a Second Supplemental Complaint, adding a claim against QuickLogic for infringement of Actel patent no. 5,479,113. On November 25, 1996, QuickLogic moved for Summary Judgment of invalidity with respect to Claim 1 of the `705 Patent. On February 14, 1997, Actel filed a motion for separate trial of its claim that QuickLogic's patents are invalid because the invention disclosed in those patents was being sold by the Company more than one year prior to the date on which QuickLogic first applied for patent rights. No decision has been made on that motion. On February 28, 1997, QuickLogic filed a motion with the Special Master in which it seeks leave to amend its counterclaims in the action to assert that Actel integrated circuits infringe newly-issued U.S. Patent No. 5,594,364. The Company will oppose that motion. If the opposition is successful, it is probable that QuickLogic will assert claims for infringement of Patent 5,594,364 in a separate action. Actel believes that it has substantial defenses to these claims. In opposing QuickLogic's motion to add new patent claims, the Company will advise the Court that it intends to assert additional claims of patent infringement against QuickLogic, including claims on newly-issued U.S. Patent No. 5,610,534. Actel will state that it recommends that such claims be filed as a separate action, but that the Company should have the right to assert its own new claims if QuickLogic is allowed to assert new claims. By order entered March 19, 1997, the Court reserved September 8, 1997, for trial of Actel's "on-sale" defense should its motion for separate trial be granted. It has set September 8, 1998, for trial of all remaining issues. After considering the facts currently known, management does not believe that the ultimate outcome of the litigation will have a materially adverse effect on the Company's business, financial condition, or operating results, although no assurance can be given to that effect. There are no other pending legal proceedings of a material nature to which Actel is a party or of which any of its property is the subject. There are no such legal proceedings known by the Company to be contemplated by any governmental authority. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The information appearing under the caption "Stock Listing" in the Registrant's annual report to security holders for the fiscal year ended December 31, 1996 (the "1996 Annual Report"), is incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA The information appearing under the caption "Selected Consolidated Financial Data" in the 1996 Annual Report is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information appearing under the caption "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 1996 Annual Report is incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information appearing under the captions "Consolidated Balance Sheets," "Consolidated Statements of Operations," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," and "Report of Ernst & Young LLP, Independent Auditors" in the 1996 Annual Report is incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Except for the information specifically incorporated by reference from Actel's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 1997, as filed on or about April 2, 1997, with the Securities and Exchange Commission (the "1997 Proxy Statement") in Part III of this Annual Report on Form 10-K, the 1997 Proxy Statement shall not be deemed to be filed as part of this Report. Without limiting the foregoing, the information under the captions "Compensation Committee Report" and "Company Stock Performance" under the main caption "OTHER INFORMATION" in the 1997 Proxy Statement are not incorporated by reference in this Annual Report on Form 10-K. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding the identification and business experience of Actel's directors under the caption "Nominees" under the main caption "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS" in the 1997 Proxy Statement and the information under the main caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" in the 1997 Proxy Statement are incorporated herein by this reference. For information regarding the identification and business experience of Actel's executive officers, see "Executive Officers of the Registrant" at the end of Item 1 in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Director Compensation" under the main caption "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS" in the 1997 Proxy Statement and the information under the caption "Executive Compensation" under the main caption `OTHER INFORMATION" in the 1997 Proxy Statement are incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Share Ownership" under the main caption "INFORMATION CONCERNING SOLICITATION AND VOTING" in the 1997 Proxy Statement and the information under the caption "Security Ownership of Management" under the main caption "OTHER INFORMATION" in the 1997 Proxy Statement are incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements. The following consolidated financial statements of Actel Corporation included in Actel's 1996 Annual Report to Shareholders for the year ended December 31, 1996, are incorporated by reference in Item 8 of this Annual Report on Form 10-K: Consolidated balance sheets at December 31, 1996 and 1995 Consolidated statements of operations for each of the three years in the period ended December 31, 1996 Consolidated statements of shareholders' equity for each of the three years in the period ended December 31, 1996 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1996 Notes to consolidated financial statements (2) Financial Statement Schedule. The financial statement schedule listed under 14(d) hereof is filed with this Annual Report on Form 10-K. (3) Exhibits. The exhibits listed under Item 14(c) hereof are filed with, or incorporated by reference into, this Annual Report on Form 10-K. (b) Reports on Form 8-K. No reports on Form 8-K were filed by Actel during the quarter ended December 31, 1996. (c) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K: Exhibit Number Description - ------------------------ ------------------------------------------------------- 2.1 (1) Asset Purchase Agreement dated as of February 12, 1995, between the Registrant and Texas Instruments Incorporated (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on April 17, 1995). 2.2 Amendment No. 1 to the Asset Purchase Agreement dated as of March 31, 1995, between the Registrant and Texas Instruments Incorporated (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on April 17, 1995). 3.1 Restated Articles of Incorporation (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (File No. 33-64704), declared effective on August 2, 1993). 3.2 Restated Bylaws of the Registrant (filed as Exhibit 3.3 to the Registrant's Registration Statement on Form S-1 (File No. 33-64704), declared effective on August 2, 1993). 3.3 Certificate of Determination of Rights, Preferences and Privileges of Series A Preferred Stock of the Registrant (filed as Exhibit 3.3 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on April 17, 1995). 10.1 (2) Form of Indemnification Agreement for directors and officers (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 33-64704), declared effective on August 2, 1993). 10.2 (2) 1986 Incentive Stock Option Plan, as amended and restated. 10.3 (2) 1993 Directors' Stock Option Plan, as amended and restated. 10.4 (2) 1993 Employee Stock Purchase Plan, as amended and restated. 10.5 (2) 1995 Employee and Consultant Stock Plan, as amended and restated. 10.6 Form of Distribution Agreement (filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (File No. 33-64704), declared effective on August 2, 1993). 10.7 (1) Patent Cross License Agreement dated April 22, 1993 between the Registrant and Xilinx, Inc. (filed as Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 (File No. 33-64704), declared effective on August 2, 1993). 10.8 Subscription and Participation Agreement dated February 3, 1994 between the Registrant, Singapore Technologies Ventures Pte Ltd and Chartered Semiconductor Manufacturing Pte Ltd (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K (File No. 0-21970) for the fiscal year ended January 2, 1994). 10.9 Manufacturing Agreement dated February 3, 1994 between the Registrant and Chartered Semiconductor Manufacturing Pte Ltd (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K (File No. 0-21970) for the fiscal year ended January 2, 1994). 10.10 Distribution Agreement dated June 1, 1994, between the Registrant and Arrow Electronics, Inc. (filed as Exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q (File No. 0-21970) for the quarterly period ended July 3, 1994). 10.11 (1) Product Development and Marketing Agreement dated August 1, 1994, between the Registrant and Loral Federal Systems Company (filed as Exhibit 10.19 to the Registrant's Quarterly Report on Form 10-Q (File No. 0-21970) for the quarterly period ended October 2, 1994). 10.12 (1) M2M Joint Development and Marketing Agreement dated August 1, 1994, between the Registrant and Loral Federal Systems Company (filed as Exhibit 10.20 to the Registrant's Quarterly Report on Form 10-Q (File No. 0-21970) for the quarterly period ended October 2, 1994). 10.13 (1) Investor Agreement dated as of April 1, 1995, between the Registrant and Texas Instruments Incorporated (filed as Exhibit 10.21 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on April 17, 1995). 10.14 (1) License Agreement dated as of April 1, 1995, between the Registrant and Texas Instruments Incorporated (filed as Exhibit 10.22 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on April 17, 1995). 10.15 (1) Supply Agreement dated as of April 1, 1995, between the Registrant and Texas Instruments Incorporated. (filed as Exhibit 10.23 to Amendment No. 2 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on August 23, 1995). 10.16 (1) Development Agreement dated as of April 1, 1995, between the Registrant and Texas Instruments Incorporated (filed as Exhibit 10.24 to the Registrant's Current Report on Form 8-K (File No. 0-21970) filed with the Securities and Exchange Commission on April 17, 1995). 10.17 (1) Foundry Agreement dated as of June 29, 1995, between the Registrant and Matsushita Electric Industrial Co., Ltd and Matsushita Electronics Corporation (filed as Exhibit 10.25 to the Registrant's Quarterly Report on Form 10-Q (File No. 0-21970) for the quarterly period ended July 2, 1995). 10.18 (1) Distribution Agreement dated as of June 29, 1995, between the Registrant and Matsushita Electric Industrial Co., Ltd and Matsushita Electronics Corporation (filed as Exhibit 10.26 to the Registrant's Quarterly Report on Form 10-Q (File No. 0-21970) for the quarterly period ended July 2, 1995). 10.19 Lease Agreement for the Registrant's offices in Sunnyvale, California, dated May 10, 1995 (filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K (File No. 0-21970) for the fiscal year ended December 31, 1995). 10.20 (1) License Agreement dated as of March 6, 1995, between the Registrant and BTR, Inc. 11 Statement re computation of per share earnings (see page 38). 13 Portions of Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996, incorporated by reference into this Report on Form 10-K. 21 Subsidiaries of Registrant (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K (File No. 0-21970) for the fiscal year ended December 31, 1995). 23 Consent of Ernst & Young LLP, Independent Auditors (see page 36). 24 Power of Attorney (see page 35) 27 Financial Data Schedule. - --------------------------------------- (1) Confidential treatment requested as to a portion of this Exhibit. (2) This Exhibit is a management contract or compensatory plan or arrangement. Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to Exhibit 2.1 have been omitted. The Registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. The omitted schedules are listed below: Schedule 1.1(a) Capital Equipment Schedule 1.1(b) Expensed Assets Schedule 1.1(d) Contracts Schedule 1.1(f) Software Schedule 1.1(h) Testing Hardware and Software Schedule 1.1(i) Research and Development Projects Schedule 2.2 Calculation of Net Revenues of the Business Schedule 2.5 Inventory Transfer Pricing Schedule 5.2(a) Seller Consents Schedule 5.16 Seller's Knowledge Schedule 6.2(a) Buyer Consents Schedule 6.2(b) Buyer Violations Schedule 6.4 Capitalization of Buyer Schedule 6.7 Registration Rights Schedule 12.3(d) Buyer's Knowledge (d) Financial Statement Schedule. The following financial statement schedule of Actel Corporation is filed as part of this Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements of Actel Corporation, including the notes thereto, and the Report of Independent Auditors with respect thereto: Schedule Description Page - --------------- ----------------------------------------------------- --------- II Valuation and qualifying accounts 37 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACTEL CORPORATION March 28, 1997 By: /s/ John C. East ------------------------------------------- John C. East President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - ------------------------------------------ ------------------------------------------------ ---------------------- /s/ John C. East President and Chief Executive Officer (Principal March 28, 1997 - ----------------------------------------- Executive Officer) and Director (John C. East) /s/ David M. Sugishita Senior Vice President of Finance & Administration March 28, 1997 - ----------------------------------------- and Chief Financial Officer (Principal Financial (David M. Sugishita) and Accounting Officer) /s/ Keith B. Geeslin Director March 28, 1997 - ----------------------------------------- (Keith B. Geeslin) /s/ Jos C. Henkens Director March 28, 1997 - ----------------------------------------- (Jos C. Henkens) /s/ Frederic N. Schwettmann Director March 28, 1997 - ----------------------------------------- (Frederic N. Schwettmann) /s/ Robert G. Spencer Director March 28, 1997 - ----------------------------------------- (Robert G. Spencer)
SCHEDULE II ACTEL CORPORATION -------------------------------------- Valuation and Qualifying Accounts (in thousands)
Balance at beginning of Balance at end period Provisions Write-Offs of period ---------------- ---------------- --------------- ---------------- Allowance for doubtful accounts: Year ended December 31, 1994............. 600 -- 3 597 Year ended December 31, 1995............. 597 -- 30 567 Year ended December 31, 1996............. 567 81 15 633
EX-10.2 2 1986 INCENTIVE STOCK OPTION PLAN ACTEL CORPORATION 1986 INCENTIVE STOCK OPTION PLAN Amended and Restated Effective January 24, 1997 1. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or "non-statutory stock options", at the discretion of the Administrator and as reflected in the terms of the written option agreement. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" shall mean the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" shall mean the legal requirements relating to the administration of stock option plans under California corporate and securities laws and the Code. (c) "Board" shall mean the Board of Directors of the Company. (d) "Common Stock" shall mean the Common Stock of the Company. (e) "Company" shall mean Actel Corporation, a California corporation. (f) "Committee" shall mean the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed. (g) "Consultant" shall mean any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (h) "Continuous Status as an Employee or Consultant" shall mean that the employment or consulting relationship is not interrupted or terminated by the Company, any Parent or Subsidiary. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive Stock Options, any such leave may not exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries or its successor. (i) "Employee" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. (l) "Officer" shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (m) "Option" shall mean a stock option granted pursuant to the Plan. (n) "Optioned Stock" shall mean the Common Stock subject to an Option. (o) "Optionee" shall mean an Employee or Consultant who receives an Option. (p) "Parent" shall mean a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of 1986, as amended. (q) "Plan" shall mean this 1986 Incentive Stock Option Plan, as amended. (r) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (s) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (t) "Subsidiary" shall mean a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 5,497,897 shares of Common Stock, increased annually on the first day of each of the Company's fiscal years during the term of the Plan (and subsequent to the May 2, 1996 amendment to and restatement of the Plan) in an amount equal to 5% of the Company's common stock issued and outstanding at the close of business on the last day of the immediately preceding fiscal year (the "Annual Replenishment"), with only the initial 5,497,897 shares and subsequent annual increases in an amount equal to the lesser of (i) 885,931 shares, or (ii) the number of shares subject to the Annual Replenishment to be available for issuance as "incentive stock options" qualified under Section 422 of the Internal Revenue Code. All of the shares issuable under the Plan may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Directors, Officers who are not Directors, and Employees who are neither Directors nor Officers. (ii) Administration With Respect to Directors and Officers Subject to Section 16(b). With respect to Option grants made to Employees who are also Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan shall be administered by (A) the Board, if the Board may administer the Plan in compliance with the rules governing a plan intended to qualify as a discretionary plan under Rule 16b-3, or (B) a committee designated by the Board to administer the Plan, which committee shall be constituted to comply with the rules governing a plan intended to qualify as a discretionary plan under Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules governing a plan intended to qualify as a discretionary plan under Rule 16b-3. (iii) Administration With Respect to Other Persons. With respect to Option grants made to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted to satisfy Applicable Laws. Once appointed, such Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 9(b) of the Plan; (ii) to select the Consultants and Employees to whom Options may be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan; (x) to modify or amend each Option (subject to Section 14(c) of the Plan); (xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; (xii) to determine the terms and restrictions applicable to Options; and (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 5. Eligibility. Options may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options. 6. Limitations. (a) Each Option shall be designated in the Notice of Grant as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares subject to an Optionee's incentive stock options granted by the Company, any Parent or Subsidiary, that become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), incentive stock options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time of grant. (b) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time. (c) The following limitations shall apply to grants of Options to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than five hundred thousand Shares. (ii) The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12(a). (iii) If an Option is canceled (other than in connection with a transaction described in Section 12), the canceled Option will be counted against the limit set forth in Section 6(c)(i). For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. The Plan shall continue in effect until March 14, 2004. 8. Term of Option. The term of each Option shall be stated in the Notice of Grant; provided, however, that in the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Notice of Grant. 9. Exercise Price and Consideration. (a) The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant, unless expressly granted in lieu of salary or a cash bonus, in which case the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant; provided, however, that the Administrator may grant in any fiscal year Nonstatutory Stock Options at per Share exercise prices less than that provided herein covering, in the aggregate, shares of Common Stock equal to or less than 0.5% of the number of shares of Common Stock issued and outstanding at the beginning of such fiscal year. (b) The fair market value shall be determined by the Administrator in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices, or closing price in the event quotations for the Common Stock are reported on the National Market System, of the Common Stock on the date of grant, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in the Wall Street Journal. (c) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist entirely of cash; check; promissory note; other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; for options granted subsequent to the effective date of the 1993 amendments to the Plan, delivery of a properly executed exercise notice together with such other documentation as the Committee and the broker, if applicable, shall require to effect an exercise of the option and delivery to the Company of the sale or loan proceeds required; or any combination of such methods of payment, or such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Law. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan; provided, however, that an Incentive Stock Option granted prior to January 1, 1987 shall not be exercisable while there is outstanding any incentive stock option which was granted, before the granting of such Incentive Stock Option, to the same Optionee to purchase stock of the Company, any Parent or Subsidiary, or any predecessor corporation of such corporations. For purposes of this provision, an incentive stock option shall be treated as outstanding until such option is exercised in full or expires by reason of lapse of time. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as an Employee or Consultant. If an Employee or Consultant ceases to serve as an Employee or Consultant, he or she may, but only within 30 days (or such other period of time not exceeding three months as is determined by the Administrator at the time of grant of the Option) after the date he or she ceases to be an Employee or Consultant (as dthe case may be) of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. To the extent that he or she was not entitled to exercise the Option at the date of such termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. Notwithstanding the provisions of Section 10(b) above, in the event an Employee or Consultant is unable to continue his or her employment or consulting relationship with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he or she may, but only within six (6) months (or such other period of time not exceeding 12 months as is determined by the Administrator at the time of grant of the Option) from the date of termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination (or to such greater extent as the Administrator may provide). To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 11. Non-Transferability of Options. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that such successor corporation refuses to assume such Option or to substitute an equivalent option, such Options shall become fully vested and exercisable as to all of the Optioned Stock, including the Shares as to which the Options would not otherwise be vested and exercisable. If Options become fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option will terminate upon the expiration of such period. 13. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule or statute or other applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted). Such shareholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the applicable law, rule or regulation. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to render to the Company a written statement containing such representations and warranties as, in the opinion of counsel for the Company, may be required to ensure compliance with any of the aforementioned relevant provisions of law, including a representation that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required. 16. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Option Agreement. Options shall be evidenced by written option agreements in such form as the Administrator shall approve. 18. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within 12 months before or after the date the Plan is adopted. EX-10.3 3 1993 DIRECTORS' STOCK OPTION PLAN ACTEL CORPORATION 1993 DIRECTORS' STOCK OPTION PLAN Amended and Restated as of January 24, 1997 1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be "nonstatutory stock options". 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean Actel Corporation, a California corporation. (e) "Continuous Status as a Director" shall mean the absence of any interruption or termination of service as a Director. (f) "Director" shall mean a member of the Board. (g) "Effective Date" shall have the meaning as set forth in Section 6 below. (h) "Employee" shall mean any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (j) "First Option" shall have the meaning as set forth in Section 4(b)(ii) below. (k) "Option" shall mean a stock option granted pursuant to the Plan. (l) "Optioned Stock" shall mean the Common Stock subject to an Option. (m) "Optionee" shall mean an Outside Director who receives an Option. (n) "Outside Director" shall mean a Director who is not an Employee. (o) "Parent" shall mean a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code. (p) "Plan" shall mean this 1993 Directors' Stock Option Plan. (q) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. (r) "Subsequent Option" shall have the meaning as set forth in Section 4(b)(iii) below. (s) "Subsidiary" shall mean a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 200,000 Shares (the "Pool") of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. If Shares which were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan. 4. Administration of and Grants of Options under the Plan. (a) Administrator. Except as otherwise required herein, the Plan shall be administered by the Board. (b) Procedure for Grants. The Board may grant Options to Outside Directors hereunder, and on such terms, as are decided in its discretion. Additionally, Options shall automatically be granted hereunder in accordance with the following provisions: (i) After August 1, 1997, each person who first becomes an Outside Director shall be automatically granted an Option to purchase 20,000 Shares (the "First Option") on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board of Directors to fill a vacancy. (ii) Beginning on August 1, 1997, each Outside Director shall be automatically granted an Option to purchase 5,000 Shares (a "Subsequent Option") on August 1 of each year if, on such date, he or she shall have served on the Board for at least six (6) months. (iii) Notwithstanding the provisions of subsections (i) and (ii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (iv) Notwithstanding the provisions of subsections (i) and (ii) hereof, any grant of an Option made before the Company has obtained shareholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 17 hereof. (v) The terms of a First Option granted hereunder shall be as follows: (A) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 hereof. (B) the exercise price per Share shall be 100% of the fair market value (as defined in Section 8(b) hereunder) per Share on the date of grant of the First Option. (C) the First Option shall vest and become exercisable as to 25% of the Shares subject to the First Option on the first anniversary of the date of the Company's annual shareholder meeting occurring in each of the first, second, third, and fourth calendar year following the calendar year in which the date of grant occurred, subject to the provisions set forth in Section 9 below. (vi) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 hereof. (B) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the Subsequent Option. (C) the Subsequent Option shall become exercisable as to one hundred percent (100%) of the Shares subject to the Subsequent Option on the date of the Company's annual shareholder meeting occurring in the fourth calendar year following the calendar year in which the date of grant occurred, subject to the provisions set forth in Section 9 below. (c) Powers of the Board. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to grant discretionary stock options to Outside Directors, upon such terms as are determined by the Board in its discretion, (ii) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (iii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv) to interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan. (d) Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. (e) Suspension or Termination of Option. If the President or his or her designee reasonably believes that an Optionee has committed an act of misconduct, the President may suspend the Optionee's right to exercise any option pending a determination by the Board of Directors (excluding the Outside Director accused of such misconduct). If the Board of Directors (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate shall be entitled to exercise any option whatsoever. In making such determination, the Board of Directors (excluding the Outside Director accused of such misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board. 5. Eligibility. Options may be granted only to Outside Directors. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time. 6. Term of Plan; Effective Date. The Plan shall become effective on the date on which the Company's registration statement on Form S-1 (or any successor form thereof) is declared effective by the Securities and Exchange Commission (the "Effective Date"). It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan, subject to the limitations set forth in this Plan. 7. Term of Option. The term of each Option shall be ten (10) years from the date of grant thereof. 8. Exercise Price and Consideration. (a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be 100% of the fair market value per Share on the date of grant of the Option. (b) Fair Market Value. The fair market value per Share shall be the mean of the bid and asked prices of the Common Stock in the over-the-counter market on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation ("NASDAQ") System) or, in the event that the Common Stock is traded on the NASDAQ National Market System or listed on a stock exchange, the fair market value per Share shall be the closing price on such system or exchange on the date of grant of the Option, as reported in The Wall Street Journal, provided, however, that if such market or exchange is closed on the date of the grant of the Option then the fair market value per Share shall be based on the most recent date on which such trading occurred immediately prior to the date of the grant of the Option; provided, further, that for purposes of First Options granted on the Effective Date, the fair market value per share shall be the initial public offering price as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. (c) Form of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised (which, if acquired from the Company, shall have been held for at least six months), delivery of a properly executed exercise notice together with instructions to a broker to deliver promptly to the Company the amount of sale proceeds required to pay the exercise price, or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) hereof or, with respect to a discretionary grant, as decided by the Board in its discretion; provided, however, that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 17 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as a Director. If an Outside Director ceases to serve as a Director, he or she may, but only within three (3) months (or such other period of time not exceeding six (6) months as is determined by the Board) after the date he or she ceases to be a Director of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. Notwithstanding the provisions of Section 9(b) above, in the event a Director is unable to continue his or her service as a Director with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he or she may, but only within six (6) months (or such other period of time not exceeding twelve (12) months as is determined by the Board) from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee: (i) during the term of the Option who is, at the time of his or her death, a Director of the Company and who shall have been in Continuous Status as a Director since the date of grant of the Option, the Option may be exercised, at any time within six (6) months (or such lesser period of time as is determined by the Board) following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as Director for six (6) months (or such lesser period of time as is determined by the Board) after the date of death. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. (ii) within three (3) months (or such lesser period of time as is determined by the Board) after the termination of Continuous Status as a Director, the Option may be exercised, at any time within six (6) months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. Notwithstanding the foregoing, in no event may the option be exercised after its term set forth in Section 7 has expired. 10. Nontransferability of Options. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by an Optionee does not constitute a transfer. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section. 11. Adjustments Upon Changes in Capitalization or Merger. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that such successor corporation refuses to assume such Option or to substitute an equivalent option, such Options shall become fully vested and exercisable as to all of the Optioned Stock, including the Shares as to which the Options would not otherwise be vested and exercisable. If Options become fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option will terminate upon the expiration of such period. 12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan (a) Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain approval of the shareholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. 17. Shareholder Approval. (a) Continuance of the Plan shall be subject to approval by the shareholders of the Company at or prior to the first annual meeting of shareholders held subsequent to the granting of an Option hereunder. If such shareholder approval is obtained at a duly held shareholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon. If such shareholder approval is obtained by written consent, it may be obtained by the written consent of the holders of a majority of the outstanding shares of the Company. (b) Any required approval of the shareholders of the Company shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. 18. Information to Optionees. The Company shall provide to each Optionee, during the period for which such Optionee has one or more Options outstanding, copies of all annual reports to shareholders, proxy statements and other information provided to all shareholders of the Company. EX-10.4 4 1993 EMPLOYEE STOCK PURCHASE PLAN ACTEL CORPORATION 1993 EMPLOYEE STOCK PURCHASE PLAN Amended and Restated as of January 24, 1997 The following constitute the provisions of the 1993 Employee Stock Purchase Plan of Actel Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean Actel Corporation, a California corporation. (e) "Compensation" shall mean all base straight time gross earnings including commissions, overtime and shift premiums, and all incentive compensation, incentive payments, bonuses and other compensation. (f) "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual who is an employee of the Company or any Designated Subsidiary for tax purposes whose employment with the Company or any Designated Subsidiary averages at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first day of each Offering Period. (i) "Exercise Date" shall mean the last day of each Purchase Period. (j) "Fair Market Value" shall mean, as of any date, the value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sale price for the Common Stock (or the mean of the closing bid and asked prices, if no sales were reported), as quoted on such exchange (or the exchange with the greatest volume of trading in Common Stock) or system on the date of such determination, as reported in the Wall Street Journal or such other source as the Board deems reliable, or; (2) If the Common Stock is quoted on the NASDAQ system (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in the Wall Street Journal or such other source as the Board deems reliable, or; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (4) For purposes of the Enrollment Date under the first Offering Period under the Plan, the Fair Market Value of the Common Stock shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. (k) "Offering Period" shall mean the period of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised. The first offering period shall commence with the date on which the Company's registration statement on Form S-1 (or any successor form thereof) is declared effective by the Securities and Exchange Commission. This first offering period shall terminate on the last Trading Day in the period ending August 1 or February 1 approximately 24 months later. Subsequent offering periods shall commence on the first Trading Day on or after August 1 and February 1 of each year and terminate on the last Trading Day of the periods ending twenty-four months later. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "Plan" shall mean this Employee Stock Purchase Plan. (m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (n) "Purchase Period" shall mean the approximately six month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. However, the first Purchase Period of the first Offering Period under the Plan may be more or less than six months in duration. (o) "Reserves" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under options. (p) "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "Trading Day" shall mean a day on which national stock exchanges and the National Association of Securities Dealers Automated Quotation (NASDAQ) System are open for trading. 3. Eligibility. (a) Any Employee (as defined in Section 2(g)), who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) which permits his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of Fair Market Value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive, overlapping Offering Periods with the first Offering Period commencing with the date on which the Company's registration statement on Form S-1 (or any successor form thereof) is declared effective by the Securities and Exchange Commission. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected. Absent action by the Board, each Offering Period shall be for a period of approximately twenty-four months (24) and new Offering Periods shall commence on the first Trading Day of February and August of each year. The first Offering Period under the Plan may be more or less than twenty-four (24) months in duration. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions (in the form of Exhibit A to this Plan) and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. Payroll Deductions. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding ten percent (10%) of the Compensation which he or she receives on each pay day during the Offering Period, and the aggregate of such payroll deductions during the Offering Period shall not exceed ten percent (10%) of the participant's Compensation during said Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and will be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to 0% if the following should occur: For the Purchase Periods that end during a single calendar year, the sum of all payroll deductions that have been used to purchase stock under the Plan plus all payroll deductions accumulated for the purchase of stock equals $21,250. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the subsequent calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but will not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and the option shall expire on the last day of the Offering Period. 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares will be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal; Termination of Employment. (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account will be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) Upon a participant's ceasing to be an Employee (as defined in Section 2(g) hereof), for any reason, including by virtue of him or her having failed to remain an Employee of the Company for at least twenty (20) hours per week during a Purchase Period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option will be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 14 hereof, and such participant's option will be automatically terminated. 11. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan. 12. Stock. (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be four hundred thousand (1,150,000) shares, subject to adjustment upon changes in capitalization of the Company as provided in Section 18 hereof. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant will have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 13. Administration. (a) Administrative Body. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. Members of the Board who are eligible Employees are permitted to participate in the Plan, provided that: (1) Members of the Board who are eligible to participate in the Plan may not vote on any matter affecting the administration of the Plan or the grant of any option pursuant to the Plan. (2) If a Committee is established to administer the Plan, no member of the Board who is eligible to participate in the Plan may be a member of the Committee. (b) Rule 16b-3 Limitations. Notwithstanding the provisions of Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision ("Rule 16b-3") provides specific requirements for the administrators of plans of this type, the Plan shall be only administered by such a body and in such a manner as shall comply with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the Plan shall be afforded to any committee or person that is not "disinterested" as that term is used in Rule 16b-3. 14. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 16. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the Reserves as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Periods will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. (c) Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Periods then in progress by setting a new Exercise Date (the "New Exercise Date") or to cancel each outstanding option to purchase and refund all sums collected from participants during the Offering Period then in progress. If the Board shortens the Offering Periods then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for his option has been changed to the New Exercise Date and that his option will be exercised automatically on the New Exercise Date, unless prior to such date he has withdrawn from the Offering Period as provided in Section 10 hereof. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets or merger was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock and the sale of assets or merger. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. Amendment or Termination. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 18 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 19 hereof. 23. Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 24. Automatic Transfer to Low Price Offering Period. To the extent permitted by Rule 16b-3 of the Securities Exchange Act of 1934, as amended, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their options on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. EXHIBIT A ACTEL CORPORATION 1993 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT __________ Original Application Enrollment Date: ______________________ __________ Change in Payroll Deduction Rate __________ Change of Beneficiary(ies) 1. ____________________________________________________ hereby elects to participate in the Actel Corporation 1993 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of _________% of my Compensation on each payday (not to exceed 10%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete "Actel Corporation 1993 Employee Stock Purchase Plan." I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that the grant of the option by the Company under this Subscription Agreement is subject to obtaining shareholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse Only): _______________________________________________________________________________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased over the price which I paid for the shares. I hereby agree to notify the Company in writing within 30 days after the date of any disposition of my shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary to receive all payments and shares due me under the Employee Stock Purchase Plan (if you wish to designate more than one beneficiary, execute and deliver copies of this page): PLEASE PRINT! NAME:___________________________________________________________________________ (First) (Middle) (Last) _______________________________________ Relationship ________________________________________ ________________________________________ ________________________________________ (Address) I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________________ ________________________________________ Signature of Employee ________________________________________ Spouse's Signature (If beneficiary other than spouse) EXHIBIT B ACTEL CORPORATION 1993 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Actel Corporation 1993 Employee Stock Purchase Plan which began on __________________________, 19_____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. ________________________________________ ________________________________________ ________________________________________ ________________________________________ (Name and Address of Participant) ________________________________________ (Signature) ________________________________________ (Date) EX-10.5 5 1995 EMPLOYEE AND CONSULTANT STOCK PLAN ACTEL CORPORATION 1995 EMPLOYEE AND CONSULTANT STOCK PLAN Amended and Restated as of October 18, 1996 1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for employee and consultant positions, to provide additional incentive to such persons, and to thereby promote the success of the Company's business. All options granted hereunder shall be Nonstatutory Stock Options. Stock bonuses may also be granted hereunder. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the legal requirements relating to the administration of stock option plans under state corporate and securities laws and the Code. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) Committee" means a Committee appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means Actel Corporation, a California corporation. (h) "Consultant" means any person or entity who renders services to the Company or any Parent or Subsidiary of the Company in exchange for compensation and in a capacity other than as an Employee. (i) "Continuous Status as an Employee or Consultant" means that the consulting relationship is not interrupted or terminated by the Company, any Parent or Subsidiary. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Administrator, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries, or its successor. (j) "Director" means a member of the Board. (k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (l) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (p) "Notice of Grant" means a written notice evidencing certain terms and conditions of an individual Option. The Notice of Grant is part of the Option Agreement. (q) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option or a stock bonus granted pursuant to the Plan. (s) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "Option Exchange Program" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price. (u) "Optioned Stock" means the Common Stock subject to an Option. (v) "Optionee" means an Employee or Consultant who holds an outstanding Option. (w) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 1995 Employee and Consultant Stock Plan. (y) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (z) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is one million (1,000,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, or if reacquired, the unpurchased or reacquired Shares shall become available for future grant or sale under the Plan (unless the Plan has terminated). 4. Administration of the Plan. (a) Procedure. The Plan shall be administered by (i) the Board or (ii) a committee designated by the Board, which committee shall be constituted to satisfy Applicable Laws. Once appointed, such Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(n) of the Plan; (ii) to select the Employees and Consultants to whom Options may be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) to construe and interpret the terms of the Plan; (ix) to prescribe, amend, and rescind rules and regulations relating to the Plan; (x) to modify or amend each Option (subject to Section 14(c) of the Plan); (xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; (xii) to institute an Option Exchange Program; (xiii) to determine the terms and restrictions applicable to Options; and (xiv) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's decisions, determinations, and interpretations shall be final and binding on all Optionees and any other holders of Options. 5. Eligibility. Options under the Plan may be granted only to Employees or Consultants who are not Directors or Officers. An Employee or Consultant who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options. 6. Limitations. (a) Each Option shall be designated in the Notice of Grant as a Nonstatutory Stock Option. (b) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's employment or consulting relationship with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause. 7. Term of Plan. The Plan shall become effective upon adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 14 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Notice of Grant. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price (which in the event of a stock bonus shall be zero) for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised and, in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender; (v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; (vi) any combination of the foregoing methods of payment; or (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 hereof. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Consulting Relationship. In the event that an Optionee's Continuous Status as an Employee or Consultant terminates, the Optionee may exercise his or her Option, but only within such period of time as is determined by the Administrator, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee (or, after Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance) does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 11. Non-Transferability of Options. An Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution, and may not be exercised, during the lifetime of the Optionee, by any person except the Optionee, without the prior written consent of the Administrator. 12. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale. or Change of Control. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. (c) Merger or Asset Sale. Except as otherwise specified in individual option agreements, in the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option or right shall be substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation does not agree to assume the Option or to substitute an equivalent option or right, the Option shall become fully vested and exercisable as to all of the Optioned Stock, including Shares as to which it would not otherwise be exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option will terminate upon the expiration of such period. 13. Date of Grant. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such option, or such later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend, or terminate the Plan. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with any applicable law, rule, or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted. Such shareholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the applicable law, rule, or regulation. (c) Effect of Amendment or Termination. No amendment, alteration, suspension, or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws, and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Liability of Company. (a) Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. (b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an Option exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional shareholder approval, such Option shall be void with respect to such excess Optioned Stock, unless shareholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 14(b) of the Plan. 17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. EX-10.20 6 LICENSE AGREEMENT WITH BTR, INC. LICENSE AGREEMENT This License Agreement (the "Agreement") is entered into as of March 6, 1995 (the "Effective Date") by and between BTR, Inc., a Nevada Corporation (the "Licensor"), and Actel Corporation, a California corporation (the "Licensee"). Recitals (a) Licensor has developed a proprietary architecture for FPGAs and Multichip Modules. (Unless otherwise defined in this Agreement, capitalized terms herein are as defined in Exhibit A to this Agreement). (b) Licensee desires: (i) to develop such architecture for use in such FPGAs and Multichip Modules, and (ii) to license such proprietary technology for use in FPGAs and Multichip Modules and in other integrated circuits. (c) Licensor is willing to license such proprietary technology to Licensee for such development and use, upon the terms and subject to the conditions set forth in this Agreement. Agreement In consideration of the foregoing and the covenants contained in this Agreement, the parties agree as follows: 1. License. 1.1 Grant of License. Licensor hereby grants to Licensee under all intellectual property rights of Licensor, now owned or, to the extent it is not prohibited from licensing such right, hereafter acquired (a) an exclusive (except as it may subsequently become non-exclusive as provided in Section 6 below), worldwide, perpetual license to develop, make, have made, use, offer for sale and sell, design, modify and create derivative works of Licensed Devices, and (b) a non-exclusive, worldwide, perpetual license to develop, make, have made, use, offer for sale and sell, design, modify and create derivative works of Products (such licenses shall be hereinafter referred to, collectively, as the "License"). 1.2 Improvements. If Licensor makes any Improvements to any of the Technology, Licensor shall promptly thereafter (so long as the License is in effect) provide to Licensee such information, in reasonable detail, with respect to such Improvements as is reasonably necessary to permit Licensee to incorporate such Improvements in Licensed Devices or Products. 1.3 Assignment and Sublicensing. Licensee shall not sell, assign, or transfer any of its rights or obligations under this Agreement without the prior written consent of Licensor, except for any such sale, assignment or transfer that occurs as a result of a Change of Control of Licensee. Licensee shall have the right to grant one or more sublicenses of its rights under the License, other than with respect to the development, making, use, offer for sale or sale of any Emulation/Simulation Device; provided, however, (a) that the sublicensee under each such sublicense, as a condition to the effectiveness of such sublicense, shall agree, in the written agreement memorializing such sublicense, to be bound by the terms and conditions of Section 4 of Exhibit "A" hereto as it relates to the Technology, and (b) Licensee shall be obligated to pay royalties to Licensor with respect to the sale of any Licensed Devices or Products permitted by any such sublicense equal to the product of (i) the Net Receipts received by the third party which sells such Licensed Devices or Products to the user thereof, and (ii) the applicable exclusive royalty rate under this Agreement. Each such sublicense shall be memorialized in a written agreement with the sublicensee, a copy of which agreement shall be delivered to Licensor promptly after it becoming effective, which provides that (x) such sublicensee has no right to further sublicense or assign or otherwise transfer such sublicense, and (y) the pricing of all Licensed Devices and Products subject to such sublicense shall be determined on an "arms' length basis." 2. Development of Licensed Device. 2.1 Delivery of Technology. Promptly after the Effective Date, and from time-to-time thereafter, Licensor shall deliver to Licensee such tangible information concerning the Technology as Licensee may reasonably require to understand the Technology and implement the Technology in the design of Licensed Devices. Such tangible information shall include schematics of the FPGA Architecture and a portion of the layout for a device employing the FPGA Architecture. 2.2 Development Activities. Licensee shall be responsible for the development of Licensed Devices, and will engage in good faith efforts to develop, manufacture and sell Licensed Devices. Such responsibilities shall include the management and direction of such development program. So long as the License with respect to Licensed Devices remains exclusive, Licensor shall use good faith efforts to support such development program. 3. Initial Payments for License. 3.1 Advance Minimum Royalties. As consideration for the grant of the License, Licensee shall pay to Licensor the following non-refundable advance minimum royalties from the Effective Date until Tapeout. [CONFIDENTIAL TREATMENT REQUESTED] The first of the above-described monthly advance royalty payments shall be made on the Effective Date, and each subsequent payment shall be made on the first Business Day of each of the succeeding months. 3.2 Termination of Agreement. At any time, beginning three months after the Effective Date and prior to Tapeout, Licensee may terminate this Agreement, and its obligation to make the advance minimum royalty payments described above, effective 30 days after it gives Licensor written notice of such termination. 4. Royalties. 4.1 Additional Advance Minimum Royalties. As consideration for the grant of the License, after Tapeout (and subject to Section 4.3 hereof), Licensee shall pay Licensor, as non-refundable advance minimum royalties, the amount, if any, by which (i) the amount due under Section 4.2 below for each month exceeds (ii) [CONFIDENTIAL TREATMENT REQUESTED] beginning with the [CONFIDENTIAL TREATMENT REQUESTED] anniversary of Product Introduction, so long as the License with respect to Licensed Devices is exclusive). The first of such payments shall be made on the first Business Day of the month immediately succeeding the last month during which the advance minimum royalty payments under Section 3.1 are made, and each subsequent payment shall be made on the first Business Day of each of the succeeding months. Each of the advance minimum royalty payments under Section 3.1 above or under this Section 4.1 (collectively, the "Advance Payments") and the lesser of (a) [CONFIDENTIAL TREATMENT REQUESTED] and (b) the direct expenditures of Licensee for the development of two Product Families (but no more than [CONFIDENTIAL TREATMENT REQUESTED] with respect to the first Product Family and [CONFIDENTIAL TREATMENT REQUESTED] with respect to the second Product Family) (collectively, with the Advance Payments, the "Recoupable Payments"), shall be creditable against royalties payable under Section 4.2 below. Notwithstanding the foregoing, (y) prior to the [CONFIDENTIAL TREATMENT REQUESTED] anniversary of Product Introduction, Licensee may only credit Recoupable Payments in an amount not in excess of [CONFIDENTIAL TREATMENT REQUESTED] of the royalty payments, pursuant to Section 4.2 below, in excess of [CONFIDENTIAL TREATMENT REQUESTED] in any quarter, payable with respect to the applicable royalty period, and (z) subsequent to the [CONFIDENTIAL TREATMENT REQUESTED] anniversary of Product Introduction, Licensee may only credit [CONFIDENTIAL TREATMENT REQUESTED] of the royalty payments, pursuant to Section 4.2 below, in excess of [CONFIDENTIAL TREATMENT REQUESTED] in any quarter, payable with respect to the applicable royalty period. 4.2 Current Royalties. As partial consideration for the grant of the License, Licensee shall pay to Licensor a royalty on each sale of a Licensed Device or Product by Licensee or any of its sublicensees (under clause (a) of Section 1.3 above) in an amount equal to the following applicable percentage (based on whether the License applicable thereto is exclusive or non-exclusive on the date of sale thereof) of the Net Receipts from the sale of such Licensed Device or Product (the "Royalty"). Each Royalty (a) so long as the License with respect to Licensed Devices is exclusive, shall be paid quarterly, within 45 days after the last day of the quarter during which the sale giving rise to such Royalty occurred, or (b) upon such license becoming non-exclusive, shall be paid monthly, within 15 days after the last day of each month, based on Licensee's reasonable estimate of the sales giving rise to a Royalty during such month. Notwithstanding the foregoing, the monthly royalties payable pursuant to clause (b) above with respect to a successive three month period may not be less than the actual average monthly royalties paid (after adjustment, as described below) with respect to the immediately preceding successive three month period. Licensee shall calculate the actual royalties payable pursuant to clause (b) above for each successive three month period during which such Royalties are payable, and shall pay such Royalties, less the estimated Royalties paid with respect to such period, to Licensor within 45 days after the end of such period. In the event Licensee overpays Royalties with respect to any period and gives Licensor written notice of such overpayment, and a calculation, in reasonable detail, of such overpayment, Licensee shall have the right to credit such overpayment against subsequent payments of Royalties. Each payment of Royalties (after any such crediting) hereunder shall be reduced by the amounts creditable against such Royalties, as provided in Section 4.1 above. [CONFIDENTIAL TREATMENT REQUESTED] 4.3 Cancellation of Exclusivity. At any time after the [CONFIDENTIAL TREATMENT REQUESTED] anniversary of the Effective Date, Licensee may cause the License with respect to Licensed Devices to become non-exclusive, by giving Licensor written notice of its cancellation of the exclusive nature of such license, 15 months after Licensor's receipt of such written notice. Upon Licensor's receipt of such written notice, the minimum advance monthly royalty payment described in Sections 4.1 above shall be reduced to [CONFIDENTIAL TREATMENT REQUESTED]. After such 15 month period has run, Licensor shall no longer be obligated to pay any such advance royalties and shall no longer be entitled to credit any Recoupable Payments not then credited. 4.4 Set-Off. In the event Licensor does not timely pay any amount it is obligated to pay to Licensee under this Agreement and fails to cure such failure within 20 days of receiving written notice, in reasonable detail, of such failure, Licensee shall have the right to set-off against such past due amount any royalty payment it is obligated to pay to Licensor, up to the amount of such past due amount. Notwithstanding any implication to the contrary herein, Licensee's set-off rights shall not permit it to avoid its obligations to pay advance minimum monthly royalties pursuant to Section 3.1 and 4.1 above. 4.5 Deferral. In the event a Third Party Claim, in the form of the filing and serving of a complaint instituting a legal proceeding, is initiated, Licensee shall have the right to defer the payment to Licensor of Royalties otherwise payable under Section 4.2 above after such initiation (up to the aggregate damages claimed in such complaint, if a specific amount of damages is claimed in such complaint) until such legal proceedings are dismissed, the defendant(s) therein is granted a judgment in its favor (including, without limitation, summary judgment) on all claims therein, or such legal proceedings are settled (collectively, a "Terminating Event"). All such deferred Royalty payments shall be paid into an escrow account, in the name of Licensor and Licensee, at a bank reasonably acceptable to Licensor and shall be invested in a succession of 90-day certificate of deposits until payable under this Section 4.5 to Licensor and/or Licensee. Upon the occurrence of a Terminating Event, all funds in such account shall be paid to Licensor within 30 days thereafter. Licensee shall grant Licensor a first priority perfecting security interest in the funds in such account, pursuant to a security agreement and other required documentation reasonably acceptable to Licensor. Licensee shall be entitled to draw upon the funds in such account to the extent necessary to reimburse it for any amounts to which it is entitled under Section 3.2 of Exhibit "A" hereto in connection with such legal proceedings if Licensor fails to pay such amounts within 30 days of receiving a written notice, in reasonable detail, setting forth the components, by dollar amount and description, of such amounts. Notwithstanding any implication to the contrary herein, Licensee's deferral rights shall not permit it to avoid its obligations to pay advance minimum monthly royalties pursuant to Section 3.1 and 4.1 above. 4.6 Most Favored Nations Pricing. In the event Licensor enters into a written agreement to license any of the Technology with respect to any Product pursuant to a grant substantially the same as the grant in Section 1.1(b) above, but with a royalty rate with respect to such Product which is lower than the royalty rate for Products hereunder during the period of exclusivity for Licensed Devices, the royalty rate hereunder for any Product sold by Licensee which would be covered by the terms and conditions of such grant (a "Comparable Product") shall be decreased to the royalty rate for such Product under such written agreement with respect to sales of such Comparable Product during the period commencing with the first month with respect to which Licensor is required to pay a royalty on a sale of such Product and ending with the month immediately succeeding the month in which the exclusive License with respect to Licensed Devices ceases to be in effect. 5. Cancellation. After Tapeout, but prior to Product Introduction, Licensee shall have the right to cancel this Agreement by giving Licensor written notice, received by Licensor during such period, of such cancellation. Such cancellation shall be effective three months after Licensor receives such written notice (the "Cancellation Date"). In the event Licensee cancels this Agreement in this manner, (a) the License shall terminate, and Licensee (subject to Section 8 hereof) shall have no right to develop, manufacture or sell any Licensed Device or any Product or to use the FPGA Architecture after the Cancellation Date, (b) no further Advance Royalties shall be payable by Licensee hereunder, (c) Licensee shall have no right to recover any Recoupable Payments, and (d) Licensor, as a condition to the effectiveness of such cancellation, shall be granted the licenses described below. Prior to the Cancellation Date, and as a condition to its effectiveness, Licensee shall provide Licensor with a written license (to become effective on the Cancellation Date), in a form reasonably acceptable to Licensor and Licensee, granting Licensor a perpetual, royalty-free, worldwide, non-exclusive license, for all uses and purposes (except as noted below), with a right to sublicense, to the Joint Technology, and Licensee's object code (for internal use only, with no right to sublicense) with respect to the FPGA Architecture. Notwithstanding any termination of this Agreement and the License, the rights and licenses of Licensee's sublicensees shall survive, subject to the continued payment by Licensee of the royalties specified in Section 1.3 hereof; provided, however, Licensor shall cooperate with Licensee, at Licensee's request, and Licensee shall cooperate with Licensor, at Licensor's request, to convert any sublicensee of Licensee to a direct licensee of Licensor and the terms of Licensee's sublicenses shall provide for such conversion. 6. Exclusivity of License. The License with respect to Licensed Devices shall be exclusive so long as each of the following conditions to exclusivity are met by Licensee. In the event any of such conditions are not met, such license shall become non-exclusive at the election of the Licensor, notice of which change has been given to Licensee. (a) The following minimum annual Net Receipts from sales of Licensed Devices and Products must be achieved during each of the 12-month periods, described below, beginning with the first day of the month immediately subsequent to the month in which the [CONFIDENTIAL TREATMENT REQUESTED] and each subsequent anniversary of the date of Product Introduction occurs; provided, however, in the event any of such minimum annual Net Receipts are not achieved during any such 12-month period, Licensee may retain exclusivity with respect to Licensed Devices if it pays Licensor percentage royalties on the short-fall from the amount of such minimum annual Net Receipts in such period, at the applicable exclusive rate in Section 4.2 above, within 45 days after the end of such period. [CONFIDENTIAL TREATMENT REQUESTED] (b) The minimum advance royalty payments paid pursuant to Section 4.1 above (after all applicable crediting of Recoupable Payments) shall be [CONFIDENTIAL TREATMENT REQUESTED] per month ([CONFIDENTIAL TREATMENT REQUESTED] per month, beginning with the [CONFIDENTIAL TREATMENT REQUESTED] year after Product Introduction). 7. Termination for Breach. Either party shall have the right to terminate this Agreement in its entirety in the event of a material breach by the other party of any of its obligations hereunder. In the event a party does materially breach any of its obligations hereunder, the other party may effect such termination by giving the breaching party written notice of its intent to terminate this Agreement, which notice shall specify, in reasonable detail, the nature of such breach. Such termination shall occur 30 days following the effectiveness of such notice, unless the breaching party cures such breach prior to the expiration of such 30-day period; provided, however, that (a) if such breach is not curable, such termination shall occur upon the effectiveness of such notice, and (b) if such breach is curable, but does not relate to the payment of any sum of money or to Section 1.3 above, is not capable of being cured within such 30-day period, and the breaching party commences engaging in all reasonable efforts to cure it after receiving such notice and continues to engage in such efforts until it is cured, a termination of the Agreement with respect to such breach many not occur unless the breaching party fails to cure such breach within 90 days following the effectiveness of such notice. Notwithstanding the foregoing, in the event Licensor gives Licensee written notice, claiming that Licensee has failed to pay royalties hereunder on products sold by Licensee, and Licensee gives Licensor written notice that it does not believe that it is obligated to pay such royalties and the reasons, in reasonable detail, for such belief, within the 30-day period after the effectiveness of such notice from Licensor, such dispute shall be submitted to arbitration pursuant to Section 7.18 of Exhibit "A" hereto. This Agreement may not be terminated during the pendency of such arbitration as a result of the claimed breach to be resolved in such arbitration. 8. Sell-Off Period. Any Licensed Devices manufactured pursuant to the License prior to the termination of this Agreement may be sold pursuant to the terms and conditions of this Agreement within 18 months from the date of such termination. 9. Sale of Licensor. During the period that the License with respect to Licensed Devices is exclusive, (a) Licensor shall not solicit a purchase of the Technology, all or substantially all of its assets or all of its outstanding voting securities, (collectively, a "Purchase"), and (b) Licensee shall have a right-of-first-refusal with respect to any Purchase, as described below. In the event Licensor receives a written offer with respect to a Purchase that it is willing to accept, it shall give Licensee written notice of the material terms and conditions of such offer (the "Offer Notice"). Licensee shall have the right to make such Purchase in the event it (x) gives Licensor written notice that it is willing to make such Purchase, on such material terms and conditions, within ten days of receiving the Offer Notice, (y) enters into a definitive agreement with respect to such Purchase, which includes such material terms and conditions and such other terms and conditions as are normal with respect to such a transaction, within 20 days of receiving such agreement from Licensor, and (z) consummates such transaction pursuant to the terms and conditions of such agreement. If Licensee fails to timely meet any of such conditions, Licensor shall have the right to consummate such Purchase on such material terms and conditions, taken as a whole. 10. Confidentiality of Agreement. The terms and conditions of this Agreement shall be deemed to constitute Confidential Information, as defined in Section 4 of Exhibit "A" hereto, of each of the parties, and shall be subject to all of the terms and conditions of such section; provided, however, Licensee may disclose any such terms and conditions, as permitted by such section or with the approval of Licensor, which shall not be unreasonably withheld or delayed. 11. Continuation of Business. So long as the License with respect to Licensed Devices is exclusive and Licensor does not have the right to terminate this Agreement pursuant to Section 7 above, Licensor shall not wind up its affairs, liquidate or dissolve without Licensee's written consent, which shall not be unreasonably withheld or delayed. 12. Additional Covenant. Licensee shall not unilaterally terminate its consulting relationship with Ben Ting, Peter Pani or Richard Abraham until the last to occur of (a) the License with respect to Licensed Devices ceasing to be exclusive, and (b) an aggregate of 267,772 shares of Licensee's Common Stock subject to options granted under the consulting agreements between Licensee and Ben Ting, Peter Pani and Richard Abraham having vested. Licensee shall not unilaterally terminate its employment relationship with Ben Ting, Peter Pani or Richard Abraham unless and until the License with respect to Licensed Devices ceases to be exclusive. 13. Other Terms and Conditions. Exhibit "A" attached hereto, which contains additional definitions, terms and conditions, is hereby incorporated in, and made a part of, this Agreement. Each of the parties has caused this Agreement to be executed and delivered by its duly authorized representative as of the date first written above. LICENSOR LICENSEE BTR, Inc. Actel Corporation By: /s/ Richard P. Abraham By: /s/ Jeff Schlageter Its: President Its: Sr. VP Engineering EXHIBIT "A" ADDITIONAL TERMS AND CONDITIONS OF LICENSE AGREEMENT This Exhibit "A" contains additional definitions, terms and conditions which are an integral part of the License Agreement, dated as of March 6, 1995, between BTR Inc. and Actel Corporation (the "Agreement"). 1. Definitions. As used in the Agreement, the following terms shall have the following meanings: 1.1 "Affiliate" shall mean, as to a party to the Agreement, any corporation or other entity directly or indirectly controlling, controlled by, or under common control with such party. 1.2 "Business Day" shall mean any day other than a Saturday, Sunday or any national holiday in the United States of America or in the states of Nevada or California. 1.3 "Change of Control: means the occurrence of any of the following events: (a) Any "person" or "group of persons" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then-outstanding voting securities; or (b) A change in the composition of the Company's Board of Directors occurring within a two-year period as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (i) are directors of the Company as of the date hereof or (ii) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors of the Company); or (c) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 1.4 "Contributing Consultants" shall mean Ben Ting, Peter Pani and Richard Abraham. 1.5 "Emulation/Simulation Device" shall mean a combination of one or more Multichip Modules using the FPGA Architecture, together with supporting software, the principal function of which is as a development and/or diagnostic tool. 1.6 "Field Programmable Gate Array" or "FPGA" shall mean an integrated circuit comprised, in whole or in part, of an array of logic or analog elements, interconnects and programmable switches, the principal function of which is to perform logic or analog functions. 1.7 "FPGA Architecture" shall mean the FPGA architecture covered by claims in US Patent # 5457410 and augmented by US Patent Application #08/229,923, all foreign counterparts of such U.S. patent or patent application (whether or not the foreign counterparts claim priority from such U.S. patent or patent application), any and all revisions, continuations, divisions, substitutions, reissues, renewals, continuations in part, parents, counterparts and extensions thereof, and all patents and patent applications, whether filed in or granted by the United States or another country, claiming, in whole or in part, the benefit of the filing date of such U.S. patent or patent application. 1.8 "Improvements", with respect to technology, know-how or any product, whether hardware, firmware or software, shall mean any modifications, alterations or improvements made thereto by, or for the benefit of, the owner thereof or licensed with a right to sublicense (subject to any restrictions which are a part of such right). 1.9 "Joint Technology" shall mean any Technology developed through the joint efforts of Licensee and one or more Contributing Consultants which is an Improvement to the FPGA Architecture. 1.10 "License" shall mean the License to the Technology granted to Licensee by Licensor in Section 1.1 of the Agreement. 1.11 "Licensed Device" shall mean any device, including an integrated circuit, constituting a Field Programmable Gate Array or Multichip Module designed with, or utilizing, in whole or in part, any of the Technology, other than Emulation/ Simulation Devices. 1.12 "Multichip Module" shall mean a device containing multiple integrated circuits, including one or more FPGAs. 1.13 "Net Receipts" shall mean the gross amount recognized as income on Licensee's books (pursuant to generally accepted accounting principles consistently applied) in connection with the sale of a Licensed Device or Product, less deductions for payment of sales, value added or any similar taxes, and shipping and insurance charges, with respect to such Licensed Device or Product. 1.14 "Product" shall mean any integrated circuit, or any device containing several integrated circuits, designed with or utilizing, in whole or in part, any of the Technology that is not a Licensed Device. 1.15 "Product Introduction" shall mean the date on which Licensee has sold, in the aggregate, Licensed Devices with respect to which it is entitled to Net Receipts aggregating in excess of [CONFIDENTIAL TREATMENT REQUESTED]. 1.16 "Product Families" shall mean a series of products that have different capacities, but are based on a common FPGA architecture and a common process technology. 1.17 "Tapeout" shall mean the completion of the physical specifications, including without limitation, fractured data ready for mask making, of the first integrated circuit using the FPGA Architecture. 1.18 "Technology" shall mean the FPGA Architecture and any and all know-how and engineering data related to the FPGA Architecture and any Improvements thereto, and all related patents, copyrights, trade secrets and other intellectual or industrial property rights; provided, however, Technology shall not include any Improvement thereto which is developed at the specific request of, and pursuant to a written agreement with, a third party that is not an Affiliate of Licensor unless Licensor has a license with respect to such Improvement with a right to sublicense (subject to any restrictions which are a part of such right). 2. Reports, Records, Audits and Inspections 2.1 Reports. Licensee shall deliver to Licensor as soon as practicable, but in any event within 60 days following the last day of each calendar quarter during the term hereof, a written report showing, in reasonable detail, sales of Licensed Devices by Licensee in such quarter, including, without limitation, the Net Receipts attributable thereto and any credits given by Licensee on previous sales. 2.2 Records. During the term of the Agreement, and for a period of at least three years thereafter, Licensee shall maintain true and complete books and records related to all sales of Licensed Devices; provided, however, notwithstanding the foregoing, Licensee shall not be required to maintain any of such books and records more than ten years after it is first prepared. 2.3 Audits and Inspections (a) During the term of the Agreement and for a period of one year thereafter, Licensor shall have the right, at its expense and upon reasonable notice to Licensee, to have examined by an independent auditor with a national reputation, reasonably acceptable to Licensee, Licensee's books and records in order to determine or verify the Net Receipts and sales of the Licensed Devices. Licensor shall not make any such examination more than twice in any calendar year. (b) If an error in the reported Net Receipts or the reported number of Licensed Devices sold by Licensee is discovered as a result of such an examination and the reported Net Receipts or the reported number of Licensed Devices sold by Licensee during the period(s) examined were in excess of 5% less than the actual Net Receipts or number of Licensed Devices sold by Licensee, as the case may be, during such period(s), Licensee (i) shall pay all of Licensor's out-of-pocket expenses related to such examination, and (ii) shall pay Licensor interest on the amount of such underpayment, at the rate of 12% per annum, from the date such amount was due and payable until such amount is actually paid. 3. Protection of Proprietary Information and Rights 3.1 Third Party Infringement and Misappropriation. Licensee shall give Licensor prompt notice of any activities or threatened activities of any third party of which it becomes aware that infringe any patent, copyright or other intellectual or industrial property right subsisting in or related to any of the Technology or that constitute a misappropriation of trade secrets or act of unfair competition which may dilute, damage or destroy rights subsisting in or related to any of the Technology (collectively, the "Infringing Activities"). Licensor shall give Licensee prompt notice of any Infringing Activities of which it becomes aware so long as the license granted to Licensee pursuant to the Agreement is exclusive. Licensor shall have the right, in its sole discretion, to take whatever action, whether in the nature of legal proceedings or otherwise, it deems necessary to remedy or prevent Infringing Activities. Licensee shall not be permitted to take any action to remedy or prevent any Infringing Activities without Licensor's prior written consent, which, so long as the License with respect to Licensed Devices is exclusive, shall not be unreasonably withheld or delayed. In the event Licensee takes any such action, it shall be obligated to pay all expenses it incurs in doing so and shall be entitled to retain all damages and reimbursement of fees and expenses it receives as a result of doing so. 3.2 Third Party Claims (a) Each party shall promptly notify the other party in writing of any legal proceeding instituted or claim or demand asserted by any third party, of which such party becomes aware, with respect to the infringement of any patent, copyright or other intellectual or industrial property right, or misappropriation of any trade secret or act of unfair competition, which is alleged to result from Licensee's use of any of the Technology as licensed under the Agreement (a "Third Party Claim"). (b) In the event of a Third Party Claim, Licensor may elect at its own cost and expense to be represented by counsel, which is reasonably acceptable to Licensee, and to participate in, or, at its option, take exclusive control of, the defense, negotiation or settlement of such Third Party Claim, including, if it so elects, by bringing counterclaims, in its own name or in Licensee's name (if such counterclaim may only be brought in Licensee's name and Licensor obtains Licensee's approval to bring such counterclaim, which approval shall not be unreasonably withheld or delayed), as to the validity of any alleged patents, copyrights, trade secrets or other intellectual or industrial property rights involved in such Third Party Claim; provided, however, that Licensor shall not have the right to agree to settle such Third Party Claim without Licensee's consent, which shall not be unreasonably withheld or delayed, unless (i) the terms and conditions of such settlement require only the payment of money, and do not require Licensee to admit any wrongdoing or take or refrain from taking any action, (ii) the full amount of the settlement is paid by Licensor, and (iii) such settlement does not materially and adversely affect Licensee's rights under the Agreement. In the event that Licensor elects to take such control, Licensee may participate in such defense, negotiation or settlement with counsel of its own choice and at its own expense. (c) If Licensor elects not to control the defense, negotiation or settlement of any such Third Party Claim, or fails to pursue such defense, negotiation or settlement, Licensee may defend, negotiate or settle such Third Party Claim provided, however, that Licensee shall not have the right to agree to settle such Third Party Claim upon the License ceasing to be exclusive in any respect without Licensor's consent, which shall not be unreasonably withheld or delayed, unless (i) the terms and conditions of such settlement require only the payment of money, and do not require Licensor to admit any wrongdoing or take or refrain from taking any action, (ii) the full amount of the settlement is paid by Licensee, and (iii) such settlement does not materially and adversely affect Licensor's rights to any of the Technology. Licensee may be represented by counsel in any such defense, negotiation or settlement which is reasonably acceptable to Licensor. (d) Notwithstanding any implication to the contrary herein, Licensee shall make such modifications to the design of a Licensed Device as may be reasonably requested by Licensor in order to reduce the exposure to Licensor or Licensee of any Third Party Claim with respect to such Licensed Device if such modifications may not reasonably be expected to materially and adversely affect the costs of producing such Licensed Device or the reasonably projected sales volume of such Licensed Device. (e) Licensor shall pay any reasonable out-of-pocket costs or expenses Licensee incurs with respect to any Third Party Claim if Licensee controls the defense, negotiation or settlement of such Third Party Claim, any damages awarded against Licensee as a result of any Third Party Claim, and the amount of any settlement of any Third Party Claim (other than a settlement by Licensee which Licensee is required to pay pursuant to subsection (c)). Licensor's obligations in this subsection (e) with respect to any Third Party Claim are conditioned on the following: (i) Licensor being notified in writing of such Third Party Claim (provided, however, that any failure to provide such notice on a prompt basis shall not affect any of Licensor's obligations hereunder unless such failure materially and adversely affects its ability to defend such Third Party Claim) promptly after Licensee becomes aware of such Third Party Claim; and (ii) should any Licensed Device become, or, in Licensor's opinion, is likely to become, the subject of a Third Party Claim, Licensee shall permit Licensor, at Licensor's option and expense, to do one of the following: (A) procure for Licensee the right to continuing using the Technology and to make, use, offer to sell and sell the Licensed Device subject to the Third Party Claim; or (B) modify the Technology so that its use is non-infringing but the Technology continues to have the same material benefits with respect to the development process for such Licensed Device as it possessed prior to such modification. Licensor shall have no obligation under this subsection (e) with respect to any Third Party Claim, to the extent such Claim involves modifications of the Technology by Licensee. 4. Confidential Information 4.1 Protection of Confidential Information. Licensor and Licensee each acknowledge that, during the term of the Agreement, it will have access to proprietary or confidential information, including, without limitation, documents or other items which have been marked or otherwise identified as confidential or proprietary in nature, of the other party, including, without limitation, information related to the Technology, the Licensed Devices and the business or business practices of the other party related to the Technology or the Licensed Devices. Each party shall use its best efforts to protect such proprietary or confidential information of the other party in the same manner in which it would protect its own proprietary or confidential information, and shall not use proprietary or confidential information of the other party for its own benefit or the benefit of any other person or entity, except as may be specifically permitted hereunder. 4.2 Exceptions to Confidential Treatment. The obligations of confidentiality and non-use shall not apply to any confidential or proprietary information of one party which: (a) was known by the other party prior to the date of the Agreement and not obtained or derived, directly or indirectly, from such party or any of its Affiliates; (b) is or becomes public or available to the general public or generally to the computer or semiconductor manufacturing industry, or generally to any other industry in which the Licensed Devices are used or sold, otherwise than through (i) any act or default of a party that has an obligation of confidentiality and non-use with respect to such information, or (ii) the disclosure of such confidential or proprietary information by such party, subject to an obligation of confidentiality and non-use; (c) is obtained or derived prior or subsequent to the date of the Agreement from a third party which is lawfully in possession of such information and does not hold such information subject to any confidentiality or non-use obligations; or (d) is required to be disclosed by the other party pursuant to applicable law, or under a government or court order; provided, however, that (i) the obligations of confidentiality and non-use shall continue to the fullest extent not in conflict with such law or order, and (ii) if and when the other party is required to disclose such confidential or proprietary information pursuant to any such law or order, such party shall use its best efforts to obtain a protective order or take such other actions as will prevent or limit, to the fullest extent possible, public access to, or disclosure of, such information. 5. Indemnification 5.1 Protection of Parties. Subject to the limitations in this Section 5, each party agrees to indemnify and hold the other party harmless from any and all damages, liabilities, losses, and costs or expenses suffered or incurred by the other party arising out of, or resulting from, any breach of its representations, warranties or covenants in the Agreement. 5.2 Procedure For Indemnification (a) In the event that any legal proceedings are instituted, or any claim or demand is asserted, by any third party which may give rise to any damage, liability, loss, or cost or expense in respect of which either party has indemnified the other party under Section 5.1 above, the indemnified party shall give the indemnifying party written notice of the institution of such proceeding, or the assertion of such claim or demand, promptly after the indemnified party first becomes aware thereof; provided, however, that any failure by the indemnified party to give such notice on such prompt basis shall not affect any of its rights to indemnification hereunder unless such failure materially and adversely affects the ability of the indemnifying party to defend such proceeding. (b) The indemnifying party shall have the right, at its option and at its own expense, to be represented by counsel of its choice, subject to the approval of the indemnified party, which approval shall not be unreasonably withheld or delayed, and to defend against, negotiate with respect to, settle or otherwise deal with such proceeding, claim or demand; provided, however, that no settlement of such proceeding, claim or demand shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld or delayed, unless, pursuant to the terms and conditions of such settlement, the indemnified party shall be released from any liability or other exposure with respect to such proceeding, claim or demand; and provided, further, that the indemnified party may participate in any such proceeding with counsel of its choice and at its own expense. In the event, or to the extent, the indemnifying party elects not to, or fails to, defend such proceeding, claim or demand and the indemnified party defends against, settles or otherwise deals with any such proceeding, claim or demand, any settlement thereof may be made without the consent of the indemnifying party if it is given written notice of the material terms and conditions of such settlement at least ten Business Days prior to a binding agreement with respect to such settlement being reached. Each of the parties agrees to cooperate fully with each other in connection with the defense, negotiation or settlement of any such proceeding, claim or demand. 6. Representations and Warranties. (a) Licensor and Licensee each represents and warrants to the other that: (i) it is organized, validly existing and in good standing under the laws of the country or state in which it is incorporated; (ii) its execution and delivery of the Agreement, and the performance of its obligations under the Agreement, have been duly authorized by all necessary corporate action on its part, and it has full corporate power, right and authority to enter into the Agreement, to grant the license it has granted thereunder and to perform its obligations thereunder; (iii) neither the execution and delivery of the Agreement by it, nor the performance by it of any of its obligations under the Agreement, violates any applicable law or regulation of any country, state or other governmental unit, or its Articles of Certificate of Incorporation or Bylaws or other charter documents, or constitutes a violation of, or a breach or default under, any agreement or instrument, or judgment or order of any court or governmental authority, to which it is a party or to which it is subject or to which any of the Technology or the Licensed Devices is subject; (iv) the Agreement is a valid and binding obligation of it, enforceable against it in accordance with its terms, except as such enforceability may be limited by equitable principles or by bankruptcy or other laws affecting creditors' rights generally; and (v) no consent, approval, order or authorization of any person, entity, court or governmental authority is required on its part in connection with the execution and delivery of the Agreement or the performance by it of its obligations thereunder. (b) Licensor represents and warrants to Licensee that it has title to, or a license with a right to sublicense, the Technology, in the form in which it is delivered to Licensee, free and clear of any liens, claims or encumbrances or interests of any third party or any license which is in conflict with the License. As of the Effective Date, no part of the Technology has been licensed to Licensor and Licensor has not granted any license with respect to any part of the Technology. (c) Licensor shall (i) file such patent applications covering the FPGA Architecture as may be reasonably requested by Licensee, (ii) prosecute in good faith each patent application covering the FPGA Architecture, and (iii) maintain in force all patents covering the FPGA Architecture; provided, however, upon the License becoming non-exclusive, Licensee shall be obligated to reimburse Licensor for all of its costs and expenses (promptly after it receives written notice of any such expenditure) incurred in preparing, filing, prosecuting and maintaining any patent application which Licensee thereafter requests Licensor to file. 7. Miscellaneous 7.1 Acknowledgments. Licensee acknowledges that it has no ownership rights, and will not, pursuant to the Agreement, acquire any ownership rights, in the Technology. Each party acknowledges that a breach of any of its obligations under the Agreement would cause the other party irreparable harm and, in the event such party breaches or threatens to breach its obligations under the Agreement, the other party shall be entitled to injunctive and other appropriate equitable relief. 7.2 Warranties. LICENSOR HAS GRANTED THE LICENSE ON AN "AS-IS" BASIS. EXCEPT AS SET FORTH IN SECTIONS 6 AND 7.1 ABOVE, LICENSOR MAKES NO WARRANTY WITH RESPECT TO ANY OF THE TECHNOLOGY. LICENSOR MAKES NO IMPLIED WARRANTIES WITH RESPECT TO THE TECHNOLOGY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 7.3 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES SUFFERED BY THE OTHER PARTY, ANY OF ITS AFFILIATES, ANY OF ITS SUBLICENSEES OR ANY THIRD PARTY ARISING OUT OF, OR IN CONNECTION WITH, THE LICENSE OR USE OF THE TECHNOLOGY OR SALE OR USE OF ANY LICENSED DEVICE. IN ADDITION TO THE FOREGOING, NEITHER LICENSOR NOR LICENSEE SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES SUFFERED BY THE OTHER PARTY, ANY AFFILIATE OR SUBLICENSE OF THE OTHER OR ANY THIRD PARTY ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT, THE PERFORMANCE BY EITHER PARTY OF ANY OF ITS OBLIGATIONS HEREUNDER, ANY REPRESENTATION OR WARRANTY OF EITHER PARTY HEREUNDER OR OTHERWISE, EXCEPT ANY SUCH DAMAGES WHICH ARISE OUT OF, OR RESULT FROM, ANY INTENTIONAL AND KNOWING BREACH OF THIS AGREEMENT. THE FOREGOING LIMITATIONS APPLY TO ALL CLAIMS, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION OR OTHER TORTS. 7.4 Compliance With Applicable Law. Licensee shall comply with all applicable laws and regulations of any country, state or government unit relating to the use of any of the Technology or the manufacture or sale of Licensed Devices, including, but not limited to, the Export Administration Act and Export Administration Regulations of the United States of America. Licensee shall obtain and maintain in effect all licenses, permits and authorizations required for the performance of its obligations hereunder. 7.5 Relationship of Licensor and Licensee. Nothing in the Agreement shall create a joint venture, partnership or principal-agent relationship between Licensor and Licensee. 7.6 Notices. Whenever any matter in the Agreement provides for notice or other written communication to be given to Licensor or Licensee, such notice shall be given at the address of such party set forth below, or such other address as such party shall provide, in writing, to the other party. All notices may be given by being personally delivered, by being sent by prepaid air freight, delivery of which, within one Business Day of receipt by the air freight company, is guaranteed, or by being sent by facsimile, the receipt of which is acknowledged, addressed to the party hereto to whom notice is to be given at the above-described address. Each such notice shall be deemed to be effective upon receipt, if personally delivered, one Business Day after receipt by the airfreight company, if sent by airfreight, and one Business Day after being sent by facsimile. If to Licensor: If to Licensee: BTR, Inc. Actel Corporation c/o Corporate Trust Company of Nevada 955 East Arques Avenue One East First Street Sunnyvale, California 94086 Reno, Nevada 89501 Attn.: Jeff Schlageter Attn.: Richard Abraham Fax: (408) 522-8041 Fax: (415) 948-7652 7.7 Attorneys' Fees.Should any litigation or arbitration be commenced between the parties hereto concerning the Agreement, or the rights and duties of the parties in relation to the Agreement, the party prevailing in such litigation or arbitration shall be entitled, in addition to such other relief as may be granted, to a reasonable sum for attorneys' fees in connection with such litigation or arbitration, which sum shall be determined by the trier of fact in such litigation or arbitration or in a separate action brought for that purpose. 7.8 Assignment. The Agreement shall be binding upon, and inure to the benefit of, the respective legal representatives, successors and permitted assigns of the parties hereto. Notwithstanding the foregoing, except as otherwise provided herein, neither party may assign the Agreement, or any of its rights or obligations under the Agreement, without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. So long as any portion of the License is exclusive, Licensor shall not assign (directly or indirectly, by operation of law or otherwise) or sell any of the Technology without the prior written consent of Licensee, which consent shall not be unreasonably withheld or delayed. Any such sale or assignment not permitted hereunder shall be deemed to be null and void and of no effect. 7.9 Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive, but shall, wherever possible, be cumulative with all other remedies at law or in equity. 7.10 Severability. Should any portion or provision of the Agreement be declared invalid or unenforceable in any jurisdiction by a court of competent jurisdiction, then such portion or provision shall be deemed to be severable, to the extent invalid or unenforceable, from the Agreement as to such jurisdiction (but, to the extent permitted by law, not elsewhere) and shall not affect the remainder thereof. Notwithstanding the foregoing, (a) such provision of the Agreement shall be interpreted by the parties and by any such court, to the extent possible, in such a manner that such provision shall be deemed to be valid and enforceable, and (b) such court shall have the right to make such modifications to any provision of this Agreement as do not materially affect the rights or obligations of the parties under the Agreement and as may be necessary in order for such provision to be valid and enforceable. 7.11 Waiver. No waiver of any right or obligation of Licensor or Licensee under the Agreement shall be effective unless in a writing, specifying such waiver, executed by the party against which such waiver is being enforced. A waiver by either party hereto of any of its rights under the Agreement on any occasion shall not be a bar to the exercise of the same right on any subsequent occasion or of any other right at any time. 7.12 Other Terms. The terms and provisions set forth in the Agreement shall control over any terms and provisions set forth in any purchase order or other document or instrument submitted to Licensor by Licensee, and no such purchase order or other document or instrument or course of conduct or trade practice may be used to modify, vary or supplement any terms set forth herein unless Licensor expressly agrees in writing to such modification, variation or supplement. 7.13 Headings and Titles. The designation of a title, or a caption or a heading, for each section of the Agreement is for the purpose of convenience only and shall not be used to limit, interpret or modify the provisions of the Agreement. 7.14 Presumptions. Because each of the parties hereto have participated in drafting the Agreement, there shall be no presumption against any party on the ground that such party was responsible for preparing the Agreement or any part thereof. 7.15 Amendment or Modification. The Agreement may be amended, altered, or modified only by a writing, specifying such amendment, alteration or modification, executed by Licensor and Licensee. 7.16 Counterparts. The Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 7.17 Governing Law; Jurisdiction. This Agreement, and the rights and obligations of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of California. Any action with respect to the Agreement filed by one party against the other may only be brought in the Federal District Court for the Northern District of California or the Superior Court of the State of California located in Santa Clara County. 7.18 Arbitration. Any controversy or claim arising out of or relating to this Agreement or its breach shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. In any arbitration hereunder, Licensor and Licensee may agree on the selection of a single arbitrator, but if they cannot so agree, each such party shall select an arbitrator and the two selected arbitrators shall select a third arbitrator. No arbitrator may be affiliated, whether directly or indirectly, with any of the parties, including, without limitation, as an employee, consultant, partner or shareholder. The arbitrator(s) shall permit each of the parties to the arbitration to engage in a reasonable amount of discovery. In the event either party requests such an arbitration, the arbitration shall be held in Santa Clara County, California. The award by the arbitrator or arbitrators shall be final, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, neither party shall be prevented from seeking injunctive relief, including, without limitation, a temporary restraining order, as contemplated by Section 7.1, from the courts specified in Section 7.17. 7.19 Survival. Sections 4.2, 4.4, 4.5, 5, 8, 10 and 12 of the Agreement and each section of this Exhibit "A" shall survive the termination or cancellation of the Agreement. 7.20 Complete Agreement. The Agreement constitutes the complete understanding of the parties hereto regarding the subject matter thereof and supersedes all prior or contemporaneous agreements of the parties, whether written or oral, with respect to such subject matter. EX-11 7 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 ACTEL CORPORATION -------------------------------------- Statement Re Computation of Per Share Earnings (in thousands, except per share amounts)
Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Primary: Average common shares outstanding........................................ 17,826 17,367 16,995 Net effect of dilutive stock options, warrants, and convertible preferred stock - based on the treasury stock method using average market price............................................ 3,659 -- 584 ------------ ------------ ------------ Shares used in computing net income (loss) per share..................... 21,485 17,367 17,579 ============ ============ ============ Net income (loss)........................................................ $ 14,938 $ (1,132) $ 7,867 ============ ============ ============ Net income (loss) per share.............................................. $ 0.70 $ (0.07) $ 0.45 ============ ============ ============ Fully diluted: Average common shares outstanding........................................ 17,826 17,367 16,995 Net effect of dilutive stock options, warrants, and convertible preferred stock - based on the treasury stock method.................. 4,057 -- 584 ------------ ------------ ------------ Shares used in computing net income (loss) per share..................... 21,883 17,367 17,579 ============ ============ ============ Net income (loss)........................................................ $ 14,938 $ (1,132) $ 7,867 ============ ============ ============ Net income (loss) per share.............................................. $ 0.68 $ (0.07) $ 0.45 ============ ============ ============
EX-13 8 PORTIONS OF 1996 ANNUAL REPORT TO SHAREHOLDERS ACTEL CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)
Year Ended December 31, -------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ Statements of Operations Data: Net revenues................................. $ 148,779 $ 108,516 $ 76,007 $ 59,598 $ 44,049 Costs and expenses: Cost of revenues.......................... 64,420 52,517 33,349 26,389 19,269 Research and development.................. 23,934 20,560 14,406 10,953 8,868 Selling, general, and administrative...... 38,395 27,364 19,699 16,708 13,567 Patent litigation settlement (1).......... -- -- -- -- 2,000 In-process research and development (2)... -- 16,600 -- -- -- ------------ ------------ ------------ ------------ ------------ Total costs and expenses............ 126,749 117,041 67,454 54,050 43,704 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations................ 22,030 (8,525) 8,553 5,548 345 Interest expense............................. (13) (93) (232) (559) (718) Interest income and other, net............... 1,068 846 935 569 221 ------------ ------------ ------------ ------------ ------------ Income (loss) before taxes................... 23,085 (7,772) 9,256 5,558 (152) Tax provision (benefit)...................... 8,147 (6,640) 1,389 555 148 ------------ ------------ ------------ ------------ ------------ Net income (loss)............................ $ 14,938 $ (1,132) $ 7,867 $ 5,003 $ (300) ============ ============ ============ ============ ============ Net income (loss) per share.................. $ 0.70 $ (0.07) $ 0.45 $ 0.32 $ (0.11) ============ ============ ============ ============ ============ Shares used in computing net income (loss) per share................................. 21,485 17,367 17,579 15,811 2,740 ============ ============ ============ ============ ============
December 31, -------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ Consolidated Balance Sheet Data: Working capital............................. $ 55,397 $ 39,867 $ 35,971 $ 32,330 $ 11,912 Total assets................................ 136,712 107,119 67,855 61,130 29,357 Long-term obligations (3)................... -- -- 72 926 4,142 Redeemable convertible preferred stock...... 18,147 18,147 -- -- 33,359 Total shareholders' equity (deficit)........ 69,357 50,920 49,311 40,223 (20,166) - ----------------------------------------------------------- (1) Represents a charge incurred in the fourth quarter of 1992 in connection with the settlement of patent litigation. (2) Represents a charge incurred in the first quarter of 1995 in connection with the Company's acquisition of the field programmable gate array business of Texas Instruments Incorporated. (3) Includes the long-term portion of notes payable, capital lease obligations, and settlement payable.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Actel Corporation is the world's leading supplier of antifuse-based field programmable gate arrays ("FPGAs") and associated software development tools. FPGAs are used by designers of communication, computer, industrial control, military/aerospace, and other electronic systems to differentiate their products and get them to market faster. Results of Operations The following table sets forth certain financial data from the Consolidated Statements of Operations expressed as a percentage of net revenues:
Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Net revenues............................................................. 100.0% 100.0% 100.0% Cost of revenues......................................................... 43.3 48.4 43.9 ------------ ------------ ------------ Gross margin............................................................. 56.7 51.6 56.1 Research and development................................................. 16.1 19.0 19.0 Selling, general, and administrative..................................... 25.8 25.2 25.9 In-process research and development...................................... -- 15.3 -- ------------ ------------ ------------ Income (loss) from operations............................................ 14.8 (7.9) 11.2 Interest and other income, net........................................... 0.7 0.7 1.0 ------------ ------------ ------------ Income (loss) before taxes............................................... 15.5 (7.2) 12.2 Tax provision (benefit).................................................. 5.5 (6.2) 1.8 ------------ ------------ ------------ Net income (loss)........................................................ 10.0% (1.0)% 10.4% ============ ============ ============
Acquisition of TI Antifuse FPGA Business On March 31, 1995, the Company completed its acquisition of the antifuse FPGA business of Texas Instruments Incorporated ("TI"), the only second-source supplier of the Company's products, in a transaction accounted for using the purchase method. As consideration for the business acquired, the Company paid $10.0 million in cash and issued 1,000,000 shares of Series A Preferred Stock. The Preferred Stock was valued for purposes of the transaction at $18.9 million and is convertible into 2,631,578 shares of Common Stock. The Company expensed the in-process research and development acquired in the transaction, taking a pretax charge of $16.6 million against income in the first quarter of 1995. See Note 13 of Notes to Consolidated Financial Statements. The Company allocated $4.4 million of the purchase price to intangible assets (i.e., the customer base and goodwill acquired), which are being amortized over five years. Amortization expense for the year ended December 31, 1996, was $0.9 million. As a result of the acquisition, the revenues of the business acquired from TI are included (beginning with the second quarter of 1995) in the net revenues of the Company. The Company assumed and subsequently fulfilled TI's backlog, which consisted primarily of lower-margin ACT 1 and ACT 2 products with average selling prices generally lower than those charged by the Company for comparable products. These product mix and average selling price influences negatively affected the Company's gross margin for 1995 and the absence of these influences positively affected the Company's gross margin for 1996. In addition, the Company ceased receiving royalties (which had no associated costs) from TI on sales of FPGAs following the acquisition. See Notes 3 and 13 of Notes to Consolidated Financial Statements. Net Revenues Net revenues for fiscal 1996 were $148.8 million, increasing 37% over net revenues for fiscal 1995. This compares with an increase in net revenues of 43% for fiscal 1995 over fiscal 1994. The Company's acquisition of TI's antifuse FPGA business had a negative influence on net revenues for the first quarter of 1995 and a positive effect on net revenues for subsequent quarters. Accordingly, the year-over-year growth rates in net revenues for both 1996 and 1995 are not indicative of future results. The Company derives its revenues primarily from the sale of FPGAs, which accounted for 97% of net revenues for 1996, compared with 95% for 1995 and 91% for 1994. The Company also derives revenues from the sale of development systems and receipt of royalties. Net revenues from the sale of FPGAs for 1996 increased 41% over net revenues from the sale of FPGAs for 1995. This compares with an increase of 50% in net revenues from the sale of FPGAs for 1995 over 1994. The growth in net revenues from the sale of FPGAs for 1996 over 1995 was due primarily to a 39% increase in unit sales coupled with a 7% increase in the overall average selling price of FPGAs. The increase in the overall average selling price of FPGAs for 1996 was due principally to proportionately greater unit sales of the Company's newer ACT 3, XL, DX, and RH product families, which generally command higher average selling prices than the Company's older ACT 1 and ACT 2 product families. The growth in net revenues from the sale of FPGAs for 1995 over 1994 was due primarily to a 67% increase in unit sales, which was offset in part by a decline of 10% in the overall average selling price of FPGAs. The decline in the overall average selling price of FPGAs for 1995 was due principally to TI's aggressive second-source pricing in the first quarter of 1995 and the subsequent fulfillment by the Company of TI's backlog of products with lower average selling prices. As is typical in the semiconductor industry, the average selling prices of the Company's products generally decline over the lives of such products. To increase revenues, the Company seeks to increase unit sales of existing products, principally by reducing prices, and to introduce and sell new products. No assurance can be given that these efforts will be successful. Over the last three fiscal years, sales to distributors have increased as a percentage of the Company's net revenues. The Company's principal distributors for 1996 were Wyle Electronics Marketing Group and Pioneer-Standard Electronics, Inc. in North America and Arrow Electronics, Inc. and Zeus Electronics (collectively, "Arrow") worldwide. The following table sets forth, for each of the last three years, the percentage of revenues derived from all customers accounting for 10% or more of net revenues in any of such years: 1996 1995 1994 ------------ ------------ ------------ Wyle................................. 14% 14% 15% Arrow................................ 14 12 3 Pioneer.............................. 11 11 15 Arrow was added as a distributor in June 1994. The Company generally does not recognize revenue on a sale to a distributor until the distributor resells the product to its customer. Sales to customers outside the United States for 1996, 1995, and 1994 accounted for 33%, 38%, and 32% of net revenues, respectively. Of these export sales, the largest portion was derived from European customers. Gross Margin Gross margin for 1996 was 57% of net revenues, compared with 52% of net revenues for 1995 and 56% of net revenues for 1994. The improvement in gross margin for 1996 over 1995 resulted primarily from the Company's acquisition of TI's FPGA business, which has positively influenced the Company's net revenues and overall average selling price. The Company's gross margin for 1996 also benefited from improved manufacturing yields; the generation of an increased percentage of net revenues from sales of the Company's newer product families, which command higher margins; and appreciation in the value of the United States dollar versus the Japanese yen, in which some of the Company's wafer purchases are denominated. The decline in gross margin for 1995 compared with 1994 resulted principally from reduced average selling prices, due principally to TI's aggressive second-source pricing before the acquisition and the fulfillment by the Company of TI's backlog after the acquisition; increased costs for a significant portion of the Company's wafer supplies attributable to depreciation in the value of the United States dollar versus the Japanese yen; and reduced royalty revenue following the Company's acquisition of TI's FPGA business. The Company's gross margin for 1994 was adversely affected by stiff second-source competition from TI and a sharp drop in royalties, which have no associated costs. As is typical in the semiconductor industry, margins on the Company's products generally decline as the average selling prices of such products decline. The Company seeks to offset margin erosion by selling a higher percentage of new products, which tend to have higher margins than more mature products, and by reducing costs. The Company seeks to reduce costs by improving wafer yields, negotiating price reductions with suppliers, increasing the level and efficiency of its testing and packaging operations, achieving economies of scale by means of higher production levels, and increasing the number of die produced per wafer by shrinking the die size of its products. No assurance can be given that these efforts will be successful. The capability of the Company to shrink the die size of its FPGAs is dependent on the availability of more advanced manufacturing processes. Due to the custom steps involved in manufacturing antifuse FPGAs, the Company typically obtains access to new manufacturing processes later than its competitors using standard manufacturing processes. Research and Development Research and development expenditures for 1996 were $23.9 million, or 16% of net revenues, compared with $20.6 million, or 19% of net revenues, for 1995 and $14.4 million, or 19% of net revenues, for 1994. While research and development expenditures for 1996 increased by 16% compared with 1995, expenditures declined as a percentage of net revenues due to economies of scale resulting from the expanded scope of the Company's operations. The Company currently intends to boost the level of its expenditures to accelerate the introduction of new products. As a result, research and development expenditures may increase as a percentage of net revenues. The Company's research and development consists of circuit design, software development, and process technology activities. The Company believes that continued substantial investment in research and development is critical to maintaining a strong technological position in the industry and, therefore, expects to continue increasing its research and development expenditures. Since the Company's antifuse FPGAs are manufactured using a customized process, the Company's research and development expenditures will probably always be higher as a percentage of net revenues than that of its major competitors. Selling, General, and Administrative Selling, general, and administrative expenses for 1996 were $38.4 million, or 26% of net revenues, compared with $27.4 million, or 25% of net revenues, for 1995 and $19.7 million, or 26% of net revenues, for 1994. The increase in the rate of selling, general, and administrative spending for 1996 compared with 1995 resulted primarily from an increased level of sales and marketing activities in support of new products. The Company currently intends to continue its heightened level of sales and marketing activity in support of new products. In addition, the Company believes that its legal expenses will increase as a percentage of net revenues, principally because of the Company's continuing litigation with QuickLogic Corporation. See Note 12 of Notes to Consolidated Financial Statements. As a result, selling, general, and administrative expenditures may continue to increase as a percentage of net revenues. In-Process Research and Development The $16.6 million pretax charge for in-process research and development for 1995 resulted from a write-off taken in the first quarter of 1995 in connection with the Company's acquisition of TI's antifuse FPGA business. The value of the in-process research and development was established by an independent valuation specialist. Tax Provision The Company's effective tax rate for 1996 was 35%. Significant components affecting the effective tax rate include benefits of federal research and development credits, and the recognition of certain deferred tax assets subject to valuation allowances as of December 31, 1995. The Company recorded a credit for income taxes for 1995 due to the realization of deferred tax assets previously subject to valuation allowances. The Company recorded additional deferred tax assets of approximately $3.0 million related to the 1995 charge for acquired in-process research and development, the realization of which is dependent upon the generation of future taxable income. For 1994, the Company's provision for taxes was less than the U.S. statutory rate due primarily to the realization of tax net operating losses and tax credit carryforwards. Financial Condition, Liquidity, and Capital Resources The Company's total assets were $136.7 million at the end of 1996, compared with $107.1 million at the end of 1995. The increase in total assets was attributable principally to the expanded scope of the Company's operations. The following table sets forth certain financial data from the Consolidated Balance Sheets expressed as the percentage change from the end of fiscal 1995 to the end of fiscal 1996:
Percentage Change From 1995 to 1996 -------------------------- Cash, cash equivalents, and short-term investments..................................... 45.9% Accounts receivable, net............................................................... 65.7 Inventories............................................................................ (3.2) Property and equipment, net............................................................ 1.9 Total assets........................................................................... 27.6 Total current liabilities.............................................................. 29.3 Shareholders' equity................................................................... 36.2
Cash, Cash Equivalents, and Short-Term Investments The Company's cash, cash equivalents, and short-term investments were $29.2 million at the end of 1996, compared with $20.0 million at the end of 1995. The amount of cash, cash equivalents, and short-term investments increased principally because of cash provided by operations, including net income of $14.9 million for 1996. In 1996, the Company made a final payment of approximately $2.9 million for an equity interest in Chartered Semiconductor Manufacturing Ltd ("Chartered Semiconductor"), a semiconductor manufacturer located in Singapore, and purchased an additional equity interest in Chartered Semiconductor, pursuant to a contractual right of first refusal, for approximately $0.7 million. See Note 5 of Notes to Consolidated Financial Statements. The Company presently has no material financial obligations to its current wafer suppliers. However, wafer manufacturers are increasingly demanding financial support from customers in the form of equity investments and advance purchase price deposits, which in some cases are substantial. Should the Company require additional capacity, it may be required to incur significant expenditures to secure such capacity. The Company believes that the availability of adequate financial resources is a substantial competitive factor. To take advantage of opportunities as they arise, or to withstand adverse business conditions should they occur, it may become prudent or necessary for the Company to raise additional capital. The Company intends to monitor the availability and cost of potential capital resources, including equity, debt, and off-balance sheet financing arrangements, with a view toward raising additional capital on terms that are acceptable to the Company. No assurance can be given that additional capital will become available on acceptable terms. Notwithstanding the foregoing, the Company believes that existing cash, cash equivalents, and short-term investments, together with cash from operations, will be sufficient to meet its cash requirements for 1997. A portion of available cash may be used for investment in or acquisition of complementary businesses, products, or technologies. Accounts Receivable The Company's net accounts receivable were $29.5 million at the end of 1996, compared with $17.8 million at the end of 1995. This increase of 66% in net accounts receivable compares unfavorably with the 37% increase in net revenues for 1996 compared with 1995. The Company believes that its net accounts receivable for 1996 increased more than net revenues principally because of a greater concentration of shipments at the end of 1996. In addition, the Company transitioned to a new management information system in the fourth quarter of 1996 and experienced difficulties in reconciling data between the old and the new systems during the transition, which resulted in some loss of collection efforts of accounts receivable. Inventories The Company's inventories were $26.8 million at the end of 1996, compared with $27.7 million at the end of 1995. Although inventories declined in 1996, they were still higher than desired at the end of 1996. Since the Company's FPGAs are manufactured using customized steps that are added to the standard manufacturing processes of its independent wafer suppliers, the Company's manufacturing cycle is longer and hence more difficult to adjust in response to changing demands or delivery schedules. The Company believes that it will take several more quarters to bring inventories back to a desired level, and no assurance can be given that its efforts will be successful. Excess inventories increase the risk of obsolescence, represent a non-productive use of capital resources, increase handling costs, and delay realization of the price and performance benefits associated with more advanced manufacturing processes. Property and Equipment The Company's net property and equipment was $16.0 million at the end of 1996, compared with $15.7 million at the end of 1995. The Company invested $7.8 million in property and equipment in 1996, compared with $10.1 million in 1995. Depreciation and amortization of property and equipment were $5.9 million for 1996, compared with $3.8 million for 1995. Capital expenditures during the past two years have been primarily for leasehold improvements and for engineering, manufacturing, and office equipment. The Company anticipates that capital expenditures will increase in 1997 due to increased levels of operations. Current Liabilities The Company's total current liabilities were $49.2 million at the end of 1996, compared with $38.1 million at the end of 1995. The increase in current liabilities was attributable principally to an increase of $8.2 million in deferred income on shipments to distributors, which in turn was due to the Company's increased level of operations. Shareholders' Equity Shareholders' equity was $69.4 million at the end of 1996, compared with $50.9 million at the end of 1995. The increase included net cash of $17.6 million from operating activities and net proceeds of $3.0 million from the sale of common stock under employee stock plans. Employees At the end of 1996, the Company had 356 full-time employees, including 113 in marketing, sales, and customer support; 122 in research and development; 94 in operations; and 27 in administration and finance. This compares with 297 full-time employees at the end of 1995, an increase of 20%. Net revenues per employee was approximately $418,000 for 1996, compared with approximately $365,000 for 1995. Impact of Recently Issued Accounting Standards In October 1995, the Financial Accounting Standards Board issued Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). The Company has elected to account for employee stock options in accordance with Accounting Principles Board Opinion No. 25 and to adopt the "disclosure only" alternative described in FAS 123. See Note 9 of Notes to Consolidated Financial Statements. Quarterly Information The following table presents certain unaudited quarterly results for each of the eight quarters in the period ended December 31, 1996. In the opinion of management, this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere in this Annual Report and all necessary adjustments (consisting only of normal recurring accruals) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements of the Company and notes thereto. These quarterly operating results, however, are not necessarily indicative of the results for any future period.
Three Months Ended ------------------------------------------------------------------------------------------ Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 1996 1996 1996 1996 1995 1995 1995 1995 --------- -------- ---------- --------- ---------- --------- ---------- --------- (in thousands, except per share amounts) Statements of Operations Data: Net revenues........................... $ 39,027 $ 38,014 $ 36,694 $ 35,043 $ 32,553 $ 29,834 $ 26,611 $ 19,518 Cost of revenues....................... 16,381 16,164 16,105 15,769 15,234 14,416 13,243 9,624 --------- -------- ---------- --------- ---------- --------- ---------- --------- Gross profit........................... 22,646 21,850 20,589 19,274 17,319 15,418 13,368 9,894 Research and development............... 5,855 6,417 5,650 6,011 5,802 5,430 4,885 4,443 Selling, general, and administrative... 10,651 9,854 9,582 8,308 7,849 7,244 6,904 5,367 In-process research and development (1) -- -- -- -- -- -- -- 16,600 --------- -------- ---------- --------- ---------- --------- ---------- --------- Income (loss) from operations.......... 6,140 5,579 5,357 4,955 3,668 2,744 1,579 (16,516) Net income (loss)...................... $ 4,153 $ 3,905 $ 3,606 $ 3,277 $ 3,878 $ 2,935 $ 1,683 $ (9,628) Net income (loss) per share............ $ 0.19 $ 0.18 $ 0.17 $ 0.16 $ 0.19 $ 0.14 $ 0.08 $ (0.56) ========= ======== ========== ========= ========== ========= ========== ========= Shares used in computing net income (loss) per share..................... 21,893 21,475 21,467 21,068 20,808 21,082 20,581 17,200 ========= ======== ========== ========= ========== ========= ========== =========
Three Months Ended ------------------------------------------------------------------------------------------ Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 1996 1996 1996 1996 1995 1995 1995 1995 --------- -------- ---------- --------- ---------- --------- ---------- --------- As a Percentage of Net Revenues: Net revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues....................... 42.0 42.5 43.9 45.0 46.8 48.3 49.8 49.3 --------- -------- ---------- --------- ---------- --------- ---------- --------- Gross margin........................... 58.0 57.5 56.1 55.0 53.2 51.7 50.2 50.7 Research and development............... 15.0 16.9 15.4 17.2 17.8 18.2 18.4 22.8 Selling, general, and administrative... 27.3 25.9 26.1 23.7 24.1 24.3 25.9 27.5 In-process research and development (1) -- -- -- -- -- -- -- 85.0 --------- -------- ---------- --------- ---------- --------- ---------- --------- Income (loss) from operations.......... 15.7 14.7 14.6 14.1 11.3 9.2 5.9 (84.6) Net income (loss)...................... 10.6 10.3 9.8 9.4 11.9 9.8 6.3 (49.3) - ------------------------------------------------------------------ (1) Represents a charge incurred in connection with the Company's acquisition of TI's FPGA business.
ACTEL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
December 31, -------------------------- 1996 1995 ------------ ------------ ASSETS Current assets: Cash and cash equivalents........................................................... $ 3,543 $ 17,691 Short-term investments.............................................................. 25,626 2,296 Accounts receivable, net............................................................ 29,495 17,805 Inventories......................................................................... 26,848 27,726 Deferred income taxes............................................................... 16,677 10,304 Other current assets................................................................ 2,416 2,097 ------------ ------------ Total current assets.......................................................... 104,605 77,919 Property and equipment, net............................................................ 15,973 15,674 Investment in Chartered Semiconductor.................................................. 10,680 7,069 Other assets........................................................................... 5,454 6,457 ------------ ------------ $ 136,712 $ 107,119 ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................................................... $ 9,933 $ 11,995 Accrued salaries and employee benefits.............................................. 5,967 3,108 Other accrued liabilities........................................................... 5,922 3,735 Deferred income..................................................................... 27,386 19,148 Capital lease obligations........................................................... -- 66 ------------ ------------ Total current liabilities..................................................... 49,208 38,052 Commitments and contingencies Redeemable convertible preferred stock (Series A), $.001 par value, $25.00 liquidation preference; 1,000,000 shares authorized; 1,000,000 shares issued and outstanding.... 18,147 18,147 Shareholders' equity: Preferred stock, $.001 par value; 4,000,000 shares authorized; none issued and outstanding....................................................................... -- -- Common stock, $.001 par value; 30,000,000 shares authorized; 17,991,503 and 17,561,758 shares issued and outstanding at December 31, 1996 and 1995, respectively...................................................................... 18 18 Additional paid-in capital.......................................................... 63,133 59,638 Accumulated earnings (deficit)...................................................... 6,206 (8,736) ------------ ------------ Total shareholders' equity.................................................... 69,357 50,920 ------------ ------------ $ 136,712 $ 107,119 ============ ============
ACTEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Net revenues............................................................. $ 148,779 $ 108,516 $ 76,007 Costs and expenses: Cost of revenues...................................................... 64,420 52,517 33,349 Research and development.............................................. 23,934 20,560 14,406 Selling, general, and administrative.................................. 38,395 27,364 19,699 In-process research and development................................... -- 16,600 -- ------------ ------------ ------------ Total costs and expenses........................................ 126,749 117,041 67,454 ------------ ------------ ------------ Income (loss) from operations............................................ 22,030 (8,525) 8,553 Interest expense......................................................... (13) (93) (232) Interest income and other, net........................................... 1,068 846 935 ------------ ------------ ------------ Income (loss) before taxes............................................... 23,085 (7,772) 9,256 Tax provision (benefit).................................................. 8,147 (6,640) 1,389 ------------ ------------ ------------ Net income (loss)........................................................ $ 14,938 $ (1,132) $ 7,867 ============ ============ ============ Net income (loss) per share.............................................. $ 0.70 $ (0.07) $ 0.45 ============ ============ ============ Shares used in computing net income (loss) per share..................... 21,485 17,367 17,579 ============ ============ ============
ACTEL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share amounts)
Additional Note Accumulated Total Paid-In Receivable Earnings/ Shareholders' Common Stock Capital from Officer (Deficit) Equity ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1993................. $ 17 $ 55,794 $ (113) $ (15,475) $ 40,223 Issuance of 306,313 common shares under employee stock plans and exercise of warrants, net of repurchases.............. -- 1,344 -- -- 1,344 Repayment of note receivable from officer.... -- -- 113 -- 113 Securities valuation adjustment.............. -- -- -- (404) (404) Tax benefit from exercise of stock options... -- 168 -- -- 168 Net income................................... -- -- -- 7,867 7,867 ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1994................. 17 57,306 -- (8,012) 49,311 Issuance of 455,393 common shares under employee stock plans...................... 1 1,894 -- -- 1,895 Securities valuation adjustment.............. -- -- -- 408 408 Tax benefit from exercise of stock options... -- 438 -- -- 438 Net loss..................................... -- -- -- (1,132) (1,132) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1995................. 18 59,638 -- (8,736) 50,920 Issuance of 429,745 common shares under employee stock plans...................... -- 2,955 -- -- 2,955 Securities valuation adjustment.............. -- -- -- 4 4 Tax benefit from exercise of stock options... -- 540 -- -- 540 Net income................................... -- -- -- 14,938 14,938 ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1996................. $ 18 $ 63,133 $ -- $ 6,206 $ 69,357 ============ ============ ============ ============ ============
ACTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Operating activities: Net income (loss)..................................................... $ 14,938 $ (1,132) $ 7,867 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization....................................... 6,755 4,412 3,696 In-process research and development................................. -- 16,600 -- Changes in operating assets and liabilities: Accounts receivable............................................... (11,690) (4,973) (3,658) Inventories....................................................... 878 (9,095) (6,139) Deferred income taxes............................................. (6,373) (9,394) (583) Other current assets.............................................. (319) 2,710 (93) Accounts payable and accrued liabilities.......................... 5,140 8,058 438 Deferred income................................................... 8,238 10,802 2,335 Settlement payable................................................ -- -- (2,000) ------------ ------------ ------------ Net cash provided by operating activities............................. 17,567 17,988 1,863 Investing activities: Purchase of TI FGPA business.......................................... -- (10,000) -- Purchases of property and equipment................................... (7,786) (10,111) (5,638) Purchases of short-term investments................................... (49,429) -- (21,285) Sales and maturities of short-term investments........................ 26,096 16,761 30,304 Investment in Chartered Semiconductor................................. (3,611) (3,033) (4,036) Other assets.......................................................... 126 (2,629) (10) ------------ ------------ ------------ Net cash used in investing activities................................. (34,604) (9,012) (665) Financing activities: Sale of common stock, net of repurchases.............................. 2,955 1,895 1,383 Proceeds from line of credit.......................................... -- 4,500 -- Payments on line of credit............................................ -- (4,500) -- Repayment of note receivable from officer............................. -- -- 113 Principal payments under notes payable and capital lease obligations.. (66) (494) (1,612) ------------ ------------ ------------ Net cash provided by (used in) financing activities................... 2,889 1,401 (116) Net increase (decrease) in cash and cash equivalents..................... (14,148) 10,377 1,082 Cash and cash equivalents, beginning of year............................. 17,691 7,314 6,232 ------------ ------------ ------------ Cash and cash equivalents, end of year................................... $ 3,543 $ 17,691 $ 7,314 ============ ============ ============ Supplemental disclosures of cash flows information and non-cash investing and financing activities: Cash paid during the year for interest................................ $ 2 $ 88 $ 225 Cash paid during the year for taxes................................... 12,370 4,593 1,066 Tax benefits from exercise of stock options.............................. 540 438 168 Preferred stock issued as partial consideration for the TI FPGA Business, net of estimated future issuance costs...................... -- 18,147 --
ACTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Actel Corporation (the "Company") was incorporated under the laws of California on October 17, 1985. The Company designs, develops, and markets field programmable gate arrays ("FPGAs") and associated development system software and programming hardware. Net revenues from the sale of FPGAs accounted for 97% of the Company's net revenues for 1996, compared with 95% for 1995 and 91% for 1994. FPGAs are logic integrated circuits, which adapt the microprocessing and memory capabilities of electronic systems to specific applications. The Company's operating results are therefore subject to a variety of risks characteristic of the semiconductor industry, including booking and shipment uncertainties, wafer yield fluctuations, and price erosion, as well as general economic conditions. FPGAs are used by designers of communication, computer, industrial control, military/aerospace, and other electronic systems to differentiate their products and get them to market faster. Information on the Company's sales by geographic area is included in Note 11. Advertising and Promotion Costs The Company's policy is to expense advertising and promotion costs as they are incurred. The Company's advertising and promotion expenses were approximately $3,595,000, $2,736,000, and $2,498,000 for 1996, 1995, and 1994, respectively. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year ends on the Sunday closest to December 31. Fiscal 1996, 1995, and 1994 ended on December 29, 1996, December 31, 1995, and January 1, 1995, respectively. For ease of presentation, December 31 has been utilized as the fiscal year-end in the consolidated financial statements and accompanying notes. Cash Equivalents, Short-Term Investments, and Fair Value of Financial Instruments For financial statement purposes, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less when purchased to be cash equivalents. Short-term investments consisted principally of municipal obligations in 1996 and principally of commercial paper, U.S. government obligations, and corporate obligations in 1995. Cash equivalents and short-term investments are recorded at fair value, with unrealized gains and losses reported in a separate component of shareholders' equity. Fair values are estimated based on quoted market prices or pricing models using current market rates. The Company enters into foreign exchange forward contracts with financial institutions primarily to protect against currency exchange risks associated with certain firmly committed transactions. The fair value of foreign exchange forward contracts are based on quoted market prices. At December 31, 1996, a total of approximately $1,200,000 of foreign exchange forward contracts were outstanding. The difference between the fair value and cost of such foreign currency exchange forward contracts is not material. The Company does not hedge for speculative purposes. The Company believes that the dividend, redemption, and liquidation preferences of its outstanding shares of Series A Preferred Stock (which are described in Note 3) have nominal value and, therefore, that the shares of Series A Preferred Stock have a fair value that approximates the market value of the Common Stock into which the Series A Preferred Stock is convertible. The 1,000,000 shares of Series A Preferred Stock outstanding are convertible into an aggregate of 2,631,578 shares of Common Stock. The fair value of the Series A Preferred Stock is based on the underlying value of the Common Stock and discounted for the voting, registration, and marketability restrictions. At December 31, 1996, the fair value of the Series A Preferred Stock was approximately $49,474,000. See Note 13. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company invests in securities of A, A1, or P1 grade. The Company manufactures and sells its products to customers in diversified industries. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. Three of the Company's domestic distributors accounted for approximately 14%, 14%, and 11% of the Company's net revenues for 1996. The same three domestic distributors accounted in the aggregate for approximately 37% of the Company's net revenues for 1995 and 33% for 1994. Impact of Recently Issued Accounting Standards In October 1995, the Financial Accounting Standards Board issued Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). The Company has elected to account for employee stock options in accordance with Accounting Principles Board Opinion No. 25 and to adopt the "disclosure only" alternative described in FAS 123. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Given the volatility of the market for the Company's products, the Company makes inventory provisions for potentially excess and obsolete inventory based on backlog and forecast demand. However, such backlog demand is subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such backlog and forecast demand, and such differences may be material to the financial statements. Excess inventories increase the risk of obsolescence, represent a non-productive use of capital resources, increase handling costs, and delay realization of the price and performance benefits associated with more advanced manufacturing processes. Long-Lived Assets In the first quarter of 1996, the Company adopted Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets Disposed Of" ("FAS 121"). FAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The Company evaluates the net realizable value of long-lived assets each quarter on the basis of discounted cash flows in accordance with FAS 121 and to date has found no impairment. Net Income (Loss) Per Share Net income (loss) per share is computed using the weighted average number of common and dilutive common equivalent shares from redeemable convertible preferred stock (using the if-converted method) and from stock options and warrants (using the treasury stock method). Shares used in computing net loss per share for 1995 excludes common equivalent shares because the effect of their inclusion would be anti-dilutive. Fully diluted shares have not been presented as part of the consolidated financial statements because the difference is insignificant. Off-Balance-Sheet Risk The Company enters into foreign exchange contracts to hedge firm purchase commitments denominated in foreign currencies. Gains and losses on the contracts adjust the cost basis in the goods purchased. At December 31, 1996, the Company had foreign exchange contracts maturing in January and February 1997 to purchase Japanese yen for approximately $1,200,000 at an average rate of 109 yen per dollar. In addition, the Company had approximately $883,000 outstanding under a standby letter of credit at December 31, 1996. Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation and amortization have been provided on a straight-line basis over the following estimated useful lives: Equipment...................................... 2 to 5 years Furniture and fixtures......................... 3 to 5 years Leasehold improvements......................... Estimated useful life or lease term, whichever is shorter Revenue Recognition Revenue from product shipped to customers is generally recorded at the time of shipment. Revenue related to products shipped subject to customers' evaluation is recognized upon final acceptance. Shipments to distributors are made under agreements allowing certain rights of return and price protection on unsold merchandise. For that reason, the Company defers recognition of revenues and related cost of revenues on sales of products to distributors until such products are sold by the distributor. Royalty income is recognized upon the sale of products subject to royalties. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimated. 2. Balance Sheet Detail
December 31, -------------------------- 1996 1995 ------------ ------------ (in thousands) Accounts receivable: Trade accounts receivable.......................................................... $ 30,128 $ 18,372 Allowance for doubtful accounts.................................................... (633) (567) ------------ ------------ $ 29,495 $ 17,805 ============ ============ Inventories: Purchased parts and raw materials.................................................. $ 1,792 $ 1,357 Work-in-process.................................................................... 17,080 18,326 Finished goods..................................................................... 7,976 8,043 ------------ ------------ $ 26,848 $ 27,726 ============ ============ Property and equipment: Equipment.......................................................................... $ 27,539 $ 25,512 Furniture and fixtures............................................................. 2,088 1,603 Leasehold improvements............................................................. 4,210 2,402 ------------ ------------ 33,837 29,517 Accumulated depreciation and amortization.......................................... (17,864) (13,843) ------------ ------------ $ 15,973 $ 15,674 ============ ============
Depreciation expense was approximately $5,879,000, $3,755,000, and $3,696,000 for 1996, 1995, and 1994, respectively. 3. Purchase of TI FPGA Business On February 12, 1995, the Company entered into an Asset Purchase Agreement with Texas Instruments Incorporated ("TI") under which TI agreed to convey to the Company all tangible and intangible assets and intellectual property rights necessary to operate TI's antifuse FPGA business (the "TI FPGA Business"). The acquisition was completed on March 31, 1995, in a transaction accounted for as a purchase. The Company acquired approximately $9,100,000 of inventory, prepaid research and development, and other credits receivable. The Company also acquired certain fixed assets used in the TI FPGA Business. Beginning with the second quarter of 1995, the Company's net revenues included the revenues of the TI FPGA Business, but no longer included royalties from TI. As consideration for the TI FPGA Business, the Company assumed certain liabilities, paid $10,000,000 in cash, and issued 1,000,000 shares of Series A Preferred Stock (valued at approximately $18,947,000 for purposes of the transaction), which are convertible into 2,631,578 shares of Common Stock. See Note 13. The total purchase price booked by the Company was approximately $28,947,000, of which approximately $16,600,000 of in-process research and development was charged against income in the first quarter of 1995. The amount was established by an independent valuation specialist. The remaining amount of consideration, approximately $4,400,000, represents the valuation of the customer base and goodwill acquired, was allocated to intangible assets, and is being amortized over a five-year period. Amortization expense for the year ended December 31, 1996, was $876,000. The following unaudited pro forma results of operations for 1995 are as if the acquisition of the TI FPGA Business had occurred as of the beginning of 1995, and includes certain estimated adjustments, including amortization of intangibles, lost interest income, and utilization of prepaid research and development. The pro forma information excludes the one-time write-off of approximately $16,600,000 of in-process research and development and tax benefits. The pro forma information has been prepared for comparative purposes only and does not purport to be indicative of what operating results would have been if the acquisition had actually taken place at the beginning of 1995 or of future operating results. Year Ended December 31, 1995 ----------------- Net revenues..... .......................................... $ 115,555,000 Net income.................................................. 11,039,000 Earnings per share.......................................... 0.53 Foundry Credit Under the Asset Purchase Agreement, TI agreed to provide the Company with $5,375,000 of inventory and $6,000,000 of credit toward the purchase of additional inventory (the "Foundry Credit"). The Foundry Credit was first to be applied to any inventory transferred by TI in excess of $5,375,000. Any balance was then to be applied as a 10% reduction against the Company's future payment obligations under the Supply Agreement between the parties dated April 1, 1995, pursuant to which TI agreed to provide foundry services to the Company for three years. After applying the Foundry Credit to the inventory received from TI, the Company recorded approximately $2,400,000 as "Other Current Assets" to be applied as a 10% reduction against the cash due on future inventory purchases under the Supply Agreement. As of December 31, 1996, the Foundry Credit balance was approximately $500,000. Research and Development Credit In connection with the Company's acquisition of the TI FPGA Business, the parties entered into a Development Agreement dated April 1, 1995, under which TI agreed to perform certain development work for the Company and granted to the Company a credit (the "R&D Credit") to fund the development activities. The Company estimated that the value of the R&D Credit to the Company at the time of the acquisition was $1,000,000, which the Company recorded as prepaid Research and Development. As of December 31, 1996, the R&D Credit was zero. Rights, Preferences, and Privileges of Series A Preferred Stock Currently, TI is the only holder of Series A Preferred Stock. Holders of Series A Preferred Stock are entitled to receive, when, as, and if declared by the Board of Directors and subject to the rights of outstanding shares of any other series of Preferred Stock, non-cumulative dividends at a rate determined by the Board, prior to any payment of dividends to the holders of Common Stock; provided, however, that dividends may be paid on shares of the Common Stock if dividends shall have been concurrently paid on all shares of Series A Preferred Stock in an amount per share equal to the aggregate dividends that would be then payable in respect of the number of shares of Common Stock into which a share of Series A Preferred Stock is then convertible. The Series A Preferred Stock may be converted into Common Stock at any time at the option of the holder. Each share of Series A Preferred Stock may be converted into 2.631578 shares of Common Stock. Shares of Series A Preferred Stock must be redeemed by the Company, in whole or in part, at the election of the holder thereof, in the event of certain mergers or change in control transactions occurring prior to April 1, 1997, for $25 per share (which is equal to $9.50 per share of underlying Common Stock) plus any accrued or declared and unpaid dividends. Holders of Series A Preferred Stock have a liquidation preference of $25 per share plus any accrued or declared and unpaid dividends. In the event of the liquidation, dissolution, or winding up of the Company, the holders of Series A Preferred Stock are entitled to receive such amount before any payment may be made to the holders of Common Stock. The approval of the holders of a majority of the Series A Preferred Stock is required for any amendment to the Company's Articles of Incorporation or Bylaws that would adversely change or alter the rights, preferences, or privileges of the Series A Preferred Stock, increase or decrease the authorized number of shares of Series A Preferred Stock, or provide for the creation of any new class or series of shares with dividend or liquidation rights superior to or on parity with the Series A Preferred Stock. On all other matters submitted for a vote of the Company's shareholders, and except as otherwise required by law, the holders of Series A Preferred Stock shall not be entitled to vote. See Note 13. 4. Investments Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. At December 31, 1996, all debt securities are designated as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in shareholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest and other income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in interest income and other. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income and other. The following is a summary of available-for-sale securities at December 31, 1996 and 1995:
Gross Gross Unrealized Unrealized Estimated Cost Gains Losses Fair Values ------------ ------------ ------------ ------------ (in thousands) December 31, 1996 Municipal obligations included in short-term investments and cash equivalents...................... $ 25,618 $ 8 $ -- $ 25,626 ============ ============ ============ ============ December 31, 1995 U.S. government obligations............................. $ 8,422 $ 5 $ (1) $ 8,426 Commercial paper........................................ 3,978 -- -- 3,978 Other................................................... 3,000 -- -- 3,000 ------------ ------------ ------------ ------------ Amounts included in short-term investments and cash equivalents........................................... $ 5 $ (1) $ 15,404 $ 15,400 ============ ============ ============ ============
There were no realized gains or losses in 1996. Gross realized gains and (losses) were approximately $4,000 and ($8,000), respectively, for 1995. The adjustments to net unrealized gains and (losses) on investments included as a separate component of shareholders' equity totaled approximately $4,000 and $408,000 for 1996 and 1995, respectively. The expected maturities of the Company's investments at December 31, 1996, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Available-for-sale (in thousands): Due in one year or less...................................... $ 3,921 Due after one year........................................... 21,705 ------------ $ 25,626 ============ 5. Investment in Chartered Semiconductor In February 1994, the Company entered into an agreement to invest approximately $10,000,000 in Chartered Semiconductor Manufacturing Ltd ("Chartered Semiconductor"), a semiconductor company located in Singapore. Under the terms of the agreement, the Company has acquired an equity interest in Chartered Semiconductor of less than 2%. The investment was payable in Singapore dollars, with the initial installment of approximately $2,000,000 paid in March 1994, the second installment of approximately $2,000,000 paid in September 1994, the third installment of approximately $3,000,000 paid in March 1995, and the last installment of approximately $2,900,000 paid in January 1996. In 1996, the Company purchased an additional equity interest in Chartered Semiconductor, pursuant to a contractual right of first refusal, for approximately $698,000. 6. Line of Credit The Company has a line of credit with a bank that provides for borrowings not to exceed $10,000,000. The agreement contains covenants that require the Company to maintain certain financial ratios and levels of net worth. As of December 31, 1996, the Company was in compliance with the covenants for the line of credit. Borrowing against the line of credit bear interest at the bank's prime rate. There were no borrowings against the line of credit at December 31, 1996. The line of credit, which expires in May 1997, may be terminated by either party upon not less than thirty days' prior written notice. 7. Commitments The Company leases its facilities and certain equipment under non-cancellable lease agreements. The principal facility lease expires in June 1998, and provides for two consecutive five-year renewal options. The equipment leases are accounted for as operating leases. The lease terms expire at various dates through September 2001. All of these leases require the Company to pay property taxes, insurance, and maintenance and repair costs. During 1996, the Company satisfied all of its capital lease obligations. Assets recorded under capital leases as of December 31, 1995, were as follows: Equipment, furniture, and fixtures............................... $ 1,260 Accumulated depreciation and amortization....................... (1,113) ------------ $ 147 ============ Future minimum lease payments under all non-cancellable leases are as follows: Operating Leases ------------ 1997............................................................. $ 1,988 1998............................................................. 1,373 1999............................................................. 804 2000............................................................. 682 2001............................................................. 455 ------------ Total minimum lease payments..................................... $ 5,302 ============ Rental expense under operating leases was approximately $1,615,000, $1,193,000, and $967,000 for 1996, 1995, and 1994, respectively. 8. Retirement Plan Effective December 10, 1987, the Company adopted a tax deferred savings plan for the benefit of qualified employees. The plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect each quarter to have salary reduction contributions made to the plan. The Company may make contributions to the plan at the discretion of the Board of Directors. To date, no contributions have been made by the Company. 9. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock Based Compensation" ("FAS 123"), requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation is recognized. Stock Option Plans The Company has adopted stock options plans under which officers and employees may be granted either incentive stock options or nonqualified options to purchase the Company's common shares. As of December 31, 1996, 6,497,747 shares of common stock were reserved for issuance under these plans. On January 5, 1996, the Compensation Committee of the Board of Directors authorized the Company to exchange stock options granted under these plans and having an exercise price greater than $10.625 for options with an exercise price of $10.625 (the fair market value of the Company's stock on January 5, 1996). Under the terms of this stock option repricing, no portion of any repriced option was exercisable until July 5, 1996. Options representing the right to purchase a total of 1,093,639 shares of common stock were repriced. The Company has also adopted a Directors' Stock Option Plan, under which directors who are not employees of the Company may be granted nonqualified options to purchase the Company's common shares. As of December 31, 1996, 110,000 shares of common stock were reserved for issuance under such plan. The Company grants stock options under its plans at a price equal to the fair value of the Company's common stock on the date of grant. Subject to continued service, options generally vest over a period of four years and expire ten years from the date of grant. The following table summarizes the Company's stock option activity and related information for the three years ended December 31, 1996:
1996 1995 1994 -------------------------- -------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price ------------- ----------- -------------- ---------- -------------- ---------- Outstanding at January 1....... 2,506,331 $ 10.17 1,588,565 $ 6.42 1,222,864 $ 4.79 Granted........................ 2,633,911 14.24 1,315,860 12.96 603,209 8.34 Exercised...................... (204,344) 6.60 (270,365) 2.25 (149,530) 1.32 Cancelled...................... (1,393,062) 12.79 (127,729) 8.99 (87,978) 5.64 ------------- ----------- -------------- ---------- -------------- ---------- Outstanding at December 31..... 3,542,836 12.38 2,506,331 10.17 1,588,565 6.42 ============= =========== ============== ========== ============== ==========
The following table summarizes information about stock options outstanding at December 31, 1996:
December 31, 1996 -------------------------------------------------------------------- Options Outstanding Options Exercisable ---------------------------------------- ------------------------- Weighted Average Weighted Weighted Remaining Average Average Number of Contract Exercise Number of Exercise Range of Exercise Prices Shares Life Price Shares Price - --------------------------------------------- ----------- ---------- ------------ ----------- ------------ $ 1.80 - $ 7.63..................... 485,160 6.75 years $ 6.06 236,139 $ 4.51 8.00 - 10.50..................... 534,794 7.32 8.69 190,342 8.61 10.63..................... 1,023,910 9.01 10.63 246,687 10.63 11.75 - 14.88..................... 803,052 9.42 14.51 15,520 14.01 15.00 - 22.50..................... 695,920 9.40 19.74 3,256 15.80 1.80 - 22.50..................... 3,542,836 8.61 12.38 691,944 8.09
The weighted-average grant-date fair value of options granted during 1996 and 1995 were $4.92 and $6.11, respectively. Employee Stock Purchase Plan The Company has adopted an Employee Stock Purchase Plan (the "ESPP"), under which eligible employees may designate not more than 10% of their cash compensation to be deducted each pay period for the purchase of common stock (up to a maximum of $25,000 worth of common stock in any year). As of December 31, 1996, 900,000 shares of common stock were reserved for issuance under the ESPP. The ESPP is administered over offering periods of up to 24 months each, with each offering period divided into four consecutive six-month purchase periods beginning August 1 and February 1 of each year. On the last business day of each purchase period, shares of common stock are purchased with employees' payroll deductions accumulated during the six months at a price per share equal to 85% of the market price of the common stock on the first day of the applicable offering period or the last day of the purchase period, whichever is lower. There were 225,401 and 185,028 shares issued under the ESPP in 1996 and 1995, respectively, and 346,284 remained available for issuance as of December 31, 1996. Pro Forma Disclosures Pro forma information regarding net income/(loss) and net income/(loss) per share is required by FAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method. The fair value for these options was estimated at the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.84% and 6.55%; no dividend yield; volatility factor of the expected market price of the Company's common stock of 50%; and a weighted average expected life of the options of four years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows: Year Ended December 31, -------------------------- 1996 1995 ------------ ------------ (in thousands, except per share amounts) Pro forma net income (loss)....................... $ 10,452 $ (2,780) Pro forma earnings (loss) per share............... 0.50 (0.16) Because FAS 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until subsequent years. The effects on pro forma disclosures of applying FAS 123 are not likely to be representative of the effects on pro forma disclosures in future years. 10. Tax Provision (Benefit) The tax provision (benefit) consists of:
December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ (in thousands) Federal - current........................................................ $ 12,150 $ 4,113 $ 1,480 Federal - deferred....................................................... (5,571) (8,977) (910) State - current.......................................................... 2,460 1,149 694 State - deferred......................................................... (1,089) (3,044) -- Foreign - current........................................................ 197 119 125 ------------ ------------ ------------ $ 8,147 $ (6,640) $ 1,389 ============ ============ ============
The tax provision (benefit) reconciles to the amount computed by multiplying income (loss) before tax by the U.S. statutory rate as follows:
December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ (in thousands) Provision (benefit) at statutory rate.................................... $ 8,079 $ (2,719) $ 3,147 Benefit of operating loss carryforward................................... -- -- (1,620) Change in valuation allowance............................................ (432) (2,396) (679) Federal research credits................................................. (425) (937) (300) State taxes, net of federal benefit...................................... 891 (813) 459 Other.................................................................... 34 225 382 ------------ ------------ ------------ Tax provision (benefit).................................................. $ 8,147 $ (6,640) $ 1,389 ============ ============ ============
Significant components of the Company's deferred tax assets and liabilities for federal and state income taxes are as follows:
December 31, -------------------------- 1996 1995 ------------ ------------ (in thousands) Deferred tax assets: Distributor reserve............................................................ $ 11,033 $ 7,682 Charge for in-process research expenses........................................ 5,962 6,411 Inventories.................................................................... 3,293 1,716 Other, net..................................................................... 2,453 1,170 ------------ ------------ 22,741 16,979 Valuation allowance............................................................ (3,046) (3,478) ------------ ------------ Net deferred tax assets................................................ $ 19,695 $ 13,501 ============ ============ Deferred tax liabilities: Depreciation................................................................... $ 104 $ 570 ------------ ------------ Net deferred tax liabilities........................................... $ 104 $ 570 ============ ============
The valuation allowance decreased by approximately $2,396,000 during 1995. 11. Industry and Geographic Information The Company operates in a single industry segment. The Company markets its products in the United States and in foreign countries through its sales personnel, independent sales representatives, and distributors. The Company's geographic sales are as follows:
Year Ended December 31, ---------------------------------------------------------------------------------- 1996 1995 1994 -------------------------- -------------------------- -------------------------- (in thousands, except percentages) United States.................. $ 99,131 67% $ 67,156 62% $ 51,951 68% Export: Europe.................... 26,105 18 18,706 17 10,626 14 Japan..................... 15,340 10 13,238 12 9,070 12 Other international....... 8,203 5 9,416 9 4,360 6 ------------ ------------ ------------ ------------ ------------ ------------ $ 148,779 100% $ 108,516 100% $ 76,007 100% ============ ============ ============ ============ ============ ============
12. Patent Infringement In January 1994, the Company brought a patent infringement lawsuit against QuickLogic Corporation ("QuickLogic"), which in turn brought a patent infringement counterclaim against the Company in May 1995. The parties are currently engaged in discovery and motion proceedings. Although the Company believes that it has meritorious claims and defenses in this matter, and that its resolution will not have a materially adverse effect on the Company's business, financial position, or results of operations, no assurance can be given to that effect. As is typical in the semiconductor industry, the Company has been and expects to be from time to time notified of claims that it may be infringing patents owned by others. No assurance can be given that such claims against the Company will not result in litigation. All litigation, whether or not determined in favor of the Company, can result in significant expense to the Company and can divert the efforts of the Company's technical and management personnel from productive tasks. Although the Company has obtained patents covering elements of its circuit architecture and certain techniques for manufacturing its antifuse, no assurance can be given that the Company's patents will be determined to be valid or that the claims of QuickLogic or any assertions of infringement by other parties (or claims for indemnity from customers resulting from any infringement claims) will not succeed. In the event of an adverse ruling in the QuickLogic case or any other litigation involving intellectual property, the Company could suffer significant (and possibly treble) monetary damages. The Company may also be required to discontinue the use of certain processes; cease the manufacture, use, and sale of infringing products; expend significant resources to develop non-infringing technology; or obtain licenses under patents that it is infringing. Any of these outcomes could have a materially adverse effect on the Company's business, financial condition, and/or results of operations. 12. Subsequent Event On March 12, 1997, TI converted all of the outstanding shares of Series A Preferred Stock into 2,631,578 shares of Common Stock. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND SHAREHOLDERS ACTEL CORPORATION We have audited the accompanying consolidated balance sheets of Actel Corporation as of December 31, 1996 and 1995, and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Actel Corporation at December 31, 1996 and 1995 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP San Jose, California March 14, 1997 STOCK LISTING Actel's common stock has been traded on the over-the-counter market since the Company's initial public offering (IPO) on August 2, 1993, and is quoted on the NASDAQ National Market System under the symbol "ACTL." The Company has never paid cash dividends on its common stock and has no present plans to do so. On March 12, 1997, there were 317 shareholders of record. Since many shareholders have their shares held of record in the name of their brokerage firm, the actual number of shareholders is estimated by the Company to be about 4,800. During the last two years, the quarterly high and low sale prices for the common stock were: 1996 High Low - --------------------------------------------------- ------------ ------------ First Quarter...................................... $ 17.125 $ 9.00 Second Quarter..................................... 21.875 14.50 Third Quarter...................................... 20.25 12.375 Fourth Quarter..................................... 24.625 16.25 1997 High Low - --------------------------------------------------- ------------ ------------ First Quarter...................................... $ 13.875 $ 8.00 Second Quarter..................................... 14.875 10.125 Third Quarter...................................... 21.00 12.375 Fourth Quarter..................................... 18.375 10.25 EX-23 9 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Actel Corporation of our report dated March 14, 1997, included in the 1996 Annual Report to Shareholders of Actel Corporation. Our audits also included the financial statement schedule of Actel Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-74492) pertaining to the 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan, and the 1993 Directors' Stock Option Plan, and in the Registration Statement (Form S-8 No. 333-3398) pertaining to the 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan, and the 1995 Consultant Stock Plan, of our report dated March 14, 1997, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Actel Corporation. /s/ Ernst & Young LLP San Jose, California March 28, 1997 EX-24 10 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John C. East, David M. Sugishita, and David L. Van De Hey, and each of them acting individually, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - ------------------------------------------ ------------------------------------------------ ---------------------- /s/ John C. East President and Chief Executive Officer (Principal March 28, 1997 - ----------------------------------------- Executive Officer) and Director (John C. East) /s/ David M. Sugishita Senior Vice President of Finance & Administration March 28, 1997 - ----------------------------------------- and Chief Financial Officer (Principal Financial (David M. Sugishita) and Accounting Officer) /s/ Keith B. Geeslin Director March 28, 1997 - ----------------------------------------- (Keith B. Geeslin) /s/ Jos C. Henkens Director March 28, 1997 - ----------------------------------------- (Jos C. Henkens) /s/ Frederic N. Schwettmann Director March 28, 1997 - ----------------------------------------- (Frederic N. Schwettmann) /s/ Robert G. Spencer Director March 28, 1997 - ----------------------------------------- (Robert G. Spencer)
EX-27 11 FDS -- 1996
5 1,000 YEAR DEC-29-1996 JAN-1-1996 DEC-29-1996 3,543 25,626 30,917 1,422 26,848 104,605 33,837 17,864 136,712 49,208 0 63,151 0 18,147 6,206 136,712 148,779 148,779 64,420 126,749 0 0 1,055 23,085 8,147 14,938 0 0 0 14,938 .70 .68
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