<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 23, 1997
16,848 SHARES
[LOGO OF IKOS SYSTEMS]
Common Stock
-----------
This Prospectus relates to the public offering, which is not being
underwritten, of shares of the common stock, $0.01 par value per share ("Common
Stock"), of IKOS Systems, Inc. ("IKOS" or the "Company") offered from time to
time by any or all of the Selling Stockholders named herein (the "Selling
Stockholders") who received such shares in connection with the Company's
acquisition of Virtual Machine Works, Inc., a Delaware corporation ("VMW"). The
Selling Stockholders hold certain registration rights pursuant to a
Registration Rights Agreement among the Company and the Selling Stockholders.
The Company will receive no part of the proceeds of any sales made hereunder.
All expenses of registration incurred in connection with this offering are
being borne by the Company, but all selling and other expenses incurred by
Selling Stockholders will be borne by such Selling Stockholders. None of the
shares offered pursuant to this Prospectus have been registered prior to the
filing of the Registration Statement of which this Prospectus is a part.
The Common Stock offered hereby may be offered and sold from time to time by
the Selling Stockholders directly or through broker-dealers or underwriters who
may act solely as agents, or who may acquire the Common Stock as principals.
The distribution of the Common Stock may be effected in one or more
transactions that may take place through the Nasdaq National Market or through
privately negotiated transactions, or through underwritten public offerings, or
through a combination of any such methods of sale, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specially negotiated brokerage fees
or commissions may be paid by the Selling Stockholders in connection with such
sales. See "PLAN OF DISTRIBUTION."
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "IKOS". On January 23, 1997 the last reported sales price for the
Company's Common Stock was $25.13 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
-----------
Each Selling Stockholders and any broker executing selling orders on behalf
of the Selling Stockholders may be deemed to be an "underwriter" within the
meaning of the Securities Act. Commissions received by any such broker may be
deemed to be underwriting commissions under the Securities Act.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
IKOS has filed a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with the Securities
and Exchange Commission (the "Commission"). This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, copies of which may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission.
The Company also is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549; on the Internet at http://www.sec.gov; and at the Commission's regional
offices at: Seven World Trade Center, New York, New York 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock of
the Company is quoted on the Nasdaq National Market. Reports, proxy statements
and other information concerning the Company also may be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N. W.,
Washington, D.C. 20006.
----------------------------
INFORMATION INCORPORATED BY REFERENCE
The following documents, filed with the Commission are hereby incorporated
by reference into this Prospectus: (1) the Company's Annual Report on Form 10-K
for the fiscal year ended September 28, 1996 filed December 20, 1996; (2) the
Company's Definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held January 27, 1997 filed December 20, 1996; (3) the
Description of the Company's capital stock as set forth under the caption
"Description of Capital Stock" in its Registration Statement on Form S-2 (File
No. 33-63525), effective October 12, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of securities contemplated hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for all purposes of this
Prospectus and the Registration Statement to the extent that a statement
contained herein, therein or in any subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any and all of the documents referred to above which have been
or may be incorporated in this Prospectus by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to the Company's principal
executive offices located at 19050 Pruneridge Avenue, Cupertino, CA 95014,
Attention: Chief Financial Officer, telephone number (408) 255-4567.
2
<PAGE>
FORWARD LOOKING INFORMATION
This Prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below and others detailed from time to time
in the Company's periodic reports filed with the Commission.
THE COMPANY
IKOS develops, manufactures, markets and supports hardware and software
systems for the verification of integrated circuit (IC) designs. The Company's
products are designed to enable its customers to verify complex IC designs more
rapidly and accurately than existing software-based simulation tools. The
Company sells its products to a broad range of customers in the communications,
multimedia/graphics, semiconductor, computer, aerospace and consumer electronics
industries, such as Lucent Technologies, Motorola, NEC, S3, Scientific Atlanta,
SGS-Thomson Microelectronics, Siemens and Texas Instruments.
IKOS markets its products and services primarily through its direct sales,
application engineering and service organization. IKOS' direct sales strategy
concentrates on those companies that IKOS believes are key users and designers
of large and high-performance ICs and IC-based systems. The Company assembles
and tests its products in its Cupertino, California facilities. The Company was
incorporated in California in September 1985 and was reincorporated in Delaware
in July 1990. The Company's principal executive offices are located at 19050
Pruneridge Avenue, Cupertino, California 95014. Its telephone number is (408)
255-4567. See "INFORMATION INCORPORATED BY REFERENCE."
3
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In
addition to the other information contained in the Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements. Discussions containing such forward-looking statements may be found
in the material set forth herein under "Risk Factors." Actual events or results
may differ materially from those discussed herein.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors including the timing of customer
development projects and purchase orders, new product announcements and releases
by the Company and other companies, gain or loss of significant customers, price
discounting of the Company's products, the timing of expenditures, customer
product delivery requirements, availability and cost of components or labor and
economic conditions generally and in the electronics industry specifically. Any
unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. Many of the
Company's customers order on an as-needed basis and often delay issuance of firm
purchase orders until their project commencement dates are determined. Quarterly
revenue and operating results will therefore depend on the volume and timing of
orders received during the quarter, which are difficult to forecast accurately.
Moreover, a significant portion of the Company's revenue may result from
shipments during the last few weeks of the quarter from orders generally
received in the last month of the quarter. Any concentration of sales at the end
of the quarter may limit the Company's ability to plan or adjust operating
expenses and production and inventory levels. 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. In addition,
sales of individual systems with high average sales prices can constitute a
significant percentage of the Company's quarterly revenue. Operating results in
any period should not be considered indicative of the results to be expected for
any future period, and there can be no assurance that the Company's net revenues
will continue to increase, that its recent rate of quarterly revenue and
earnings growth will be sustained, or that the Company will remain profitable in
any future period. See "INFORMATION INCORPORATED BY REFERENCE."
CONTINUED ACCEPTANCE AND DEVELOPMENT OF THE COMPANY'S PRODUCTS
Substantially all of the Company's product revenues since fiscal 1993 have
been derived from the sale of its Voyager and Gemini simulation systems. There
can be no assurance that market acceptance of these products will continue. The
continued adoption of the Company's hardware-assisted simulation products for
the verification of IC and system designs is expected to depend on the continued
increasing complexity of ICs designed for electronic systems, integration of the
Company's products with other tools for IC design and simulation, the ability of
hardware-assisted simulation systems to shorten the time of simulation of IC
designs, continued industry acceptance of mixed-level hardware-assisted
simulation, the development and market acceptance of alternative simulation
technologies such as cycle-based software simulation, formal proof and hybrid
timing verifiers, and modular design techniques. Because the market for
hardware-assisted simulation products is evolving, it is difficult to predict
with any assurance whether the market for hardware-assisted simulation products
will continue to expand. There can be no assurances that such market will expand
or, even if such market expands, that the Company's products will achieve the
market acceptance required to maintain revenue growth and continued
profitability in the future. See "INFORMATION INCORPORATED BY REFERENCE."
Prior to the Company's acquisition of VMW in May 1996 (the "Acquisition"),
the Company had limited in-house experience with logic emulation. Since the
Acquisition, the Company's initial emulation technology has been under
development and the Company began commercial shipments of emulation products in
the first quarter of 1997. There can be no assurance that such products will
adequately meet the requirements of the marketplace or achieve market
acceptance. In addition, because the Company's emulation products are based on a
new technology concept, there can be no assurance that the products will
function and perform as planned or that the Company will not experience other
delays or difficulties in meeting shipment schedules for these
4
<PAGE>
products. The success of the Company in developing, introducing, selling and
supporting current and future emulation products will depend on a variety of
factors in addition to the timely and successful completion of continued product
design and development, including the efficient implementation of a
manufacturing process, effective sales, marketing and customer service, and the
absence of performance problems or other difficulties that may require design
modifications and related expenses and may hinder or damage market acceptance of
the products. While the Company's emulation systems are designed to provide cost
and ease of use advantages intended to broaden the market for logic emulation,
there can be no assurance that its products will be able to achieve such goals.
Moreover, there can be no assurance that the market for logic emulation will
broaden beyond the current set of emulation systems users. The adoption of any
further emulation products the Company may develop will also depend on the
continued increasing complexity of ICs designed for electronic systems,
integration of such products with other tools for IC design and verification,
importance of the time to market benefits of emulation systems and industry
acceptance of the need to close the gap between high level design and silicon
production. Because the market for emulation products is new and evolving, it is
difficult to predict with any assurance whether the market for emulation
products will continue to expand. See "INFORMATION INCORPORATED BY REFERENCE."
COMPETITION
The electronic design automation ("EDA") industry is highly competitive and
rapidly changing. The Company's products are specifically targeted at the
emerging portion of the industry relating to complex designs that the Company
believes benefit from simulation and emulation products. To date, substantially
all of the Company's revenue has resulted from sales of hardware-assisted
simulation products. The Company currently experiences competition from
hardware-assisted simulation-based systems sold by Zycad Corporation ("Zycad")
and traditional software verification methodologies. The Company also competes
in the market for emulation products where its main competition for emulation
systems are those sold by Quickturn Design Systems, Inc. ("Quickturn") and other
EDA companies. The Company expects competition in the market for verification
tools to increase as other companies attempt to introduce new products, such as
cycle-based software simulation products and product enhancements. Moreover, the
Company competes, and expects that it will continue to compete, with established
EDA companies. A number of these companies 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 and potential competitors have established
relationships with current and potential customers of the Company and offer a
broader and more comprehensive product line. Increased competition could result
in price reductions, reduced margins and loss of market share, all of which
could materially adversely affect the Company. In addition, current competitors
or other entities may develop other products that have significant advantages
over the Company's products. 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 operating results. See "INFORMATION INCORPORATED BY REFERENCE."
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The EDA industry is characterized by extremely rapid technological change
in both hardware and software development, frequent new product introductions,
evolving industry standards and changing customer requirements. 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 series of
simulation systems and to design, develop and support its future simulation and
emulation products on a timely basis. Those efforts require a high level of
expenditures for research and development by the Company to address the
increasingly sophisticated needs of the customers. For example, all of the
Company's current products operate in, and planned future products will operate
in, the Unix operating environment, an industry standard in the EDA market. In
the event that another operating system, such as Windows NT, becomes an industry
standard, the Company may be required to port its products to such new standard.
In addition, the Company's simulation systems generally accept designs in the
broadly accepted hardware description language, Verilog-XL, which Cadence Design
Systems, Inc. ("Cadence") has developed and made available to the Company. In
the event Cadence adopts a less cooperative stance toward the Company in the
future, the Company's systems may not be able to accept designs based on
Verilog-XL and
5
<PAGE>
the Company may be required to develop software to accept designs of other
hardware description languages. The inability to accept designs in Verilog-XL
may materially adversely affect the Company's results of operations. 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 or changing customer requirements, 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, will be of acceptable quality or will 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. See "INFORMATION INCORPORATED BY
REFERENCE."
DEPENDENCE ON ELECTRONICS INDUSTRY
The Company is dependent upon the electronics industry and, in particular,
new system and IC design projects. The electronics industry is characterized by
rapid technological change, short product life cycles, fluctuations in
manufacturing capacity and pricing and margin pressures, all of which cause it
to be volatile. As a result, the electronics industry has historically
experienced sudden and unexpected downturns, at which time the number of new
system and IC design projects decrease. Because most of the Company's sales
occur upon the commencement of new projects for system and IC products, the
Company is dependent upon the rate of commencement of new system and IC design
projects. Accordingly, negative factors affecting the electronics industry could
have a material adverse effect on the Company's results of operations. See
"INFORMATION INCORPORATED BY REFERENCE."
DEPENDENCE UPON CERTAIN SUPPLIERS
Certain key components used in the Company's products are presently
available from sole or limited sources. The inability to develop alternative
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. The
Company's systems use proprietary application-specific integrated circuits
("ASICs") that are currently manufactured solely by American Microsystems, Inc.
("AMI"), subassemblies that are manufactured solely by Micron Technology Inc.
("Micron") and certain field programmable gate arrays manufactured by Xilinx,
Inc.
The Company generally purchases these components, including semiconductor
memories used in the Company's hardware simulators, pursuant to purchase orders
placed from time to time in the ordinary course of business and has no supply
arrangements with any of these source suppliers that require the suppliers to
provide components in guaranteed quantities or at set prices. Moreover, the
manufacture of these components can be 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 components or subassemblies in sufficient quantities or quality or on
favorable pricing or delivery terms, 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. See "INFORMATION INCORPORATED BY REFERENCE."
6
<PAGE>
CUSTOMER CONCENTRATION
A relatively limited number of customers have historically accounted for a
substantial portion of the Company's net revenues. During fiscal 1996, sales to
the Company's top ten customers accounted for approximately 65% of the Company's
net revenues. The Company expects that sales of its products to a limited number
of customers will continue to account for a high percentage of net revenues 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 industries, would have an adverse effect on the
Company's 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 existing customers and the
general economy; there can be no assurance that such increases will occur. See
"INFORMATION INCORPORATED BY REFERENCE."
LENGTHY SALES CYCLE
Sales of the Company's products depend, in significant part, upon the
decisions of prospective customers to commence projects for the design and
development of complex ICs and systems. In view of the significant amount of
time and commitment of capital involved in that regard, the Company may
experience delays following initial qualification of the Company's systems as a
result of delays in commencement of the project by a customer. As a result, the
Company's systems 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 fluctuations in
operating results, over which the Company has little or no control.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company relies on patent, trademark, trade secret
and copyright law to protect its technology. The Company currently holds three
U.S. patents, has licensed rights under certain patent applications and has
filed additional patent applications. However, there can be no assurance that
any patent owned or licensed 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 patent
applications, whether or not 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
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. 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 also has granted to Racal-Redac, Inc. ("Racal") a
security interest in certain VHDL simulation software jointly developed by the
Company and Racal with respect to payment of a promissory note to Racal by the
Company with a current balance of approximately $800,000 as of December 28,
1996. In the event that the Company defaults in the payment of the promissory
note, Racal may obtain all rights to the software, including access to the
source code of the software.
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 could incur significant costs and diversion of
management efforts 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
7
<PAGE>
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 relies on certain software and other technologies which it
licenses from third parties, including software which is integrated with
internally developed software and used in the Company's systems to perform key
functions. There can be no assurance that these third party licenses will
continue to be available to the Company on commercially reasonable terms or
otherwise. The loss of or inability to maintain any of these licenses could
result in delays or reductions in product shipments until equivalent software or
technology could be identified, licensed and integrated, which would adversely
affect the Company's operating results. In particular, the Company licenses
certain emulation patent rights from Massachusetts Institute of Technology
("MIT"). This license is exclusive for a period ending on the earlier of the
expiration of eight years after the first commercial sale or use of a licensed
patent or process or December 22, 2004, and thereafter becomes nonexclusive. MIT
may terminate this license if the Company fails to meet certain minimum net
sales milestones or upon certain other material breaches of the license
agreement that remain uncured after 90 days' notice of such breach. Loss of this
license could materially adversely affect the Company's future operating
results. See "INFORMATION INCORPORATED BY REFERENCE."
INTERNATIONAL SALES
International sales accounted for approximately 32.8%, 36.9%, and 25.8% of
the Company's net revenues in fiscal 1996, 1995, and 1994, respectively. The
Company expects that international sales will continue to account for a
significant portion of its revenues, and plans to continue to expand its
international sales and distribution channels. Revenues derived from
international sales involve a number of inherent risks, including traditionally
slower adoption of the Company's products internationally, the impact of
recessionary environments in economies outside the United States, generally
longer receivables collection periods, unexpected changes in or impositions of
legislative or regulatory requirements, reduced protection for intellectual
property rights in some countries, potentially adverse taxes, delays resulting
from difficulty in obtaining export licenses for certain technology and other
trade barriers. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's results of operations. Although the Company has
attempted to reduce the risk of fluctuations in exchange rates associated with
international revenues by selling its systems for United States currency only,
the Company pays the expenses of its international operations in local
currencies and does not engage in hedging transactions with respect to such
obligations. Currency exchange fluctuations in countries in which the Company
sells its systems could have a material adverse effect on the Company by
resulting in pricing that is not competitive with prices denominated in local
currencies. Furthermore, there can be no assurance that the Company will be able
to continue to sell its systems internationally for United States currency. See
"INFORMATION INCORPORATED BY REFERENCE."
DEPENDENCE UPON KEY PERSONNEL AND MANAGEMENT OF GROWTH
The Company's future performance depends in significant part upon
attracting and retaining key technical, sales and marketing personnel.
Competition for such personnel is intense, and the inability to retain its key
personnel or to attract, assimilate or retain other highly qualified personnel
in the future on a timely basis could have a material adverse effect on the
Company's results of operations. In particular, there are only a limited number
of qualified EDA engineers, and the competition for such individuals is
especially intense. In addition, the Company's ability to compete effectively
and to manage future growth, if any, will require the Company to continue to
train and manage its employee workforce. There can be no assurance that the
Company will be able to do so successfully. The Company's failure to do so could
have a material adverse effect upon the Company's results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and is likely to
continue to be, highly volatile. Future announcements concerning the Company or
its competitors, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product
8
<PAGE>
pricing policies by the Company or its competitors, proprietary rights or other
litigation, changes in earnings estimates by analysts, the timing of customer
orders and customer payment or other factors could cause the market price of the
Common Stock to fluctuate substantially. In addition, the stock market has from
time-to-time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stocks of technology
companies and that have often been unrelated to the operating performance of
particular companies. These broad market fluctuations may also adversely affect
the market price of the Company's Common Stock. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has occurred against the issuing company. There can be no
assurance that such litigation will not occur in the future with respect to the
Company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
adverse determination in such litigation also could subject the Company to
significant liabilities. See "INFORMATION INCORPORATED BY REFERENCE."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws, Delaware law and certain other contractual provisions could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock with rights senior to
those of the Common Stock without any further vote or action by the
stockholders, eliminate the right of stockholders to act by written consent,
eliminate cumulative voting and impose various procedural and other requirements
which could make it more difficult for stockholders to effect certain corporate
actions. In addition, the Company has adopted a preferred stock purchase plan.
These provisions also could have the effect of delaying or preventing a change
in control of the Company.
9
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SELLING STOCKHOLDERS
The following table sets forth certain information regarding each Selling
Stockholder, each of whom is a former stockholder of VMW.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO
NAME AND ADDRESS OF SELLING OWNED PRIOR TO BE SOLD IN SHARES BENEFICIALLY
STOCKHOLDER OFFERING/(4)/ OFFERING OWNED AFTER OFFERING/(8)/
- ----------------------------- ------------------- ---------- -------------------------
<S> <C> <C> <C>
Anant Agarwal/(1)/ 10,372 10,372 *
105 Hickory Road
Weston, MA 02193
Matthew Dahl 5,234/(5)/ 831 *
130 Gore Street, #2
Cambridge, MA 02141
Aruna Joglekar 15 15 *
30 Ransome Road
Newton Center, MA 02159
William K. Stewart/(2)/ 8,856/(6)/ 4,453 *
37 Vaille Avenue
Lexington, MA 02173
Russell Tessier/(3)/ 2,297/(7)/ 1,177 *
450 Memorial Drive
J111 MacGregor House
Cambridge, MA 02138
</TABLE>
* Less than 1%
(1) Mr. Agarwal was the Chairman of the Board of Directors and Chief Technology
Officer of VMW. Mr. Agarwal is currently an advisor and employee of the
Company.
(2) Mr. Stewart was the Vice President of Manufacturing of VMW. Mr. Stewart is
currently the Director of emulation hardware development of the Company.
(3) Mr. Tessier was one of the principal founders of VMW. Mr. Tessier is
currently an employee of the Company.
(4) Based on the number of shares beneficially owned at January 15, 1997.
(5) Includes 4,403 shares subject to options exercisable within 60 days of
January 15, 1997.
(6) Includes 4,403 shares subject to options exercisable within 60 days of
January 15, 1997.
(7) Includes 1,120 shares subject to options exercisable within 60 days of
January 15, 1997.
(8) Assumes that all shares registered hereunder will be sold in the offering.
10
<PAGE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Shareholders that they may sell
all or a portion of the Shares from time to time on the Nasdaq National Market,
or otherwise, at prices and on terms prevailing at the time of sale or at prices
related to the then current market price, or in negotiated transactions. The
Shares may be sold by one or more of the following methods: (a) a block trade
in which the broker or dealer so engaged will attempt to sell the Shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its own account pursuant to this Prospectus;
(c) an over-the-counter distribution in accordance with the rules of the Nasdaq
National Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions.
There is no assurance that any of the Selling Shareholders will offer or sell
any or all of the Shares registered hereunder.
11
<PAGE>
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TABLE OF CONTENTS
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Page
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Available Information.................................................. 2
Information Incorporated by Reference.................................. 2
Forward Looking Information............................................ 3
The Company............................................................ 3
Risk Factors........................................................... 4
Selling Stockholders................................................... 10
Plan of Distribution................................................... 11
</TABLE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO
WHICH THIS PROSPECTUS RELATES, OR AN OFFER IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
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