UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER: 0-22738
QUICKTURN DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0159619
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
440 Clyde Avenue, Mountain View, California 94043
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (415) 967-3300
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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 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant, based upon the closing sale price of the Common Stock on February
28, 1997 on the Nasdaq National Market was approximately $225,056,000. Shares
of Common Stock held by each officer and director and by each person who owns
5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the Registrant's Common Stock as of
February 28, 1997 was 16,571,067.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1996 are incorporated by reference in Parts II
and IV of this Form 10-K to the extent stated herein. Also, certain sections
of the Registrant's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders to be held on April 11, 1997 are incorporated by reference in
Part III of this Form 10-K to the extent stated herein.
PART I
ITEM 1. BUSINESS.
OVERVIEW
Quickturn Design Systems, Inc. ("Quickturn" or the "Company") designs,
manufactures, sells and supports system-level verification solutions for the
design of integrated circuits ("ICs") and electronic systems. The Company's
cycle-based simulation and emulation technologies are designed to improve design
quality and to reduce time-to-market and prototype development costs compared to
traditional verification methodologies. The cycle-based simulation products,
which complement the Company's emulation products, can be used by customers to
verify digital logic designs early in the design process, particularly when
design changes occur several times per day. Later in the design process, when
designs become more stabilized, customers use in-circuit emulation to test the
entire system containing the design and to help identify system-level bugs,
which typically are more difficult to find. The Company was incorporated in
California in July 1987 and reincorporated in Delaware in December 1993. The
Company's principal executive offices are located at 440 Clyde Avenue, Mountain
View, California, 94043, and its telephone number is (415) 967-3300. The
Company's homepage can be located on the Web at http://www.quickturn.com/.
SPEEDSIM MERGER
On February 7, 1997, the Company acquired SpeedSim, Inc. ("SpeedSim"), a
provider of cycle-based simulation software for the verification of digital
logic designs ("the SpeedSim Merger") for 2.8 million shares of Quickturn common
stock. The acquisition was accounted for as a pooling of interests. The
Company estimates that it will incur direct transaction costs of at least $1.2
million associated with the acquisition, which will be charged to operations
during the quarter ending March 31, 1997. See Note 15 of the Notes to
Consolidated Financial Statements in the Company's 1996 Annual Report to
Stockholders.
TECHNOLOGY AND PRODUCTS
CYCLE-BASED SIMULATION
The IC design process begins when electronic design engineers create an
initial description of an IC, typically using high level or register transfer
level ("RTL") languages such as VHDL or Verilog. This description is then
debugged using software simulation on standard desktop workstations. The
simulation software creates a mock-up of the logic flow of an IC based on the
RTL description, which is then fed test inputs to determine if the current
design executes instructions as desired.
Once an IC design is deemed reliable at the RTL level, the designer maps
out a physical layout of the transistors and gates comprising the IC. This is
often accomplished using synthesis software which transforms RTL designs into
gate level architecture. Also at the gate level, the design must be tested for
critical operating functionality. Such RTL and gate level tests are typically
run on event-based simulation software, which runs at speeds substantially
below the normal speed of a completed IC. The speed of most event-based
simulation software is typically in the range of tens or hundreds of cycles per
second, while most complex ICs are
designed to run in the range of one million to hundreds of millions of cycles
per second. Therefore, software simulation testing of a highly complex
design with hundreds of thousands of gates using event-based simulation could
take a substantial period of time. Since a design may need to undergo dozens
of iterations, given the time-to-market urgency in the electronics industry,
the delays associated with event-based simulation for complex IC designs can
be unacceptable to IC designers.
The Company's SpeedSim high performance simulation software uses cycle-
based simulation ("CBS") technology, which is an alternative to traditional
event-based simulation. CBS is specifically designed to overcome the
verification speed limitations of event-based simulation, and may also help
reduce IC design costs by reducing the need for expensive hardware simulation
accelerators.
The Company's SpeedSim cycle-based simulator employs a proprietary
technology called Boolean Dataflow Engine ("BDE") to enhance verification
performance. This performance enhancement is accomplished by having the
cycle-based simulator examine results only at the end of every clock cycle,
therefore eliminating unnecessary calculations. These unnecessary
calculations are inherent in traditional event-based simulation, which is
programmed to examine every active signal that propagates through every
device during a clock cycle. Therefore, the Company's CBS approach may be ten
to one hundred times faster than event-based simulation because CBS focuses
only on the primary task at hand, which is functional verification of chip
design logic. BDE further enhances performance by employing fewer logic
states, typically two (1s and 0s), while full event-based-simulation supports
from four to 28 logic states.
Other enhancements related to BDE technology include:
* Minimal Memory Usage: The SpeedSim product further enhances performance
by utilizing less memory than event-based simulation. Using BDE, engineers can
fit a one million gate design into a 10MB image. Without BDE, the same image
may be typically five to 50 times larger. For very large chip designs, the
reduced memory requirements would allow a design team to speed up verification
by simulating a design running different tests on all of their desktop
workstations in their network at once, instead of on one large server.
* Simultaneous Test: This SpeedSim option allows for up to 32 different
tests to be run simultaneously on one image of a design model using a single
workstation, which can result in a five-fold to ten-fold gain in performance.
* Symmetric MultiProcessing ("SMP"): This feature allows chip designers to
take a single design and divide it into segments. Each segment is then
simulated on different CPUs within the SMP box, thereby creating a much faster
simulation across multiple CPUs compared to a simulation on a single CPU.
* Fast Design Iterations: After a design bug is located and fixed, this
feature provides for fast recompilation, typically within minutes for very large
designs, instead of hours using event-based simulation.
The platforms supported by the SpeedSim product include UNIX workstations
on SUN, HP, DEC, IBM and Intel-compatible PCs running LINUX or Windows/NT.
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EMULATION
Quickturn's System Realizer (TM) emulation system and the new CoBALT
(TM) (Concurrent Broadcast Array Logic Technology) emulation system are used
by electronic design engineers to generate reprogrammable physical
prototypes, or "virtual silicon" (TM) representations, of their electronic
circuit designs. This enables designers to achieve concurrent verification of
the entire target system, including system software and applications, and to
perform iterative design changes prior to actual silicon fabrication. System
Realizer offers a versatile solution for synchronous and asynchronous designs
in the range of 150,000 to six million logic gates. CoBALT provides
verification capabilities for ultracomplex, synchronous designs of up to 8
million logic gates. Both systems share the same software environment,
allowing designers to select the optimum emulation solution for any design
style.
The emulation process begins by the Company's products automatically
accepting logic designs created in the most widely used, commercially
available electronic design automation ("EDA") systems, as well as those
created in the proprietary design environments of selected large customers.
These designs are then processed by the Company's proprietary software on a
commercial workstation. Using information provided by engineers as well as
built-in proprietary algorithms, the software partitions designs into
different blocks of logic which are then automatically mapped into a virtual
silicon implementation. The software also performs logic optimization to best
utilize the available programmable resources in the emulation system. Once
the designs are partitioned, the software defines the interconnection of the
various blocks of logic and the specific routing through the programmable
architecture of the emulation system.
The designs are then downloaded from the commercial workstation to the
emulation system, thereby creating a virtual silicon implementation of the
designs. The virtual silicon is then cabled into the target system in which
the fabricated silicon will ultimately reside. At this time, the target
system can be run just as it would if a fabricated silicon were available.
The target system is then tested by running embedded software, operating
systems and application software. The verification of the target system will
typically run at speeds in the millions of cycles per second range, several
orders of magnitude faster than gate-level simulation, but typically slower
than real operating speeds.
The emulation system includes an integrated logic analyzer and software
debugging tools which enable the engineer to observe the details of the
design behavior at any location within a design. These observation points
may be moved interactively under software control to any other location.
When design problems are discovered, changes are made to the original design.
These design changes are then implemented by the emulation software as
changes to the virtual silicon. The impact of the changes can be determined
quickly in the target system operating environment while the design can still
be easily modified.
Quickturn's products are based on the Company's patented technologies and
proprietary software algorithms which have produced the following core
technologies:
* LOGIC COMPILATION INCLUDING PARTITIONING: the complex software that
segments a large IC design into smaller units which are programmed into the
field programmable gate arrays
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("FPGAs") and programmable memories that constitute the core reprogrammable
components of Quickturn's emulation systems.
* INTERCONNECT ARCHITECTURE: the patented system-level schema for
connection of the reprogrammable components, which is implemented with
Quickturn's proprietary interconnect ICs and placement and routing software.
* LOGIC MAPPING: the software which optimizes the mapping of the design to
be emulated into the basic cells of the FPGAs in the emulation system.
* MEMORY ARCHITECTURE MAPPING: the software which optimizes the use of
programmable memories in the emulation system to represent the memory
architecture of the IC to be emulated.
* INSTRUMENTATION: the fully integrated software and logic analyzer
technology which allows users of Quickturn's emulation systems to observe the
gate level behavior of the virtual silicon, allowing for the assessment of a
design's correctness at this level.
These core technologies maximize the cost effectiveness of the products by
optimizing emulation system capacity and performance and minimizing both the
user's time to emulation and the costs required to verify and debug designs.
Substantially all of the Company's revenue has been derived from the sale
of its verification products, and sales of such products are expected to
continue to account for substantially all of the Company's revenue for the
foreseeable future. To date, the Company's products have been sold to a limited
number of customers. See "---Customers." Accordingly, broad market acceptance
of verification products by existing and new customers is critical to the
Company's future success. The adoption of the Company's verification products
in the design verification process by IC and system designers, particularly
those which have historically relied on other methodologies, generally requires
the adoption of an entirely new method of design verification. While the
Company believes that its verification products offer considerable advantages in
the IC and system design process, there can be no assurance that market
acceptance of those products will continue to grow. Moreover, there can be no
assurance that emulation products will be adopted beyond the high-end emulation
market, which is characterized by complex ICs of hundreds of thousands or, in
some cases, millions of logic gates. The adoption of the Company's verification
products for designing ICs and systems will also depend on the continued
increase in complexity of ICs designed into electronic systems, integration of
the Company's products with other tools for design and verification, importance
of the time-to-market benefits of verification products and industry acceptance
of the need to close the time gap between high level design and silicon
production. Because the market for verification products is new and evolving,
it is difficult to predict with any assurance whether the market for
verification products will continue to expand.
CUSTOMERS
The Company markets its products to customers who design complex ICs and
electronic systems. Early adopters represent the IC and system companies with
the largest verification problems. As the technology has matured, a broader
range of customers has begun to adopt the
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technology, and now the Company's customers include computer, semiconductor,
telecommunications, consumer electronics, networking and multimedia
companies. The Company's customers are in industries characterized by rapid
advances in technology, competitive pressures to develop and introduce new
products in less time and the need for extensive system-level verification
and debugging prior to design implementation.
Microprocessors and microcontrollers with complexity levels of hundreds of
thousands and even millions of gates are applications for which emulation is
considered a critical technology because of the requirement to verify design
compatibility with new and existing software. Typical new users of Quickturn's
verification products are designing custom integrated circuits or ASICs with
30,000 to 100,000 or more logic gates.
A relatively limited number of customers have historically accounted for a
substantial portion of the Company's revenue. The Company expects that sales of
its products to a limited number of customers will continue to account for a
high percentage of revenue for the foreseeable future. The loss of a major
customer or any reduction in orders by such customers, including reductions due
to market or competitive conditions in the electronics or EDA industry, would
have an adverse effect on the Company's financial condition and results of
operations. Moreover, the Company's ability to increase its sales will depend
in part upon its ability to obtain orders from new customers, as well as the
financial condition and success of its customers and the general economy; there
can be no assurance that such an increase will occur.
CUSTOMER SERVICE AND SUPPORT
The Company provides customers with technical support, training and design
consulting services. The Company believes that a high level of customer service
and support is critical to the adoption of the Company's verification technology
by new users. During the early stages of a customer's first project, the
Company works closely with the project team to ensure a smooth integration of
its verification products into the design process. Quickturn maintains a rapid
response program which is designed to meet customer support issues. For
customers using the Company's verification products on mission-critical
projects, the Company offers expert-user design consulting services through its
Time-to-Market-Engineering Services ("TtME") to provide such expert assistance
to customers. Additionally, substantially all of the Company's customers
currently have maintenance agreements with the Company. The Company generally
warrants its products to be free from defects and to substantially conform to
material specifications for a period of 90 days.
SALES AND MARKETING
The Company markets its products and services primarily through its direct
sales and service force. The Company employs a highly skilled sales force and
application engineering team capable of serving the sophisticated needs of
prospective customers' engineering and management staffs. The sales process is
supported with a broad range of marketing programs which include trade shows,
direct marketing, public relations and customer seminars. From time to time the
Company may enter into joint marketing agreements with EDA companies and other
technology partners to increase market acceptance of the Company's verification
products.
Sales of the Company's products depend, in significant part, upon the
decision of a prospective customer to commence a project for the design and
development of complex ICs and
5
systems. In view of the significant amount of time and commitment of capital
involved in the design and development of complex ICs and systems, the
Company may experience delays following initial qualification of the
Company's verification products as a result of delays in commencement of the
project by a customer. For this and other reasons, the Company's
verification products typically have a lengthy sales cycle during which the
Company may expend substantial funds and management effort. Lengthy sales
cycles subject the Company to a number of significant risks, including
inventory obsolescence and fluctuations in operating results, over which the
Company has little or no control.
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors such as the timing of customer
development projects and related orders to purchase the Company's verification
products, new product announcements and releases by the Company, and economic
conditions generally and in the electronics industry specifically. Other
factors which could adversely affect the Company's quarterly operating results
in the future include the efficiencies achieved by the Company in managing
inventories and fixed assets, the timing of expenditures in anticipation of
increased sales, customer product delivery requirements and shortages of
components or labor. Many of the Company's customers order on an as-needed
basis and often delay delivery of firm purchase orders until their project
commencement dates are determined, and as a result, backlog at the beginning of
a quarter may not represent a significant percentage of the product sales
anticipated in that quarter. Quarterly revenue and operating results will
therefore depend on the volume and timing of orders received during the quarter,
which are difficult to forecast. Moreover, a significant portion of the
Company's revenue in each quarter generally results from shipments during the
last few weeks of the quarter. The absence of significant backlog and the
concentration of sales at the end of the quarter limit the Company's ability to
plan operating expenses and production and inventory levels. In addition, sales
of individual systems make up a significant percentage of the Company's
quarterly revenue. Therefore, if anticipated shipments in any quarter do not
occur or are delayed, expenditure levels could be disproportionately high as a
percentage of revenue, and the Company's operating results for that quarter
would be adversely affected.
As of February 28, 1997, the Company's direct sales and service force
consisted of 147 technical, administrative and management employees. The
Company has 16 sales and support offices throughout the United States located in
Arizona, Colorado, California (three locations), Florida, Georgia, Illinois,
Massachusetts (two locations), Minnesota, New Jersey, North Carolina, Oregon and
Texas (two locations). Internationally, the Company has six sales and support
offices in London, Munich, Osaka, Paris, Stockholm and Yokohama.
In Japan, the Company serves its customers through its direct sales and
service offices in Yokohama and Osaka. Additionally in Japan, the Company has
a hardware maintenance agreement with D Scan Service Co., Ltd. The Company
utilizes manufacturer's representatives and other selected distributors in
Israel, Japan, Korea, Singapore, Sweden, Taiwan and the U.K.
International sales accounted for approximately 37%, 31% and 26% of the
Company's revenue in 1996, 1995 and 1994, respectively. Revenue from most
international customers is denominated in U.S. dollars. However, receivables
from certain other international customers are denominated in local currencies.
Such receivables are hedged, where practicable, by foreign exchange contracts to
minimize the impact of foreign exchange rate movements on the Company's
operating results. The Company plans to continue to expand its international
sales and distribution channels. However, there can be no assurance that the
Company's products
6
will achieve widespread commercial acceptance in international markets in the
future. The Company's future international sales may be subject to
additional risks associated with international operations, including currency
exchange fluctuations, tariff regulations and requirements for export
licenses, which licenses may on occasion be delayed or difficult to obtain.
RESEARCH AND DEVELOPMENT
The Company will continue to invest in research and development to allow
continued innovation in key technology areas, to develop new products and
improve existing products to support its current leadership position in the
verification market.
As of February 28, 1997, the Company's research and development group
consisted of 127 full-time employees. Within the research and development
organization there were 88 employees with advanced degrees, including 17 with
PhD's. Among the technical staff, approximately 70% were involved in software
development and the balance in hardware design. During 1996, 1995 and 1994,
research and development expenses were $18.6 million, $14.9 million and $12.4
million, respectively. The Company anticipates that it will continue to commit
substantial resources to research and development in the future.
The EDA industry is characterized by extremely rapid technological change
in both hardware and software development, frequent new product introductions
and evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. The Company's future success will depend
upon its ability to enhance its current lines of verification products and to
design, develop and support its next-generation verification products on a
timely basis that keep pace with technological developments and emerging
industry standards. Next-generation verification products must address
increasingly sophisticated customer needs, all of which require a high level of
expenditures for research and development by the Company. Although the Company
is not currently aware of any material limitations on its ability to develop new
products which are capable of verifying the next generation of ICs, there can be
no assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products, or that its new products and product enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop and introduce products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results
and financial condition will be materially and adversely affected. Moreover,
from time to time, the Company may announce new products or technologies that
have the potential to replace the Company's existing product offerings. There
can be no assurance that the announcement of new product offerings will not
cause customers to defer purchases of existing Company products, which could
adversely affect the Company's results of operations.
MANUFACTURING
The Company's verification products are complex and are used by the
Company's customers in critical development projects which demand a high level
of quality and reliability.
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The Company invests substantial resources to assure the quality and
reliability of its verification products and is required to provide a high
level of service to its customers in the event of a malfunction to minimize
downtime. There can be no assurance that the Company will be able to meet
customer requirements for quality and reliability in the future.
The Company performs final assembly and test of its emulation products in
its Mountain View, California facility. The Company utilizes subcontractors for
all major subassembly manufacturing, including all individual printed circuit
boards and custom integrated circuits. The Company has a testing and
qualification program to ensure that all subassemblies meet the Company's
specifications before going into final assembly and test.
Certain key components used in the Company's emulation products are
presently available from sole or limited sources. The inability to develop
alternate sources for these sole or limited source components or to obtain
sufficient quantities of these components could result in delays or reductions
in product shipments which could adversely affect the Company's operating
results. In particular, the Company currently relies on Xilinx Inc. ("Xilinx")
for its supply of field programmable gate arrays ("FPGAs"). The Company does
not have a long-term supply agreement with Xilinx. If for any reason there were
to be a reduction or interruption of supply of these FPGAs to the Company, the
Company's results of operations would be materially adversely affected.
Although the Company believes that it can obtain FPGAs from alternate sources in
the event of a reduction or interruption of supply from Xilinx, a significant
amount of time would be required to redesign the Company's emulation systems and
software to accommodate an alternate FPGA supplier. In such event, the
Company's operating results could be materially adversely affected. The Company
currently mitigates this risk by maintaining a supply of FPGAs in inventory in
excess of its forecasted requirements; however, there can be no assurance that
this measure will be adequate to alleviate any future supply problems.
The Company's verification products also use a proprietary IC that is
currently manufactured solely by National Semiconductor Corporation, circuit
boards that are currently assembled by two outside contractors and subassemblies
that are manufactured by several third-party vendors. The Company generally
purchases these components pursuant to purchase orders placed from time to time
in the ordinary course of business and has no guaranteed supply arrangements
with any of these source suppliers. Moreover, the manufacture of these
components is extremely complex, and the Company's reliance on the suppliers of
these components exposes the Company to production difficulties and quality
variations that may be experienced by these suppliers. Therefore, the Company's
reliance on its sole and limited source suppliers involves several risks,
including a potential inability to obtain an adequate supply of required
components, reduced control over pricing, and timely delivery and quality of
acceptable components. While the timeliness and quality of deliveries to date
from such suppliers have been acceptable, there can be no assurance that
problems will not occur in the future. Any prolonged inability to obtain
adequate deliveries, or any other circumstances that would require the Company
to seek alternative sources of supply, could have a material adverse effect on
the Company's operating results and could damage the Company's relationships
with its customers.
Although the Company's customers often forecast projected requirements
considerably in advance of the proposed shipment date, actual orders are
typically not received until shortly before the desired shipment date. As a
result, backlog at the beginning of a period may not represent a significant
percentage of the product sales anticipated for that period. Accordingly, the
Company does not consider backlog to be a significant measure of anticipated
sales for any
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future period. However, the Company partially relies on forecasts to
determine inventory levels and manufacturing schedules.
COMPETITION
The EDA industry is highly competitive and rapidly changing. The Company's
products are specifically targeted at the emerging portion of this industry
relating to advanced verification technology, and to date substantially all of
the Company's revenue has resulted from sales in this segment. The Company
faces significant competition in advanced verification, in addition to
competition from traditional design verification methodologies which rely on the
approach of building and then testing complete system prototypes. The Company
must continue to educate potential customers with respect to the benefits of
emulation and cycle-based simulation in order for such customers to adopt the
Company's advanced verification systems as a complement to standard simulation
tools.
Further, because of the requirement for a design verification methodology
which reduces the number of costly design iterations and improves product
quality, the Company expects competition in the market for advanced verification
to increase as other companies attempt to introduce their products and product
enhancements. Moreover, the Company competes with established EDA companies
that have longer operating histories, significantly greater financial, technical
and marketing resources, greater name recognition and larger installed customer
bases than the Company. In addition, many of these competitors have established
relationships with current and potential customers of the Company. Increased
competition could result in price reductions, reduced margins and loss of market
share, all of which could materially adversely affect the Company. Further, the
Company competes with the design engineers of its existing and potential
customers, who sometimes develop customized prototyping solutions for their
particular needs. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, operating results and financial condition.
In addition, competitors may resort to litigation as a means of
competition. Such litigation may result in substantial costs to the Company and
significant diversion of management time. In 1995, Mentor Graphics Corporation
("Mentor") filed suit against the Company for declaratory judgment of
noninfringement, invalidity and unenforceability of several of the Company's
patents. Six of the Company's patents are now involved in the dispute, and the
Company has filed counterclaims against Mentor and Mentor's French subsidiary,
Meta Systems ("Meta"), for infringement and threatened infringement of those
six patents. Furthermore, in January 1996, the Company filed a complaint with
the International Trade Commission seeking to stop unfair importation of
hardware logic emulation systems manufactured by Meta on the grounds that such
systems infringe the Company's patents. There can be no assurance as to the
outcome of these matters. See "---Item 3. Legal Proceedings." Although patent
and intellectual property disputes in the EDA industry are often settled through
licensing, cross-licensing or similar arrangements, costs associated with such
litigation and arrangements may be substantial.
9
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology. While the Company relies on patent, trademark, trade
secret and copyright law to protect its technology, the Company also believes
that factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position.
The Company currently holds 15 U.S. patents, of which one is co-owned,
and has 18 patent applications on file at the U.S. Patent and Trademark
Office. The Company's U.S. patents expire between 2008 and 2014. The Company
also holds six corresponding foreign patents and 24 foreign patent
applications pending. The six foreign patents expire in 2009, except for
one patent that expires in 2105. However, there can be no assurance that any
patent owned by the Company will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future
patent applications, whether or not being currently challenged by applicable
governmental patent examiners, will be issued with the scope of the claims
sought by the Company, if at all.
Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology, duplicate
the Company's technology, or design around the patents owned by the Company.
The source code for the Company's proprietary software is protected both as a
trade secret and as an unpublished copyrighted work. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. The
Company generally enters into confidentiality or license agreements with its
employees, distributors and customers, and limits access to and distribution of
its software, documentation and other proprietary information. Nevertheless,
there can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology. In addition, litigation has been necessary
in the past to enforce the Company's patents and may be necessary in the future
to enforce the Company's patents and other intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. See "---Competition" and "---Item 3, Legal Proceedings." Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
From time to time the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights. Although
the Company does not believe that its products infringe the proprietary rights
of any third parties, there can be no assurance that infringement or invalidity
claims (or claims for indemnification resulting from infringement claims) will
not be asserted against the Company or that any such assertions will not
materially adversely affect the Company's business, financial condition or
results of operations. Irrespective of the validity or the successful assertion
of such claims, the Company
10
could incur significant costs with respect to the defense thereof which could
have a material adverse effect on the Company's business, financial condition
or results of operations. If any claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party's
intellectual property rights. There can be no assurance, however, that under
such circumstances, a license would be available under reasonable terms or at
all.
The Company also relies on certain software which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's verification products to perform key
functions. There can be no assurance that these third party software licenses
will continue to be available to the Company on commercially reasonable terms.
The loss of or inability to maintain any of these software licenses could result
in delays or reductions in product shipments until equivalent software could be
identified, licensed and integrated, which would adversely affect the Company's
operating results.
EMPLOYEES
As of February 28, 1997, the Company had a total of 369 employees, of whom
330 were based in the United States and 39 were based overseas. Of the total,
164 were engaged in sales, marketing and related customer support services, 127
were in research and development, 54 were in manufacturing and 24 were in
finance and administration. The Company's performance is substantially
dependent on the performance of its executive officers, some of whom have worked
together for only a short period of time. Furthermore, the loss of the services
of any of its executive officers or other key employees could have a material
adverse effect on the Company. The Company does not maintain key person life
insurance policies on the lives of its key officers or key personnel, all of
whom are important to the Company's future success. The Company's future success
also depends on its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to retain its key
managerial and technical employees or that it will be able to attract,
assimilate or retain other highly qualified technical and managerial personnel
in the future. The inability of the Company to attract and retain the necessary
technical personnel in the future could impair the development of new products
and have a material adverse effect upon the Company's business, operating
results and financial condition. None of the Company's employees is represented
by a labor union. The Company has not experienced any work stoppages and
considers its relations with its employees to be good.
ITEM 2. PROPERTIES.
The Company's principal administrative, sales, marketing, manufacturing and
research and development facility is located in five buildings totaling
approximately 126,000 square feet in Mountain View, California that have leases
expiring at various times from November 1998 through June 2002. The Company has
fifteen other domestic sales and service offices throughout the United States.
The Company also leases international sales and service offices in London,
Munich, Osaka, Paris, Stockholm and Yokohama. The Company expects that it will
be able to renew its leases on satisfactory terms. The Company believes that
its existing facilities are adequate for its current needs and that additional
space will be available as needed. However, the Company anticipates moving its
headquarters in late 1997 to larger facilities located in San Jose, California.
11
ITEM 3. LEGAL PROCEEDINGS.
In January 1995, the Company and certain of its officers and directors were
named in a securities class action filed in the United States District Court for
the Northern District of California. The complaint seeks unspecified damages
and related fees and costs. In September 1995, the Court dismissed with
prejudice all claims against several defendants, including the Company's outside
directors. The Court also dismissed with prejudice many of the allegations and
claims asserted against the Company and certain of its officers. While the
Company believes that it has meritorious defenses to the claims remaining in the
action, the Company has entered into a Stipulation of Settlement with plaintiffs
in order to conserve legal expenses and management resources. The Company's
contribution to the proposed $2.75 million settlement, net of insurance
proceeds, is not material. The proposed settlement has been preliminarily
approved by the Court but remains subject to the Court's final approval. There
can be no assurance that the Company will in fact succeed in obtaining final
Court approval of the proposed settlement with the plaintiffs. In the event the
Court does not grant final approval of the settlement, the Company will continue
to contest this action vigorously. While the outcome of the action in the
absence of the proposed settlement cannot be predicted with certainty,
management does not believe the outcome will have a material adverse impact on
the Company's financial position or results of operations.
Additionally, in January 1996, the Company filed a complaint with the
International Trade Commission (the "ITC") in Washington, DC, seeking to stop
unfair importation of logic emulation systems manufactured by Meta Systems, a
subsidiary of Mentor. In the complaint, the Company alleges that Mentor's
hardware logic emulation systems infringe the Company's patents. In July
1996, the ITC Administrative Law Judge issued an Initial Determination
granting a Temporary Exclusion Order stopping the importation of Mentor's
emulation systems into the U.S., absent the posting of a bond by Mentor. The
ITC Initial Determination included a Cease and Desist Order against all sales
activities of the Mentor emulation products into the U.S. In August 1996,
the ITC ratified the judges's Initial Determination. The Company is
continuing its legal efforts with the ITC to obtain a permanent Exclusion
Order prohibiting the importation of Mentor's emulation products into the
U.S. The Company also is engaged in a Federal District Court case with
Mentor and Meta involving six of the Company's patents. Mentor and Meta are
seeking a declaratory judgment of noninfringement, invalidity and
unenforceability of the patents in dispute, and the Company has filed
counteractions against Mentor and Meta for infringement and threatened
infringement of the six patents. Mentor has also claimed in this Federal
District Court case that press releases issued by the Company were defamatory
and interfered with Mentor's business advantage. Additionally, Aptix
Corporation recently filed a suit against the Company alleging various
violations of the antitrust laws and unfair competition. The Company does
not believe that these claims are meritorious and plans to mount a vigorous
defense against them. The outcome of these actions cannot be predicted with
certainty.
The Company is engaged in certain other legal and administrative
proceedings incidental to its normal business activities. While it is not
possible to determine the ultimate outcome of these actions at this time,
management believes that any liabilities resulting from such proceedings, or
claims which are pending or known to be threatened, will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
12
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 fiscal year 1996.
EXECUTIVE OFFICERS AND VICE PRESIDENTS OF THE COMPANY
The executive officers and vice presidents of the Company and their ages as
of March 1, 1997, are as follows:
Name Age Position
- ---- --- --------
Keith R. Lobo . . . . . . . . . . . . . 45 President, Chief Executive Officer and Director
Raymond K. Ostby . . . . . . . . . . . . 49 Vice President, Finance and Administration,
Chief Financial Officer and Secretary
K. C. Chu. . . . . . . . . . . . . . . . 50 Vice President, Software Development
Bernard A. Gilbert . . . . . . . . . . . 40 Vice President, Engineering Operations,
Advanced Simulation Division
Jeffrey K. Jordan . . . . . . . . . . . 52 Vice President, North American Sales
Kevin L. Ladd. . . . . . . . . . . . . . 34 Vice President and Chief Technologist,
Advanced Simulation Division
Alexander M. Levi. . . . . . . . . . . . 39 Vice President, Asia-Pacific Sales
Donald J. McInnis . . . . . . . . . . . 50 Senior Vice President,
Advanced Simulation Division
Harlen Ng. . . . . . . . . . . . . . . . 56 Vice President, Program Development
Stephen P. Sample. . . . . . . . . . . . 45 Vice President, Advanced Development
Dugald H. Stewart. . . . . . . . . . . . 44 Vice President, Manufacturing
Christopher J. Tice. . . . . . . . . . . 37 Vice President, World-Wide Support Services
Tung-sun Tung. . . . . . . . . . . . . . 48 Vice President, Research and Development
Ming Yang Wang . . . . . . . . . . . . . 52 Vice President, Advanced Technology Solutions
Naeem Zafar. . . . . . . . . . . . . . . 39 Vice President, Marketing
The Company's executive officers and vice presidents are appointed by, and
serve at the discretion of the Board of Directors. Each executive officer and
vice president is a full time employee of the Company. There is no family
relationship among any executive officer, vice president or director of the
Company.
Keith R. Lobo joined the Company in November 1992 as President, Chief
Executive Officer and as a Director. From March 1992 to October 1992, Mr. Lobo
served as a consultant in the venture capital field and was a private investor.
From March 1988 to February 1992, he served as Executive Vice President and
Chief Operating Officer of Chips & Technologies, Inc., a semiconductor supplier
of microcomputer components to the personal computer industry. From August 1981
to March 1988, he served in a variety of positions, most recently as Vice
President of Advanced Products and General Manager of the RISC Microprocessor
Group at LSI Logic Corporation, a supplier of ASICs.
13
Raymond K. Ostby joined the Company in September 1993 as Vice President,
Finance and Administration, Chief Financial Officer and Secretary. From July
1991 to September 1993, he served as Vice President, Finance and Administration
and Chief Financial Officer at Force Computers, Inc., a computer products
company. From June 1985 to July 1991, he served as Vice President, Finance and
Administration and Chief Financial Officer of Atmel Corporation, a manufacturer
of semiconductor products.
K.C. Chu joined the Company in June 1995 as Vice President, Entry
Systems and HDL-ICE Development and has served as Vice President, Software
Development since January 1996. From July 1992 to June 1995, he served as
Director, Sunnyvale Research and Development Lab of Mitsubishi Electric
Research Labs, Inc., a research and development facility, and from May 1990
to June 1992, he served as a Senior Manager, Research and Development at
Mitsubishi Electronics America, Inc., a supplier of semiconductor products.
Bernard A. Gilbert has served as Vice President, Engineering Operations of
the Advanced Simulation Division of the Company from February, 1997. From March
1996 to February 1997 he was Vice President, Engineering Operations at SpeedSim,
Inc., a provider of cycle-based simulation technology, and from March 1985 to
March 1996, he served as Director of Core Technology Research and Development at
ComputerVision Corp., a provider of CAD/CAM software services.
Jeffrey K. Jordan has served as Vice President, North American Sales
since October 1996. From May 1994 to October 1996 he was Eastern Area Sales
Director and from April 1993 to May 1994 he served as Eastern Area Sales
Manager. From August 1989 to April 1993, Mr. Jordan served as Regional
Service Manager at Integrated Measurement Systems, a provider of test station
hardware and software.
Kevin L. Ladd has served as Vice President and Chief Technologist of the
Advanced Simulation Division of the Company from February 1997. From June 1994
to February 1997 he served as Chairman and Vice President of Research and
Development of SpeedSim, Inc. Mr. Ladd was a consulting engineer for ViewLogic
Systems, Inc., a provider of software products used in IC design and simulation
from August 1992 to December 1993. From May 1982 to August 1992 he served in a
variety of positions most recently as Principal Engineer, at Digital Equipment
Corporation, a manufacturer of computer systems and software.
Alexander M. Levi has served as Vice President, Asia-Pacific Sales from
November 1996. Previously, he was Director, Asia Sales from January 1995 to
November 1996. Mr. Levi joined the Company in February 1991 and served as
Account Manager until December 1994.
Donald J. McInnis has served as Senior Vice President, Advanced Simulation
Division of the Company from February, 1997. From June 1994 to February 1997,
he served as President and Chief Executive Officer of SpeedSim, Inc. From May
1990 to February 1994, Mr. McInnis was Vice President and General Manager,
Software Business Unit of ComputerVision Corporation, a provider of CAD/CAM
software services.
Harlen Ng has served as Vice President, Program Development since August
1995. From January 1995 to August 1995, he was Vice President of Systems
Engineering Assurance, and from August 1991 to January 1995, he served as
Director, Engineering Operations for PiE Design Systems ("Pie"), a provider of
emulation systems for system-level verification. From November
14
1983 to July 1991, Mr. Ng served in a variety of positions at Cadence Design
Systems, Inc., a provider of automation tools used in IC design, most
recently as Director, Customer Support.
Stephen P. Sample co-founded the Company and served as Director, Hardware
Design from its inception in July 1987. In July 1993, he became Vice President,
Hardware Design, and since August 1994 he has served as Vice President, Advanced
Development.
Dugald H. Stewart joined the Company in January 1989 as Director of
Manufacturing, and has served as Vice President, Manufacturing since June 1993.
From August 1979 to January 1989, he served as Director of Manufacturing at KLA
Instruments, Inc., a semiconductor equipment manufacturer.
Christopher J. Tice has served as Vice President, World-Wide Support
Services since March 1995. Previously he was Director, World-Wide Support
Services from June 1993 to March 1995. From November 1991 to June 1993, Mr.
Tice served as Director, Support for PiE. From November 1985 to November
1991, he served as General Manager, Processor Business Group at Weitek, a
provider of enhancement processors and controllers.
Tung-sun Tung has served as Vice President, Research and Development from
January 1996, and as Vice President , Emulation System Development from October
1994 to January 1996. From June 1993 to October 1994, he was Director, Hardware
Design. From October 1991 to June 1993, he served as Director, Manufacturing at
PiE. From April 1988 to October 1991, he was Director, Engineering at NetFRAME
Systems, Inc., a designer and manufacturer of fault tolerant servers.
Ming Yang Wang has served as Vice President, Advanced Technology Solutions
from December 1996, and as Director, Solutions Development from July 1993 to
December 1996. From April 1990 to July 1993, Mr. Wang was Program Manager at
PiE.
Naeem Zafar joined the Company in June 1988 and has served as Vice
President, Marketing since September 1995. From March 1995 to September 1995,
he was Vice President, Technology Strategy and Planning, from December 1994 to
March 1995, he was Director, Advanced Products, and from June 1993 to December
1994, Mr. Zafar was Director, Marketing. From April 1992 to June 1993, he was
Director, Product Marketing, from October 1990 to April 1992, he was Senior
Product Marketing Manager, from April 1989 to October 1990, he was Technical
Marketing Manager, and from June 1988 to April 1989, he was Senior Hardware
Engineer.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference to the
section entitled "Selected Consolidated Financial Data" on page 17 of the
Company's 1996 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference to the
section entitled "Financial Highlights" on page 1 of the Company's 1996 Annual
Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 18 through 22 of the Company's 1996 Annual
Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated by reference to the
Consolidated Financial Statements, related notes thereto and Report of
Independent Accountants on pages 23 through 37 of the Company's 1996 Annual
Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
With the exception of the information incorporated by reference from the
1996 Annual Report to Stockholders in Parts II and IV of this Form 10-K, the
Company's Annual Report to Stockholders is not to be deemed filed as part of
this Report.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this item concerning the Company's directors is
incorporated by reference to the information set forth in the section entitled
"Proposal No. 1: Election of Directors" in the Company's Proxy Statement for
the 1997 Annual Meeting of Stockholders filed with the Commission on March 4,
1997 (the "1997 Proxy Statement"). The information required by this item
concerning the executive officers of the Company is incorporated by reference to
the information set forth in the section entitled "Executive Officers and Vice
Presidents of the Company" at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the section entitled
"Executive Officer Compensation" in the Company's 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Beneficial Security Ownership of
Management and Certain Beneficial Owners" in the Company's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this Form 10-K.
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and the Report of Independent
Accountants are incorporated by reference to pages 23 through
37 of the Company's 1996 Annual Report to Stockholders.
Report of Coopers & Lybrand L.L.P., Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following financial
statement schedules of the Company for the years ended
December 31, 1996, 1995 and 1994 are filed as part of this
Form 10-K and should be read in conjunction with the
Consolidated Financial Statements, and related notes thereto,
of the Company.
Schedule Title Page
-------- ----- ----
Report of Independent Accountants on S-1
Financial Statement Schedule
II Valuation and Qualifying Accounts S-2
Schedules other than those listed above have been omitted
since they are either not required, not applicable, or the
information is otherwise included.
3. EXHIBITS: The exhibits listed on the accompanying index to
exhibits immediately following the financial statement
schedule are filed as part of, or incorporated by reference
into, this Form 10-K.
(b) REPORT ON FORM 8-K. No reports on Form 8-K were filed by the
Company during the last quarter of the fiscal year ended December 31,
1996.
18
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 on this 25th day
of March 1997.
QUICKTURN DESIGN SYSTEMS, INC.
By: /s/ RAYMOND K. OSTBY
-------------------------------------------
Raymond K. Ostby,
Vice President, Finance and Administration,
Chief Financial Officer and Secretary
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Keith R. Lobo and Raymond K. Ostby and
each of them, jointly and severally, his attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all
amendments to this 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 said attorneys-in-fact
or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
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:
Signatures Title Date
- --------------------------- ------------------------------------- --------------
/s/ KEITH R. LOBO President and Chief Executive Officer March 25, 1997
- --------------------------- (Principal Executive Officer)
Keith R. Lobo
/s/ RAYMOND K. OSTBY Vice President, Finance and March 25, 1997
- --------------------------- Administration, Chief Financial
Raymond K. Ostby Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ GLEN M. ANTLE Chairman of the Board March 25, 1997
- ---------------------------
Glen M. Antle
/s/ RICHARD C. ALBERDING Director March 25, 1997
- ---------------------------
Richard C. Alberding
/s/ FRANK J. CAUFIELD Director March 25, 1997
- ---------------------------
Frank J. Caufield
/s/ MICHAEL R. D'AMOUR Director March 25, 1997
- ---------------------------
Michael R. D'Amour
/s/ YEN-SON (PAUL) HUANG Director March 25, 1997
- ---------------------------
Yen-Son (Paul) Huang
/s/ DR. DAVID K. LAM Director March 25, 1997
- ---------------------------
Dr. David K. Lam
19
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Quickturn Design
Systems, Inc. has been incorporated by reference in this Form 10-K from page
37 of the 1996 Annual Report to Stockholders of Quickturn Design Systems,
Inc. In connection with our audits of such financial statements, we have
also audited the related financial statement schedule listed in the index on
page 18 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material aspects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
San Jose, California
January 16, 1997
S-1
SCHEDULE II - PURSUANT TO REGULATION S-X RULE 12-09
QUICKTURN DESIGN SYSTEMS, INC.
Valuation and Qualifying Accounts
(in thousands)
Deductions Balance
Balance at Additions (Charges at
Beginning (Charges to Against End
Description of Period Expenses) Reserves) of Period
- ----------------------------------------- ---------- ------------ ----------- ---------
Year ended December 31, 1994
Allowance for doubtful accounts $ 730 $ 1,110 $ ---- $ 1,840
------- -------- -------- --------
------- -------- -------- --------
Year ended December 31, 1995
Allowance for doubtful accounts $ 1,840 $ ----- $ ---- $ 1,840
------- -------- -------- --------
------- -------- -------- --------
Year ended December 31, 1996
Allowance for doubtful accounts $ 1,840 $ ----- $ ---- $ 1,840
------- -------- -------- --------
------- -------- -------- --------
S-2
QUICKTURN DESIGN SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1996
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- ------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated January 16, 1997 among the
Company, SpeedSim, Inc. and QT Corporation. (4)
3.1 Certificate of Incorporation of Registrant, as amended. (1)
3.2 Bylaws of Registrant. (1)
4.1 Form of Registrant's Common Stock certificate. (1)
10.1 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers. (1) (2)
10.2 1988 Stock Option Plan and related agreements. (1) (2)
10.3 Key Executive Stock Option Plan and related agreements. (1) (2)
10.4 1993 Employee Qualified Stock Purchase Plan and related agreements.
(1) (2)
10.5 Software License Agreement dated December 18, 1987 between Xilinx, Inc.
and Registrant. (1)
10.6 Leases dated March 17, 1993 between MV 440, Inc. and Registrant. (1)
10.7 Revolving Credit Loan Agreement dated November 30, 1995 between
Comerica Bank-California and Registrant. (6)
10.8 Offer letter dated November 4, 1992 between Keith R. Lobo and
Registrant, as amended. (1) (2)
10.9 1994 Outside Director Stock Option Plan. (3)
10.10 SpeedSim, Inc. 1995 Incentive and Nonqualified Stock Option Plan.
(2) (5)
10.11 1996 Supplemental Stock Plan (2) (7)
-i-
Exhibit
Number Description
- ------- ------------------------------------------------------------------------
11.1 Statement of computation of earnings per share.
13.1 Portions of 1996 Annual Report to Stockholders expressly incorporated
by reference herein.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
24.1 Power of Attorney (see page 19).
27.1 Data Schedule (EDGAR)
__________________________________
(1) Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (Reg. No. 33-71022), which became effective on
December 15, 1993. Except as noted, each exhibit listed in this
index is incorporated by reference to the exhibit of the same
number.
(2) Indicates management compensatory plan, contract or arrangement.
(3) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 (Reg. No. 33-82452), which became effective on August 5,
1994.
(4) Incorporated by reference from the Registrant's Current Report on Form
8-K filed February 21, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 (Reg. No. 333-21587), which became effective on
February 11, 1997.
(6) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(7) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 (Reg. No. 333-18407), which became effective on
December 20, 1996.
-ii-