ACTEL CORP, 10-K, 1998-03-31

ACTEL CORP
10-K, 1998-03-31
PRINTED CIRCUIT BOARDS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 28, 1997

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 0-21970

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ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)

California 77-0097724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

955 East Arques Avenue
Sunnyvale, California 94086-4533
(Address of principal executive offices) (Zip Code)

(408) 739-1010
(Registrant's telephone number, including area code)

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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
(Title of class)

--------------------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K. X

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price for shares of the Registrant's
Common Stock on March 27, 1998, as reported by the National Market System of the
National Association of Securities Dealers Automated Quotation System, was
approximately $203,525,747. In calculating such aggregate market value, shares
of Common Stock owned of record or beneficially by all officers, directors, and
persons known to the Registrant to own more than five percent of any class of
the Registrant's voting securities were excluded because such persons may be
deemed to be affiliates. The Registrant disclaims the existence of control or
any admission thereof for any other purpose.

Number of shares of Common Stock outstanding as of March 27, 1998:
21,246,215.

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DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference in Parts II, III,
and IV of this Annual Report on Form 10-K: (i) portions of Registrant's annual
report to security holders for the fiscal year ended December 28, 1997 (Parts II
and IV), and (ii) portions of Registrant's proxy statement for its annual
meeting of shareholders to be held on May 22, 1998 (Part III).

<PAGE>

PART I

ITEM 1. BUSINESS

Overview

Actel designs, develops, and markets field programmable gate arrays
("FPGAs") and associated development system software and programming hardware.
FPGAs are used by designers of communications, computer, industrial,
military/aerospace, and other electronic systems to differentiate their products
and get them to market faster. The Company is the leading supplier of FPGAs
based on antifuse switching elements, which are smaller than alternative
switching elements (such as static random access memories ("SRAMs") or erasable
programmable read only memories ("EPROMs")), permitting reduced circuit size and
cost and increased design efficiencies. Actel shipped its first products in 1988
and thousands of its development systems are in the hands of customers,
including Allen Bradley/Rockwell, AST Computer, Alcatel, Bay Networks,
Cabletron, DSC Communications, Hughes Aircraft, Lockheed-Martin, Lucent
Technologies, and Siemens. The Company has foundry relationships with Chartered
Semiconductor Manufacturing Pte Ltd ("Chartered Semiconductor") in Singapore,
Lockheed-Martin Federal Systems Company ("Lockheed-Martin FSC") in the United
States, Matsushita Electronics Company and Matsushita Electrical Industry
Company Ltd. (collectively, "Matsushita") in Japan, and Winbond Electronics
Corp. ("Winbond") in Taiwan, permitting Actel to focus its resources on its core
strengths of designing, developing, and marketing FPGAs.

The Company's FPGAs currently are based on two proprietary technologies:
the Actel antifuse and a circuit architecture that takes advantage of the
Company's antifuse. The principal advantages of the antifuse over alternative
switching elements are smaller size and lower electrical resistance. The smaller
size of the antifuse generally permits Actel to make programmable circuits that
are smaller, and hence less costly, than circuits of comparable performance and
capacity made under comparable design rules using alternative switch
technologies. Similarly, for circuits of comparable size and capacity
manufactured under comparable design rules, the antifuse facilitates the design
of circuits with a greater number of switches, which, in combination with the
lower electrical resistance of the antifuse, tends to enhance flexibility and/or
performance. In addition, the Company believes that its antifuse-based
architecture is better suited for the high-level logic synthesis tools that are
increasingly employed to design higher capacity devices than existing
architectures using other types of switching elements.

Actel believes that the demand for higher capacity devices will increase
faster than that for programmable devices as a whole. Accordingly, the Company
is focusing its attention on the transition to higher capacity devices and the
associated high-level design methodologies. Actel's strategy is to provide the
best FPGA solutions by giving logic designers the capability and confidence to
successfully move up to higher level designs. The Company is implementing this
strategy by enhancing the functionality, usability, and accessibility of
high-level design tools for its antifuse-based architecture; by increasing its
support for high-level design methodologies; and by developing a new, SRAM-based
architecture that Actel believes will be better suited for use with high-level
design tools than existing non-antifuse architectures.

The Company's product line currently consists of seven families of FPGAs,
Designer Series Development System and CoreHDL software, Silicon Explorer
debugging and diagnostic tools, and Activator device programmers. To meet the
diverse customer requirements in the broad FPGA market, each member of a product
family generally is offered in a variety of speed grades, package types,
reliability screenings, and ambient temperature tolerances. Designers typically
use popular third-party software for circuit design and then translate the
design into a programmed FPGA using Actel's proprietary, highly automated
software (Designer Series Development System) and device programmers
(Activator). CoreHDL blocks or "cores" that can be used to reduce development
time by being "dropped into" designs, and Silicon Explorer can be used to reduce
design-verification time by enabling the user to monitor the functionality of a
programmed FPGA in "real time."

During 1997, Actel introduced a number of new silicon products. In January
1997, the Company announced the immediate availability of the world's highest
capacity antifuse-based FPGA, the 30,000-gate A32300DX. In April 1997, Actel
expanded its 3.3-volt product line to include additional members of its 1200XL
and 3200DX FPGA families. Most significantly, in October 1997, the Company
introduced its new MX family of antifuse FPGAs, which is expected to feature six
devices ranging from 2,000 to 36,000 logic gates. At introduction, the MX family
was believed to be the world's fastest FPGA family. The MX family is being
marketed as a single-chip alternative to ASICs and offered at pricing levels
that are intended to be attractive to high-volume users of FPGAs.

In April 1997, the Company introduced its Silicon Explorer desktop
debugging and diagnostic tool. Silicon Explorer permits designers to monitor and
hence debug the internal operation of an Actel FPGA while running within a real
system at system speeds, a capability that is unique to Actel.

During the course of 1997, the Company's Designer Series software products
were significantly enhanced in terms of both functionality and support for the
various new silicon products. In addition, notable improvements were made in the
packaging of the software to enhance both its usability and accessibility. For
example, the requirement for a licensing security block in order to run the
software was removed in June 1997. More significantly, certain software packages
were offered free of charge and made available for downloading from Actel's web
site.

Actel markets its products through a worldwide, multi-tiered sales and
distribution network. The North American network includes six sales management
offices, seven technical sales offices, 21 manufacturers' representative firms,
and three major industrial distributors. The European network includes sales
management offices in England, France, Italy, and Germany, as well as two
Pan-European distributors and five regional distributors. In Japan, the Company
has a sales management and technical office and markets its products through
three distributors. In Korea, the Company has a sales management and technical
office and markets its products through one distributor. Six additional
distributors serve the remaining international markets in which Actel offers its
products.

The Company was incorporated in California in 1985. Actel's principal
facilities and executive offices are located at 955 East Arques Avenue,
Sunnyvale, California 94086-4533, and its telephone number at that address is
(408) 739-1010. The Company's World Wide Web address is http://www.actel.com. As
used in this Annual Report on Form 10-K, "Actel" and the "Company" mean Actel
Corporation and its consolidated subsidiaries. "Actel" and the Actel logo are
registered trademarks of the Company. This Annual Report on Form 10-K also
includes unregistered trademarks of the Company and trademarks of companies
other than Actel.

Industry Background

The three principal types of integrated circuits used in most digital
electronic systems are microprocessor, memory, and logic circuits.
Microprocessors are used for control and computing tasks; memory devices are
used to store program instructions and data; and logic devices are used to adapt
these processing and storage capabilities to a specific application. Logic
circuits are found in virtually every electronic system.

The logic design of competing electronic systems is often a principal area
of differentiation. Unlike the microprocessor and memory markets, which are
dominated by a relatively few standard designs, the logic market is highly
fragmented and includes, among many other segments, low-density standard
transistor-transistor logic circuits ("TTLs") and custom-designed ASICs. TTLs
are standard logic circuits that can be purchased "off the shelf" and
interconnected on a printed circuit board, but they tend to limit system
performance and increase system size and cost compared with logic functions
integrated at the circuit (rather than the board) level. ASICs are customized
circuits that offer electronic system manufacturers the benefits of higher
levels of circuit integration: improved system performance, reduced system size,
and lower system cost.

ASICs include conventional gate arrays and programmable logic circuits.
Conventional gate arrays are customized to perform desired logical functions at
the time the device is manufactured. Since they are "hard wired" at the wafer
foundry, conventional gate arrays are subject to the time and expense risks
associated with any development cycle involving a foundry. Typically,
conventional gate arrays are first delivered in production volumes months after
the successful production of acceptable prototypes. In addition, conventional
gate arrays cannot be modified after they are manufactured, which subjects them
to the risk of inventory obsolescence and constrains the system manufacturer's
ability to change the logic design. Programmable logic circuits, on the other
hand, are manufactured as standard devices and customized "in the field" by
electronic system manufacturers using computer-aided engineering ("CAE") design
and programming systems. Programmable logic circuits are being used by a growing
number of electronic system manufacturers as a solution to their increasing
demands for differentiation, rapid time to market, and manufacturing
flexibility. While conventional gate array designs are generally more complex
than programmable logic circuit designs, the average capacity (or "gates" per
circuit) of both conventional gate arrays and programmable logic circuits has
increased over time. This indicates that long-term growth in sales within each
market segment has increased faster for circuits with higher capacities.

Programmable logic circuits include programmable logic devices ("PLDs") and
FPGAs. The market for complex PLDs ("CPLDs") and FPGAs has grown rapidly because
they generally offer greater capacity, lower total cost per usable logic gate,
and lower power consumption than TTLs and simple PLDs, and faster time to market
and lower development costs than conventional gate arrays. For many electronic
system manufacturers, the time-to-market and manufacturing-flexibility benefits
of CPLDs and FPGAs outweigh their price premium over conventional gate arrays of
comparable capacity. This is particularly true with respect to communications
applications.

Electronic system manufacturers customize programmable logic circuits to
perform the desired logical functions by using CAE systems to define a device's
function and then a device programmer to change the state of the device's
programming elements (such as antifuses or memory cells) through the application
of an electrical signal. Most CPLDs currently are programmed with EPROM or other
"floating gate" technologies. Many FPGAs currently are programmed with SRAM
technology. FPGAs based on antifuse programming elements are one-time
programmable, meaning they will retain their circuit configurations permanently,
even in the absence of electrical power. FPGAs and CPLDs based on EPROM- or
SRAM-controlled programming elements are reprogrammable.

The principal limitation on the wider use of CPLDs and FPGAs has been the
difficulty in developing devices with price and performance factors approaching
those of conventional gate arrays. Programming elements based on existing
reprogrammable architectures occupy relatively large amounts of area within a
circuit, which tends to increase the overall size and, in turn, the cost of each
circuit. In addition, the size of programming elements based on existing
reprogrammable architectures tends to limit the number of interconnect points in
a circuit, which, in combination with the relatively high electrical resistance
of such programming elements, tends to limit to limit design flexibility and/or
circuit performance.

Before an FPGA can be programmed there are various steps that must be
accomplished by a designer using CAE design software. These steps include
defining the function of the FPGA, verifying the design, and laying out the
circuit. Traditionally, logic functions have been defined using schematic
capture tools, which essentially permit the designer to construct a circuit
diagram on the computer. As FPGA designers have begun to design higher capacity
circuits, the time required to create schematic diagrams using schematic capture
tools has become prohibitive. To address this problem, designers are
increasingly turning to hardware description languages ("HDLs"), also known as
high-level description ("HLD"). VHDL and Verilog are the most common HDLs, which
permit the designer to describe the circuit functions at an abstract level and
to verify the performance of logic functions at that level. The HDL can then be
fed into logic synthesis software that automatically converts the abstract or
high-level description to a gate-level representation equivalent to that
produced by schematic capture tools. After a gate-level representation of the
logic function has been created and verified, it must be translated or "laid
out" onto the generic logic modules of the FPGA. This is achieved by placing the
logic gates and routing their interconnections, a process referred to as "place
and route." As designers have begun to design higher capacity circuits, the need
for automatic (instead of manual) place and route capability has become
increasingly important. This transition to the use of HDLs presents a challenge
to the designer to learn new design methods and to use new design tools. In
addition, not all programmable logic circuit architectures are equally well
suited for use with logic synthesis and place and route tools.

Actel Strategy

Technology

Actel's FPGAs currently are based on two proprietary technologies: the
Actel antifuse and a circuit architecture that takes advantage of the Company's
antifuse. The antifuse is a two-terminal switch that is open before being
programmed. In contrast to a conventional fuse, the application of sufficient
voltage to an antifuse causes the switch to close permanently, allowing current
to pass. Actel is the leading supplier of FPGAs based on antifuses.

Antifuse

Actel believes that it was first to achieve volume production of
antifuse-based FPGAs. The patented antifuse structure used by Actel in its
current product families consists of a "sandwich" of silicon oxide, silicon
nitride, and silicon oxide ("ONO"). This structure is similar to that of ONO
capacitors employed in the volume manufacture of many dynamic random access
memory (DRAM) circuits. Actel has continued to develop antifuse technology and
plans to introduce a family of FPGAs during 1998 based on a new "metal-to-metal"
fuse structure that further enhances the benefits of the antifuse, which the
Company believes include the following:

Small Size

Antifuses are smaller than alternative switching elements (such as
those utilizing SRAM and EPROM elements), so antifuse-based circuits tend
to be smaller, and hence less costly, than circuits of comparable
performance and capacity manufactured under comparable design rules with
alternative switching elements. Similarly, for circuits of comparable size
and capacity manufactured under comparable design rules, the antifuse
facilitates the design of circuits with a greater number of switches, which
tends to enhance flexibility and/or performance.

Low Resistance

Antifuses typically exhibit lower electrical resistance than
alternative switching elements. Lower electrical resistance also tends to
enhance circuit performance.

High Reliability

The Company has performed extensive reliability testing on its
antifuses over many years with excellent results. The negligible rate of
individual antifuse failure permits antifuses to be used in substantial
numbers without degrading overall circuit reliability, which in turn
permits the small size and low resistance attributes of the antifuse to be
fully exploited.

Nonvolatility

After an antifuse-based FPGA is programmed, it retains its circuit
configuration permanently, even in the absence of electrical power. This is
not true of SRAM-based FPGAs. Although the reprogrammability of SRAM and
EPROM switches is desirable in some applications, nonvolatility is
necessary in certain military, aerospace, and communications applications.

Circuit Architecture

The Company believes that the principal advantages of its proprietary
circuit architecture include the following:

Synthesisizability

All of Actel's FPGAs are "synthesis friendly" by virtue of their use
of many, relatively simple logic building blocks (referred to as "fine
granularity") made possible by the antifuse. The Company believes that this
characteristic will become increasingly important to designers as circuit
capacity increases.

Few Programming Elements in Interconnect Path

Actel's circuit architecture usually provides for the minimum number
of antifuses in an interconnect path (two), and never permits more than
four antifuses in any interconnect path. In general, the fewer the number
of switches in an interconnect path, the faster the connection. Many
competing FPGAs include interconnect paths with considerably more than four
programming elements, which increase resistance and therefore impede
circuit performance.

Routability

The plentiful number of antifuses and the patented segmented routing
tracks of different lengths in Actel's products provide numerous routing
alternatives, which generally facilitates efficient results with automatic
place and route software even when a high percentage of the FPGA's
potential gate capacity is used. Actel believes that these features make
its circuits easier to design with than most competing FPGAs.

Flexibility and Utilization

A key competitive factor in the programmable logic market is
utilization, or the extent to which a particular design can use the
potential number of logic resources within a particular chip. A measure of
logic resources frequently used in the programmable logic industry is
ASIC-gate equivalents. Since this gate counting measure is interpreted
differently by the various suppliers and end-users of programmable logic,
however, it is not a reliable measure. A more accurate assessment of
utilization is the number of logic modules within the chip that are
actually accessible to the customer's real design. In the case of existing
SRAM-based FPGAs and EPROM-based CPLDs, logic module utilization can vary
substantially from design to design, so that a "400 logic module" chip may
in practice yield only a fraction of that number as true usable logic
resources. By contrast, Actel's circuit architecture permits its products
to have a more predictable capacity over a broad range of applications.
This enables Actel's customers to select with a relatively high degree of
confidence the product that is most economical for a desired application.
It is not uncommon for a design implemented within an Actel chip to use
100% of the potentially available logic modules and still be fully and
automatically placed and routed. Users of existing SRAM-based FPGAs, on the
other hand, often restrict their designs to 60% or less of the claimed
logic resources in order to give their "automatic" place and route tools an
improved chance of successful completion.

Products

Actel's product line currently consists of seven families of FPGAs,
Designer Series Development System and Core HDL software, Silicon Explorer
debugging and diagnostic tools, and Activator device programmers. In 1997, the
first members of the MX family of FPGAs were shipped for revenue and the Company
adopted a number of new software strategies intended to broaden market
acceptance of high-level design methodologies by mainstream FPGA designers.

FPGAs

Currently, all seven of the Company's FPGA families are in production. To
meet the diverse customer requirements in the broad high-capacity programmable
logic market, each member of a family (except RadHard) is offered in a variety
of speed grades, package types, reliability screenings, and ambient temperature
tolerances. The five members of the ACT 1 and ACT 2 families, for example, can
be ordered in more than 100 speed, packaging, screening, and tolerance
variations.

ACT 1

The ACT 1 family consists of two products: the 1,200-gate A1010, which
was first shipped for revenue in 1988; and the 2,000-gate A1020, which was
first shipped for revenue in 1989. The A1020 is capable of integrating the
equivalent of 60 TTLs into a single package. This family of circuits was
introduced at 2.0 micron and currently is manufactured under 1.0 and 0.9
micron design rules. The Company offers 3.3-volt versions of its ACT 1
products.

ACT 2

The ACT 2 family consists of three products: the 4,000-gate A1240 and
the 8,000-gate A1280, which were first shipped for revenue in 1991; and the
2,500-gate A1225, which was first shipped for revenue in 1992. The A1280 is
capable of integrating the equivalent of 240 TTLs into a single package.
This family of circuits was introduced at 1.2 micron and currently is
manufactured under 1.0 micron design rules.

ACT 3

The ACT 3 family consists of five products: the 2,500-gate A1425 and
the 6,000-gate A1460, which were first shipped for revenue in 1993; and the
1,500-gate A1415, the 4,000-gate A1440, and the 10,000-gate A14100, which
were first shipped for revenue in 1994. The ACT 3 family was designed for
applications requiring high speed and a high number of inputs and outputs
("I/Os"). The five members of the ACT 3 family can be ordered in more than
70 speed, packaging, screening, and tolerance variations. The Company
offers 3.3-volt and PCI-compliant versions of its ACT 3 products. The ACT 3
family was introduced at 0.8 micron and currently is manufactured under 0.6
micron design rules.

1200XL

The 1200XL family, which was first shipped for revenue in 1995,
consists of three members ranging from 2,500 to 8,000 gates that can be
ordered in more than 50 speed, packaging, screening, and tolerance
variations. Taking advantage of 0.6 micron design rules and redesigned I/O
modules and clock distribution networks, 1200XL products offer system
performance significantly in excess of that offered by pin-compatible ACT 2
devices. In 1997, Actel began offering all three members of its 1200XL
family in 84-pin Plastic Leaded Chip Carriers ("PL84"). Designers using the
new packages will be able to migrate to higher density devices without
changing packages. In 1997, the Company also expanded its 3.3-volt offering
to include all members of the 1200XL family.

3200DX

The 3200DX family consists of the 6,500-gate A3265DX, which was first
shipped for revenue in 1995; the 14,000-gate A32140DX and the 20,000-gate
A32200DX, which were first shipped for revenue in 1996; and the 10,000-gate
A32100 and the 30,000-gate A32300, which were first shipped for revenue in
1997. The 3200DX family permits designers to integrate the
register-intensive datapath functions of FPGAs, the control and decode
modules commonly implemented in CPLDs, and the fast dual-port SRAM
typically used for high-speed buffering. Supported by the Company's
extensive selection of automated design tools, the 3200DX family is
optimized for synthesis design methodologies to yield predictable
performance for system logic integration. To further assist designers, most
members of the family offer JTAG boundary scan logic, which permits testing
of the design during manufacture. In 1997, Actel began offering A3265DX,
A32100DX, and A32140DX in PL84 packages, which will enable designers to
migrate easily from smaller PL84 devices. In 1997, the Company also
expanded its 3.3-volt offering to include all members of the 3200DX family.
The 3200DX family is based on 0.6 micron design rules.

In 1997, the Company shipped for revenue the first two devices in its
new MX family of FPGAs: the 4,000-gate A40MX04 and the 16,000-gate A42MX16.
The third member of the family, the 9,000-gate A40MX09, was announced as
immediately available during first week of 1998. The MX family includes the
best features from Actel's earlier ACT 1, ACT2, 1200XL, and 3200DX families
and is based on 0.45 micron design rules, which will permit the MX family
to work in pure 5-volt, pure 3.3-volt, and mixed 5- and 3.3-volt systems.
It is anticipated that the larger MX devices will be PCI compliant. At the
time of introduction, the MX devices were believed to be the world's
fastest FPGAs. Like ASICs and all previous Actel FPGAs, MX devices are
nonvolatile and do not require any external configuration devices or
circuitry. The MX family was introduced with volume production pricing that
the Company believes, in combination with its performance and
functionality, should make it attractive as a single-chip ASIC alternative.
Over time, the MX family should replace all of Actel's earlier FPGA
families in new commercial designs.

The RadHard family currently consists of the 8,000-gate RH1280, which
was first shipped for revenue in 1996, and the 2,000-gate RH1020, which was
first shipped in 1997. Actel and Lockheed-Martin FSC are jointly developing
the RadHard family to meet the demands of applications requiring guaranteed
levels of performance and radiation immunity, including the growing
commercial satellite market. The RadHard family is based on a
high-reliability, radiation-hardened 0.8 micron process.

Software

A key element of the Company's strategy is to support users' electronic
design automation ("EDA") tools of choice by establishing and maintaining
relationships with leading synthesis software vendors for the purpose of
permitting such tools to be used as a "front end" to Actel's proprietary
Designer Series Development System. Rather than developing this capability
alone, the Company has established the Actel Industry Alliance, which Actel uses
to establish relationships with EDA vendors for the purpose of developing
interfaces between such vendors' EDA tools and Actel's proprietary software.
Under the Alliance program, Actel provides members with, among other things,
access to its proprietary software specifications, early access to software
revisions, verification services, and participation in joint marketing efforts.
The Alliance currently has more than 20 members, including all major EDA vendors
supporting high-level design for both VHDL and Verilog. The Company provides
comprehensive HDL solutions for the EDA environments of Cadence Design Systems,
Exemplar Logic, Mentor Graphics, Synopsys, Synplicity, and Viewlogic.

Designer Series Development System

In 1997, the Company introduced two significant updates to its
Designer Series software. The first of these releases, known as Designer
Series 3.1.1, provided support for many of the new silicon products,
including various new 3200DX family members and the RH1280. Designer Series
3.1.1 runs on both PC and UNIX platforms. On PCs, Designer Series 3.1.1
runs on Windows 3.1, Windows for Workgroups, Windows NT 4.01, and Windows
95 operating systems. On UNIX platforms, Designer Series 3.1.1 runs on Sun
SparcStation workstations running SunOS or Solaris operating systems and
Hewlett Packard HP 9000 workstations running HP-UX operating systems.

In July 1997, Actel announced a new approach to its Designer Series
software products, offering a series of integrated, high-level design FPGA
development tools suites and cutting prices in all packages. The Company
believes the aggressive pricing strategy will prove attractive to schematic
designers moving up to high level design methodologies as well as to
experienced synthesis designers. In total, the new Designer Series product
line consists of eight separate packages. The new suites integrate
high-level design tools from Viewlogic, including ViewSynthesis FPGA
Synthesis, SpeedWave VHDL Simulator, and WorkView Office, and Synopsys with
Actel Designer Series 3.1.1. The product line also includes Designer Lite,
the first no-cost FPGA development software downloadable from the worldwide
web. Designer Lite is a complete package of design tools for the PC with
device libraries initially up to 8,000 gates. In October 1997, an enhanced
version of Designer Series 3.1.1 was released to support the initial
members of the new MX family of FPGAs. The first family member was rated as
a 16,000-gate device and Designer Lite was extended to include this and the
smaller devices in the MX family. Between July 1997 and the end of the
year, more than 10,000 copies of Designer Lite were downloaded, thereby
greatly expanding the number of potential designers for Actel's silicon
products.

CoreHDL Intellectual Property

As integrated circuits move to ever higher levels of capacity and
integration, the use of intellectual property ("IP"), in the form of cores,
becomes more important. In offering CoreHDL IP, the Company is targeting
high-density FPGA designers who are interested in combining customized
logic with predefined functions optimized for high performance
applications. By using predefined cores, designers save engineering
resources for the value-added portions of their designs while shortening
the design cycle. In addition, the portable nature of cores enables design
reuse across multiple product versions.

Actel's CoreHDL IP portfolio includes CorePCI, telecommunications
cores, and industrial cores. In 1997, the Company enhanced its CorePCI
models, which are Peripheral Component Interface (PCI) compliant blocks or
"cores" that can be used to save development time by being "dropped into"
designs for ACT 3 PCI devices. Actel offers CorePCI models, which were
developed internally, in both VHDL and Verilog-HDL. The remaining cores
were developed by Inicore AG, a Swiss IP provider. The telecommunications
cores include an ISDN G704-EI Framer, an Asynchronous Transfer Mode (ATM)
UTOPIA receiver interface, and an ATM UTOPIA transmitter interface. The
cores targeted to industrial control applications include a Universal
Asynchronous Receiver/Transmitter (UART), a Controller Area Network (CAN)
Interface, and a Serial Control Bus Interface. The Company has terminated
its agreement with Inicore and currently does not have a contractual right
of access to cores developed by any third party.

Silicon Explorer

In April 1997, Actel introduced a powerful debugging and diagnostic tool
known as the Silicon Explorer. This tool can significantly reduce the FPGA
design verification time by enabling the user to monitor the internal operation
of a programmed FPGA as it performs its functions at speed within a real system.
The Silicon Explorer tool suite includes ProbePilot, a high-speed signal
acquisition hardware interface between the Actel FPGA, the board on which the
FPGA resides, and the designer's desktop computer; Explore, an easy-to-use
point-and-click software tool that is integrated with the Company's Designer
Series development software; and Analyze, a PC-hosted logic analyzer that
graphically displays the waveforms accessed through ProbePilot. The ProbePilot
signal acquisition control takes advantage of the Company's ActionProbe
circuitry, a patented architectural feature included in all Actel devices that
provides 100% observability of internal nodes from selected external pins.
ProbePilot supports 18 separate probing channels and features high-speed 100 MHz
asynchronous or 66 MHz synchronous sampling rates. ProbePilot connects directly
to any desktop or laptop computer or workstation through the series port and
operates off the test board's 5.0 volt or 3.3 volt power supply. The Explore
windows-based software drives the entire diagnostic and debug process and
resides on the designer's PC or workstation as part of Actel's Designer Series
FPGA development tools. The Analyze software tool essentially turns the
designer's PC or workstation into a full-featured 18 channel logic analyzer,
eliminating the need for a costly stand-alone logic analyzer.

Activator

The Company's Activator device programmers are used to program Actel's
FPGAs. The Activator accepts data from Designer Series Development System
software, converts the data to the proper protocol, and applies the appropriate
electrical signals to the device so as to imprint the user's circuit design on
the device permanently. There are currently two Activator device programmers,
Activator 2 and Activator 2S, both of which execute all programming,
verification, and debugging functions. Customized programming adapters for each
device type permit different packages to be programmed by switching adapters.
Activator 2 programs up to four FPGAs at a time; Activator 2S programs one FPGA
at a time.

Actel also supports programmers that are manufactured by third parties,
including Data I/O and BP Microsystems Inc.

Market and Applications

FPGAs can be used in a broad range of applications across nearly all
electronic system market segments. Most customers use the Company's FPGAs in
low- to medium-volumes in the final production form of their products. Some
high-volume electronic system manufacturers use Actel's FPGAs as a prototyping
vehicle and convert production to lower-cost conventional gate arrays, while
others with time-to-market constraints use the Company's FPGAs in the initial
production and then convert to conventional gate arrays. As product life cycles
continue to shorten and manufacturing efficiencies increase in FPGAs, some
high-volume electronic system manufacturers are electing to retain FPGAs in
volume production because conversion to conventional gate arrays may not yield
sufficiently attractive savings before the electronic system reaches the end of
its life. With the introduction of the MX family, Actel believes that its FPGAs
will increasingly be used in high-volume production.

Communications

The high capacity, high performance, and low power consumption of FPGAs
make them well suited for use in communications equipment. Increasingly complex
equipment must frequently be designed to fit in the space occupied by previous
product generations. The rapidly changing communications environment rewards
short development times and early market entry.

Representative Actel customers in the communications market include: 3Com,
ADC Kentrox, Advanced Fibre Communications, Alcatel, Ascend Communications, Bay
Networks, Cabletron, Cascade, Cisco Systems, Chipcom, DSC Communications, Hughes
Network Systems, Lucent Technologies, Motorola, and Nortel.

Computer Systems and Peripherals

The computer systems markets are intensely competitive, placing a premium
on early market entry for new products. FPGAs decrease the time to market and
facilitate early completion of production models so that development of hardware
and software can occur in parallel.

Representative Actel customers in the computer market include: AST
Computer, Hewlett-Packard, IBM, Olivetti, Sky Computer, and Tandem Computer.

Industrial Control Equipment

Industrial control and instrumentation applications often require complex
electronic functions tailored to specific needs. FPGAs offer programmability and
high capacity, making them attractive to this segment of the electronic
equipment market.

Representative Actel customers in the industrial market include: Allen
Bradley/Rockwell, Eastman Kodak, General Electric, Hewlett-Packard, Marquette,
and Siemens.

Military and Aerospace

Rigorous quality and reliability standards, stringent volume requirements,
and the need for design security are characteristics of the military and
aerospace market. The Company's FPGAs have high quality, reliability, and
capacity, and are virtually impossible to reverse engineer, making them suitable
for many military and aerospace applications. Actel's FPGAs are especially well
suited for space applications, due to the high radiation tolerance of the
Company's antifuse, and for many aircraft and missile flight applications, due
to the high density and performance of Actel's FPGAs.

Representative Actel customers in the military market include: Alliant
Technology, Boeing, E-Systems, Harris, Honeywell, Hughes Aircraft, Jet
Propulsion Labs (JPL), Lockheed-Martin, Loral, National Aeronautics Space
Administration (NASA), Northrup, Olin Corporation, Raytheon, SCI Systems, Texas
Instruments Incorporated ("TI"), and TRW.

Sales and Distribution

The Company maintains a worldwide, multi-tiered selling organization that
includes a direct sales force, independent manufacturers' representatives, and
electronics distributors.

Actel's domestic sales force currently consists of 77 sales and
administrative personnel and field application engineers ("FAEs") operating from
15 sales offices located in major metropolitan areas. Direct sales personnel
call on target accounts and support direct original equipment manufacturers
("OEMs"). Besides overseeing the activities of direct sales personnel, the
Company's sales managers also oversee the activities of 21 manufacturers'
representative firms that operate from approximately 43 office locations. The
manufacturers' representatives concentrate on selling to major industrial
companies in North America. To service smaller, geographically dispersed
accounts in North America, Actel has distributor agreements with
Pioneer-Standard Electronics, Inc. ("Pioneer"), Arrow Electronics, Inc. and Zeus
Electronics (collectively, "Arrow"), and Wyle Electronics ("Wyle"). Arrow has
approximately 50 branch offices in North America; Pioneer and Wyle have a total
of approximately 60 branch locations in North America.

The Company generates a significant portion of its revenues from
international sales. Sales to customers outside the United States for 1997,
1996, and 1995 accounted for 31%, 33%, and 38% of net revenues, respectively. Of
these export sales, the largest portion was derived from European customers.
Export sales have declined as a percentage of net revenues principally because
the Company's radiation-hardened (RH) product family, which was introduced in
1996, is sold almost exclusively to customers within the United States. Actel's
European sales organization currently consists of 23 distributors (including
Arrow and Memec, which have 16 subsidiary companies in Europe) having
approximately 45 branch offices. The activities of these distributors are
supervised from sales management offices in Basingstoke (England), Paris
(France), Milano (Italy), and Munich (Germany), where a total of 17 people are
employed.

Matsushita, which is a foundry and strategic partner of the Company,
markets Actel's products in Japan under the Company's brand name. The Company
has two additional distributors in Japan: Innotech Corporation and Teksel Ltd.
Actel also has distributors in Australia, China, Egypt, Hong Kong, India, Korea,
Malaysia, Singapore, South Africa, and Taiwan. In 1997, the Company appointed
I&C Microsystems, Co., Ltd. as its new distribution partner for Korea. The
activities of these distributors are supervised from sales management offices in
Japan and Korea. Actel officially opened its Korean office in 1997, and
currently plans to open an office in Hong Kong in 1998.

After the Company's sales representatives and distributors evaluate a
customer's logic design requirements and determine if there is an application
suitable for Actel's FPGAs, the next step typically is a visit to the qualified
customer by a regional sales manager or the FAE from the Company or its
distributor. The sales manager or FAE may then determine that additional
analysis is required by engineers based at Actel's headquarters. The Company's
sales cycle for the initial sale of a design system is generally lengthy and
requires the continued participation of salespersons, FAEs, engineers, and
management.

In 1997, more than half of Actel's sales in the United States and virtually
all of the Company's sales outside the United States were made through
distributors. As is common in the semiconductor industry, Actel generally grants
price protection to distributors. Under this policy, distributors are granted a
credit upon a price reduction for the difference between their original purchase
price for products in inventory and the reduced price. From time to time,
distributors are also granted credit on an individual basis for Company-approved
price reductions on specific transactions to meet competition. The Company also
generally grants distributors limited rights to return products. To date,
product returns under this policy have not been material. Actel maintains
reserves against which these credits and returns are charged. Because of its
price protection and return policies, the Company generally does not recognize
revenue on products sold to distributors until the products are resold to end
customers.

Backlog

At December 31, 1997, Actel's backlog was approximately $28.0 million,
compared with approximately $27.0 million at December 31, 1996. The Company
includes in its backlog all OEM orders scheduled for delivery over the next nine
months and all distributor orders scheduled for delivery over the next six
months. Actel produces standard products that may be shipped from inventory
within a short time after receipt of an order. The Company's business, and to a
large extent that of the entire semiconductor industry, is characterized by
short-term order and shipment schedules, rather than volume purchase contracts.
In accordance with industry practice, Actel's backlog may be cancelled or
rescheduled by the customer on short notice without significant penalty. As a
result, the Company's backlog may not be indicative of actual sales and
therefore should not be used as a measure of future revenue.

Customer Service and Support

Actel believes that superior customer service and technical support are
essential for success in the FPGA market. The Company facilitates service and
support through service team meetings that address particular aspects of the
overall service strategy and support. The most significant areas of customer
service and technical support are regularly measured. Actel's customer service
organization emphasizes prompt, accurate responses to questions about product
delivery and order status.

The Company's FAEs provide technical support to customers in the United
States, Japan, Korea and Europe. This network of experts is augmented by FAEs
working for Actel's sales representatives and distributors throughout the world.
Customers in any stage of design can also obtain assistance from the Company's
technical support hotline. In addition, Actel offers technical seminars on its
products and comprehensive training classes on its software.

In 1997, Actel moved to better address the design concerns of its customers
by establishing Actel Design Services, an international network of design
centers. With offices now in Basingstoke, Boston, Chicago, and Sunnyvale, Actel
has an enhanced capability to support the increasing technical needs of
customers developing with synthesis tools.

In November 1997, Actel further enhanced its worldwide technical support
capabilities with the introduction of a web-based technical support database
called "Guru." Actel users can access Guru from their familiar web browser
through a series of "push button" forms and key words. The Guru system will
return relevant information to the questioner in a matter of seconds.

The Company generally warrants its products against defects in material and
workmanship for one year. Actel also warrants that its automatic place and route
software will achieve gate utilization at not less than the rates advertised.
The Company has not experienced significant warranty returns to date.

Manufacturing and Strategic Relationships

Actel's current strategy is to utilize third-party manufacturers for its
wafer requirements, which permits the Company to allocate its resources to
product design, development, and marketing. Wafers used in Actel's FPGAs are
manufactured by Chartered Semiconductor in Singapore, by Lockheed-Martin FSC in
the United States, by Matsushita in Japan, and by Winbond in Taiwan. The Company
historically purchased wafers from Matsushita and TI. Chartered Semiconductor,
Lockheed-Martin FSC, and Winbond were added in 1994. During 1997, Actel phased
out wafer purchases from TI in favor of its other suppliers. The active foundry
relationships for Actel's production FPGAs are currently manufactured by
Chartered Semiconductor using 0.6 0.45 micron design rules; by Lockheed-Martin
FSC using 0.8 micron design rules; by Matsushita using 0.8, 0.9, and 1.0 micron
design rules; and by Winbond using 0.6 and 0.8 micron design rules.
Pre-production wafers have been received from Chartered Semiconductor for
products designed using 0.35 micron design rules.

Wafers purchased by the Company from its suppliers are assembled, tested,
marked, and inspected by Actel and/or a subcontractor of the Company before
shipment to customers. Actel assembles most of its plastic commercial products
in Hong Kong and Korea. Ceramic package assembly, which is generally required
for military applications, currently is performed at one or more subcontractor
manufacturing facilities, some of which are in the United States.

In 1997, the Company and Lockheed-Martin FSC entered into an Amended and
Restated M2M Joint Development and Marketing Agreement. The Agreement calls for
the parties to establish production capability at Lockheed-Martin FSC for space
quality, radiation-hardened versions of Actel's first metal-to-metal antifuse
FPGAs (see "Research and Development -- SX Family"). After the production
capability is established, Lockheed-Martin FSC will manufacture, assemble, and
test the radiation-hardened FPGAs, and the Company will market and sell them.

In 1997, Actel announced the availability of two new sockets tooled
specifically for the Company by Yamaichi Electronics of Japan, one of the
leading suppliers of prototype and production sockets. Sockets permit designers
to replace a chip without damaging the board, which reduces some of the risk
commonly associated with using an antifuse FPGA in prototype board design. The
two new sockets increase the total number of Actel sockets offered by Yamaichi
to nine. The complete line of sockets accommodates all Actel FPGAs in TQFP,
PQFP, RQFP, and VQFP packages.

Research and Development

In 1997, 1996, and 1995, the Company spent $26.5 million, $23.9 million,
and $20.6 million, respectively, on research and development, which represented
approximately 17%, 16%, and 19% of net revenues, respectively, for such periods.
Actel's research and development expenditures are currently divided among
circuit design, software development, and process technology activities. In the
areas of circuit design and process technology, the Company's research and
development activities include continuing efforts to reduce the cost and improve
the performance of current products, principally by reducing the design rules
under which such products are manufactured, and to develop new families of FPGA
products based on existing or emerging technologies. Actel's software research
and development activities are dedicated to providing customers with access to a
wide variety of CAE tools and HDL cores in a complete and automated desktop
design environment on popular personal computer and workstation platforms, with
the objective of giving logic designers the capability and confidence to
successfully move up to higher level designs.

The research and development projects that the Company publicly discussed
in 1997 included the following:

SX Family

In the fourth calendar quarter of 1997, Actel won a number of significant
design wins with pre-production silicon and software of its new SX family of
FPGAs. It is currently anticipated that the SX family will be formally
introduced in April 1998. The SX family will be significantly faster than the
recently-launched MX family, which was believed to be the world's fastest FPGA
family at its introduction. This high level of performance in the SX family is
achieved through a combination of architectural features and a new, very low
impedance "metal to metal" antifuse structure. This new antifuse is the
culmination of more than six years of research and development activities to
produce a reliable, manufacturable, high-performance metal to metal antifuse.

ES Architecture and ES Reprogrammable Products

In 1996, Actel announced its intention to enter the reprogrammable FPGA
market. The Company's first reprogrammable FPGA offering will be an SRAM-based
"ES" product family utilizing Actel's new ES reprogrammable architecture.

The ES architecture combines a new, fine-grained cell structure with a
routing-centric architecture. The expected result is logic cells that are more
readily synthesized and more efficient than current programmable architectures.
The key to the architectural efficiencies is a technology in which separate
transistors are used to implement logic and to drive the interconnects. By
separating these functions, Actel believes that more efficient die utilization
is achievable, resulting in lower-cost designs. In addition, the interconnect
drivers are tailored to routing length, which should provide high performance
even for cross-chip routing. The ES architecture also makes greater use of
hierarchy than current programmable architectures. A constant, maximum routing
delay is associated with each level of hierarchy, which should provide the
device with fanout independent delays. This means that, regardless of the number
of logic elements being driven, the delay should always be constant, making the
chip's performance predictable. Many aspects of the ES architecture are
switch-technology independent, making it possible that future variants of the ES
architecture will employ antifuse, flash, or other basic programming elements.

The Company has experienced significant delays in matching the capabilities
of its software and the resources of its silicon. Actel currently is making a
set of changes to both the silicon and the software. While the result should be
a product as good as or better than the one originally planned, the Company does
not believe the product will be available until at least the second half of
1998. With the additional time required for ES development, the Company now
anticipates that the initial production ES devices will use a 0.25 micron,
five-layer metal process.

Competition

The FPGA market is highly competitive, and the Company expects that
competition will continue to increase as the market grows. Actel's competitors
include suppliers of TTLs and ASICs, including conventional gate arrays, PLDs,
and FPGAs. Of these, the Company competes principally with suppliers of
conventional gate arrays, CPLDs, and FPGAs.

The primary advantages of conventional gate arrays are high capacity, high
speed, and low production cost in high volume. Actel competes with conventional
gate array suppliers by offering lower design costs, shorter design cycles, and
reduced inventory risks. However, some customers elect to design and prototype
with the Company's products and then convert to conventional gate arrays to
achieve lower costs for volume production. For this reason, Actel faces
competition from companies that specialize in converting CPLDs and FPGAs,
including the Company's products, into conventional gate arrays.

The Company also competes with suppliers of CPLDs. Suppliers of these
devices include Altera Corporation ("Altera"), Advanced Micro Devices' Vantis
subsidiary, and Lattice Semiconductor. The circuit architecture of CPLDs gives
them a performance advantage in certain lower capacity applications, but Actel
believes that its products are better suited for higher capacity designs.
Altera, however, has a larger installed base of development systems than the
Company. In addition, many newer CPLDs are reprogrammable, which permits
customers to reuse a circuit multiple times during the design process (unlike
antifuse-based FPGAs, which permanently retain the programmed configuration). No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.

The Company competes most directly with established FPGA suppliers, such as
Xilinx, Inc. ("Xilinx") and Lucent Technologies (which is a licensed second
source of some Xilinx products). While Actel believes its products and
technology are superior to those of Xilinx in many applications requiring
greater speed, lower cost, or nonvolatility, Xilinx came to market with its
FPGAs approximately three years before the Company, has a larger installed base
of development systems, and its SRAM-based products are reprogrammable. No
assurance can be given that Actel will be able to overcome these competitive
disadvantages.

Several companies have either already marketed antifuse-based FPGAs,
including QuickLogic Corporation ("QuickLogic"), or announced their intention to
do so. See "Legal." On March 31, 1995, the Company completed its acquisition of
the antifuse FPGA business of TI, which was the only second-source supplier of
the Company's products. Xilinx, which is a licensee of certain of the Company's
patents, introduced antifuse-based FPGAs in 1995 and terminated its antifuse
FPGA business in 1996. Cypress Semiconductor Corporation, which was a licensed
second source of QuickLogic, sold its antifuse FPGA business to QuickLogic in
the first quarter of 1997.

Actel expects significant additional competition from major domestic and
international semiconductor suppliers, such as Motorola, which has declared that
it is a participant in the FPGA market. All such companies are larger, offer
broader product lines, and have substantially greater financial and other
resources than the Company, including the capability to manufacture their own
wafers. Additional competition could adversely affect Actel's business,
financial condition, or results of operations.

The Company may also face competition from suppliers of logic products
based on new or emerging technologies. For example, there are other known
techniques for manufacturing programmable switch elements that might offer
certain advantages over Actel's antifuse technologies. The Company seeks to
monitor developments in existing and emerging technologies. No assurance can be
given that Actel will be able to compete successfully with suppliers offering
products based on new or emerging technologies.

Patents and Licenses

As of December 31, 1997, the Company had 117 United States patents and
applications pending for an additional 35 United States patents. Actel has ten
European patent and has applications pending for an additional 42 patents
outside the United States. The Company's patents cover, among other things,
Actel's basic circuit architecture, antifuse structure, and programming method.
The Company expects to continue filing patent applications when appropriate to
protect its proprietary technologies. Actel believes that patents, along with
such factors as innovation, technological expertise, and experienced personnel,
will become increasingly important.

The Company attempts to protect its circuit designs, software, trade
secrets, and other proprietary information through patent and copyright
protection, agreements with customers and suppliers, proprietary information
agreements with employees, and other security measures. No assurance can be
given that the steps taken by Actel will be adequate to protect its proprietary
rights.

In 1995, Actel and BTR, Inc. entered into a License Agreement pursuant to
which BTR licensed its proprietary technology to the Company for development and
use in FPGAs and certain multichip modules. As partial consideration for the
grant of the license, the Company is paying to BTR non-refundable advance
royalties. Actel has also employed the principals of BTR to assist the Company
in its development and implementation of the licensed technology.

As is typical in the semiconductor industry, the Company has been notified
of claims that it may be infringing patents owned by others. If it is necessary
or appropriate, Actel may seek to obtain licenses under patents that it is
alleged to infringe. Although the Company is unable to estimate with any degree
of confidence the cost of such licenses, no assurance can be given that they
would not, individually or in the aggregate, have a materially adverse effect on
Actel's financial condition or results of operations. In addition, there can be
no assurance that licenses will be available or that the terms of any offered
license will be acceptable to the Company. Failure to obtain a license for
technology used by Actel could result in litigation. In the event of an adverse
result in any litigation, the Company may be required to pay substantial
damages; discontinue the use of infringing processes; cease the manufacture,
use, and sale of infringing products; and/or expend significant resources to
develop non-infringing technology. All litigation, whether or not determined in
favor of Actel, can result in significant expense and divert the efforts of
technical and management personnel from the Company's operations. In addition,
the Company has agreed to defend its customers from and against any claims that
Actel products infringe the patent or other intellectual rights of any third
party, and to indemnify its customers up to the dollar amount of their purchases
of any Actel products found to infringe. Any successful third party claim
against the Company or its customers for patent or other intellectual property
infringement may have a materially adverse effect on Actel's business, financial
condition, or results of operations.

Employees

At the end of 1997, the Company had 380 full-time employees, including 117
in marketing, sales, and customer support; 137 in research and development; 94
in operations; and 32 in administration and finance. None of the Company's
employees is represented by a labor union nor does Actel have employment
agreements with any of its employees. The Company has not experienced any work
stoppages, and believes that its employee relations are satisfactory.

Risk Factors

Shareholders and prospective shareholders of Actel should carefully
consider, along with the other information in this Annual Report on Form 10-K,
the following risk factors:

Acts of God

The performance of Actel and each of its suppliers, distributors,
subcontractors, and agents is subject to events or conditions beyond such
party's control, including labor disputes, acts of public enemies or terrorists,
war or other military conflicts, blockades, insurrections, riots, epidemics,
quarantine restrictions, landslides, lightning, earthquake, fires, storms,
floods, washouts, arrests, civil disturbances, restraints by or actions of
governmental bodies acting in a sovereign capacity (including export or security
restrictions on information, material, personnel, equipment, or otherwise),
breakdowns of plant or machinery, inability to obtain transport or supplies, and
the like. The occurrence of any of these circumstances could disrupt the
Company's operations and may have a materially adverse effect on the Company's
business, financial condition, or results of operations.

"Blank Check" Preferred Stock; Change in Control Arrangements

Actel's Articles of Incorporation authorize the issuance of up to 5,000,000
shares of "blank check" Preferred Stock (of which 4,000,000 shares remain
available for issuance), with such designations, rights, and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board is empowered, without approval by holders of the Company's Common Stock,
to issue Preferred Stock with dividend, liquidation, redemption, conversion,
voting, or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. Issuance of the Preferred Stock could
be used as a method of discouraging, delaying, or preventing a change in control
of Actel. In addition, such issuance could adversely affect the market price of
the Common Stock. Although the Company does not currently intend to issue any
additional shares of its Preferred Stock, there can be no assurance that Actel
will not do so in the future.

The Company has adopted an Employee Retention Plan that provides for
payment of stock to Actel's employees who hold unvested stock options in the
event of a change of control of the Company. Payment is contingent upon the
employee remaining with Actel for six months after the change of control. The
Company has also entered into Management Continuity Agreements with each of its
executive officers, which provide for the acceleration of unvested stock options
in the event an executive officer's employment is actually or constructively
terminated other than for cause following a change of control.

Competition

The semiconductor industry is intensely competitive and is characterized by
rapid rates of technological change, product obsolescence, and price erosion.
Actel's existing competitors include suppliers of conventional gate arrays,
CPLDs, and FPGAs. The Company's two principle competitors are Xilinx, a supplier
of FPGAs based on SRAM technology, and Altera, a supplier principally of CPLDs.
In connection with the settlement of patent litigation in 1993, Actel granted
Xilinx a license under certain of Actel's patents that permits Xilinx to
manufacture and market antifuse-based products. Xilinx announced in 1996 that it
had discontinued its antifuse-based FPGA product line. The Company also faces
competition from companies that specialize in converting FPGAs, including
Actel's products, into conventional gate arrays. In addition, the Company
expects significant competition in the future from major domestic and
international semiconductor suppliers, and Actel's patents may not bar
competitors to which it has not granted a license from manufacturing other
antifuse-based products. The Company may also face competition from suppliers of
logic products based on new or emerging technologies. Given the intensity of the
competition and the research and development being done, no assurance can be
given that Actel's antifuse and architecture technology will remain competitive.

The Company believes that important competitive factors in its market are
price, performance, number of usable gates, ease of use and functionality of
development system software, installed base of development systems, adaptability
of products to specific applications, length of development cycle (including
reductions to finer micron design rules), number of I/Os, reliability, adequate
wafer fabrication capacity and sources of raw materials, protection of products
by effective utilization of intellectual property laws, and technical service
and support. Failure of Actel to compete successfully in any of these or other
areas could have a materially adverse effect on its business, financial
condition, or results of operations. In addition, all existing FPGAs not based
on antifuse technology and certain CPLDs are reprogrammable, a feature that
makes them more attractive to designers. The Company also believes that, if
there were a downturn in the market for CPLDs and FPGAs, companies that have
broader product lines and longer standing customer relationships may be in a
stronger competitive position than Actel. Many of the Company's current and
potential competitors offer broader product lines and have significantly greater
financial, technical, manufacturing, and marketing resources than Actel.

Dependence on Customized Manufacturing Process

Actel's antifuse based FPGAs are manufactured using customized steps that
are added to otherwise standard manufacturing processes of its independent wafer
suppliers. There is considerably less operating history for the Company's
customized process steps than for the foundries' standard manufacturing
processes. The dependence of Actel on customized processing steps means that, in
contrast with competitors using standard manufacturing processes, the Company
has more difficulty establishing relationships with independent wafer
manufacturers, takes longer to qualify a new wafer manufacturer, takes longer to
achieve satisfactory, sustainable wafer yields on new processes, may experience
a higher incidence of production yield problems, must pay more for wafers, and
generally will not obtain early access to the most advanced processes. These
risks are particularly pronounced with respect to wafers intended for use in
military and aerospace applications. Any of the above factors could be a
material disadvantage against the competing non-antifuse products of Actel's
competitors, which use standard manufacturing processes. As a result of these
factors, the Company's products typically have been fabricated using processes
one or two generations behind the processes used on competing products. As a
consequence, Actel to date has not fully realized the price and performance
benefits of its antifuse technology. The Company is attempting to accelerate the
rate at which its products are reduced to finer geometries and is working with
its wafer suppliers to obtain earlier access to advanced processes, but no
assurance can be given that such efforts will be successful.

Dependence on Design Wins

In order for the Company to sell an FPGA to a customer, the customer must
incorporate the FPGA into the customer's product in the design phase. Actel
therefore devotes substantial resources, which it may not recover through
product sales, in support of potential customer design efforts (including, among
other things, providing development system software) and to persuade potential
customers to incorporate the Company's FPGAs into new or updated products. These
efforts usually precede by many months (and sometimes a year or more) the
generation of volume FPGA sales, if any, by Actel. The value of any design win,
moreover, will depend in large part upon the ultimate success of the customer's
product. No assurance can be given that the Company will win sufficient designs
or that any design win will result in significant revenues.

Dependence on Independent Assembly Subcontractors

Actel relies primarily on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. The Company generally relies on one or two subcontractors to
provide particular services and has from time to time experienced difficulties
with the timeliness and quality of product deliveries. Actel has no long-term
contracts with its subcontractors and certain of those subcontractors are
currently operating at or near full capacity. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors could delay shipments and result in the loss of
customers or revenues or otherwise have a materially adverse effect on Actel's
business, financial condition, or results of operations.

Dependence on Independent Software Developers

Actel is dependent upon independent software developers for the
development, maintenance, and support of certain elements of its Designer Series
Development Systems software. The Company's reliance on independent software
developers involves certain risks, including lack of control over development
and delivery schedules and the availability of customer support. No assurance
can be given that the Company's independent developers will be able to complete
software currently under development, or provide updates, or customer support in
a timely manner, which could delay future releases and disrupt Actel's ability
to provide customer support services. Any significant delays in the availability
of the Company's software would be detrimental to the capability of the
Company's new families of products to win designs, which could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.

Dependence on Independent Wafer Manufacturers

Actel does not manufacture any of the wafers used in the production of its
FPGAs. Currently, such wafers are manufactured by Chartered Semiconductor in
Singapore, Lockheed-Martin FSC in the United States, Matsushita in Japan, and
Winbond in Taiwan. The Company's reliance on independent wafer manufacturers to
fabricate its wafers involves significant risks, including the risk of events
limiting production and reducing yields, such as technical difficulties or
damage to production facilities, lack of control over capacity allocation and
delivery schedules, and potential lack of adequate capacity. These risks are
particularly pronounced with respect to wafers intended for use in military and
aerospace applications.

Actel has from time to time experienced delays in obtaining wafers from its
foundries, and there can be no assurance that the Company will not experience
similar or more severe delays in the future. In addition, although Actel has
supply agreements with most of its wafer manufacturers, a shortage of raw
materials or production capacity could lead any of the Company's wafer suppliers
to allocate available capacity to customers other than Actel, or to internal
uses, which could interrupt the Company's capability to meet its product
delivery obligations. These risks are particularly pronounced with respect to
wafers intended for use in military and aerospace applications. Any inability or
unwillingness of Actel's wafer suppliers to provide adequate quantities of
finished wafers to satisfy the Company's needs in a timely manner would delay
production and product shipments and could have a materially adverse effect on
Actel's business, financial condition, or results of operations.

If the Company's current independent wafer manufacturers were unable or
unwilling to manufacture Actel's products as required, the Company would have to
identify and qualify additional foundries. The qualification process typically
takes one year or longer. No assurance can be given that any additional wafer
foundries would become available or be able to satisfy Actel's requirements on a
timely basis or that qualification would be successful. In addition, the
semiconductor industry has from time to time experienced shortages of
manufacturing capacity. To secure an adequate supply of wafers, the Company has
considered, and continues to consider, various possible transactions, including
the use of substantial nonrefundable deposits to secure commitments from
foundries for specified levels of manufacturing capacity over extended periods,
equity investments (such as Actel's investment in Chartered Semiconductor) in
exchange for guaranteed production, and the formation of joint ventures to own
foundries. No assurance can be given as to the effect of any such transaction on
the Company's business, financial condition, or results of operations.

Dependence on International Operations

Actel buys a majority of its wafers from foreign foundries and has most of
its commercial products assembled, packaged, and tested by subcontractors
located outside the United States. These activities are subject to the
uncertainties associated with international business operations, including trade
barriers and other restrictions, changes in trade policies, foreign governmental
regulations, currency exchange fluctuations, reduced protection for intellectual
property, war and other military activities, terrorism, changes in political or
economic conditions, and other disruptions or delays in production or shipments,
any of which could have a materially adverse effect on the Company's business,
financial condition, or results of operations.

In order to expand international sales and service, the Company will need
to maintain and expand existing foreign operations or establish new foreign
operations. This entails hiring additional personnel and maintaining or
expanding existing relationships with international distributors and sales
representatives. This will require significant management attention and
financial resources and could adversely affect Actel's financial condition and
operating results. No assurance can be given that the Company will be successful
in its maintenance or expansion of existing foreign operations, in its
establishment of new foreign operations, or in its efforts to maintain or expand
its relationships with international distributors or sales representatives.

Dependence on Key Personnel

The success of the Company is dependent in large part on the continued
service of its key management, engineering, marketing, sales, and support
employees. Competition for qualified personnel is intense in the semiconductor
industry, and the loss of Actel's current key employees, or the inability of the
Company to attract other qualified personnel, could have a materially adverse
effect on Actel. The Company does not have employment agreements with any of its
key employees.

Dependence on Military and Aerospace Customers

Although Actel is unable to determine with certainty the ultimate uses of
its products, the Company estimates that sales of its products to customers in
the military and aerospace industries, which sometimes carry higher profit
margins than sales of products to commercial customers, accounted for
approximately one-quarter of revenues in 1997. The Company believes that the
military and aerospace industries accounted for a significantly greater
percentage of the Company's net revenues following the introduction of RH1280 in
1996. No assurance can be given that future sales to customers in the military
and aerospace industries will continue at current volume or margin levels.
Orders from the military and aerospace customers tend to be large and irregular,
which creates operational challenges and contributes to fluctuations in Actel's
net revenues and gross margins. These sales are also subject to more extensive
governmental regulations, including greater import and export restrictions. In
addition, products for military and aerospace applications require processing
and testing that is more lengthy and stringent than for commercial applications,
increasing the risk of failure. It is often not possible to determine before the
end of processing and testing whether products intended for military or
aerospace applications will fail and, if they do fail, a significant period of
time is often required to process and test replacements, each of which makes it
difficult to accurately estimate quarterly revenues and could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.

Dividend Policy

Actel has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the future.

Fluctuations in Operating Results

The Company's quarterly and annual operating results are subject to
fluctuations resulting from general economic conditions and a variety of risks
specific to Actel or characteristic of the semiconductor industry, including
booking and shipment uncertainties, supply problems, and price erosion.

Booking and Shipment Uncertainties

Actel typically generates a large percentage of its quarterly revenues
from orders received during the quarter and shipped in the final weeks of
the quarter, making it difficult to accurately estimate quarterly revenues.
The Company's backlog (which may be cancelled or deferred by customers on
short notice without significant penalty) at the beginning of a quarter
accounts for only a fraction of Actel's revenues during the quarter. This
means that the Company generates the rest of its quarterly revenues from
orders received during the quarter and "turned" for shipment within the
quarter, and that any shortfall in "turns" orders will have an immediate
and adverse impact on quarterly revenues. There are many factors that could
cause a shortfall in "turns" orders, including but not limited to a decline
in general economic conditions or the businesses of end users, excess
inventory in the channel, conversion to conventional (or non-programmable)
gate arrays, or the loss of business to other competitors for price or
other reasons.

Historically, Actel has shipped a disproportionately large percentage
of its quarterly revenues in the final weeks of the quarter. Any failure by
the Company to effect scheduled shipments by the end of the quarter,
therefore, could have a materially adverse effect on revenues for such
quarter. Since Actel generally does not recognize revenue on the sale of a
product to a distributor until the distributor resells the product, the
Company's quarterly revenues are also dependent on, and subject to
fluctuations in, shipments by Actel's distributors. When there is a
shortfall in revenues, operating results are likely to be adversely
affected because most of the Company's expenses do not vary with revenues.

Supply Problems

In a typical semiconductor manufacturing process, silicon wafers
produced by a foundry are sorted and cut into individual die, which are
then assembled into individual packages and tested for performance. The
manufacture, assembly, and testing of semiconductor products is highly
complex and subject to a wide variety of risks, including defects in masks,
impurities in the materials used, contaminants in the environment, and
performance failures by personnel and equipment. Semiconductor products
intended for military and aerospace applications are particularly
susceptible to these conditions, any of which could have a materially
adverse effect on Actel's business, financial condition, or results of
operations.

As is common in the semiconductor industry, Actel's independent wafer
suppliers from time to time experience lower than anticipated yields of
usable die. For example, the Company experienced a yield problem at one of
its foundries in the fourth quarter of 1993 that was severe enough to have
a materially adverse effect on Actel's operating results. To the extent
yields of usable die decrease, the average cost to the Company of each
usable die increases, which reduces gross margin. Wafer yields can decline
without warning and may take substantial time to analyze and correct,
particularly for a company such as Actel that does not operate its own
manufacturing facility, but instead utilizes independent facilities, most
of which are offshore. Yield problems may also increase the time to market
for the Company's products and create inventory shortages and dissatisfied
customers. In addition, Actel typically experiences difficulties and delays
in achieving satisfactory, sustainable yields on new processes or at new
foundries. Although the Company eventually has been able to overcome these
difficulties in the past, no assurance can be given that it will be able to
do so with respect to its current or future new processes and/or new
foundries. Nor can any assurance be given that the Company will not
experience wafer supply problems in the future, or that any such problem
would not have a materially adverse effect on Actel's business, financial
condition, or results of operations.

Price Erosion

The semiconductor industry is characterized by intense competition.
Historically, average selling prices in the semiconductor industry
generally, and for the Company's products in particular, have declined
significantly over the life of each product. While Actel expects to reduce
the average selling prices of its products over time as the Company
achieves manufacturing cost reductions, Actel is sometimes required by
competitive pressures to reduce the prices of its products more quickly
than such cost reductions can be achieved. In addition, the Company
sometimes approves price reductions on specific sales to meet competition.
If not offset by reductions in manufacturing costs or by a shift in the mix
of products sold toward higher-margin products, declines in the average
selling prices of Actel's products will reduce gross margins and could have
a materially adverse effect on the Company's business, financial condition,
or results of operations.

Forward-Looking Statements

All forward-looking statements contained in this Annual Report on Form
10-K, including all forward-looking statements contained in any document
incorporated herein by reference, are made pursuant to the safe harbor
provisions of the Public Securities Litigation Reform Act of 1995. Words such as
"anticipates," "believes," "estimates," "expects," intends," "plans," "seeks,"
and variations of such words and similar expressions are intended to identify
the forward-looking statements. The forward-looking statements include
projections relating to trends in markets, revenues, average selling prices,
gross margin, wafer yields, research and development expenditures, selling,
general, and administrative expenditures, and the Year 2000 compliance issue.
All forward-looking statements are based on current expectations and projections
about the semiconductor industry and programmable logic market, and assumptions
made by the Company's management that reflect its best judgment based on other
factors currently known by management, but they are not guarantees of future
performance. Accordingly, actual events and results may differ materially from
those expressed or forecast in the forward-looking statements due to the risk
factors identified herein or for other reasons. Actel undertakes no obligation
to update any forward-looking statement contained or incorporated by reference
in this Annual Report on Form 10-K.

Future Capital Needs

The Company must continue to make significant investments in research and
development as well as capital equipment and expansion of facilities. Actel's
future capital requirements will depend on many factors, including, among
others, product development, investments in working capital, and acquisitions of
complementary businesses, products, or technologies. To the extent that existing
resources and future earnings are insufficient to fund the Company's operations,
Actel may need to raise additional funds through public or private debt or
equity financings. If additional funds are raised through the issuance of equity
securities, the percentage ownership of current shareholders will be reduced and
such equity securities may have rights, preferences, or privileges senior to
those of the holders of the Company's Common Stock. No assurance can be given
that additional financing will be available or that, if available, it can be
obtained on terms favorable to Actel and its shareholders. If adequate funds are
not available, the Company may be required to delay, limit, or eliminate some or
all of its proposed operations.

Gross Margin

The Company's gross margin is the difference between the revenues it
receives from the sale of its products and the cost of those products. The price
Actel can charge for a product is constrained principally by its competitors.
While competition has always been intense, the Company believes price
competition is becoming more acute. This may be due in part to the transition
toward high-level design methodologies, which permit designers to wait until
later in the design process before selecting a programmable logic device and
make it easier to convert from one programmable logic device to another. These
competitive pressures may cause Actel to reduce the prices of its products more
quickly than it can achieve cost reductions, which would reduce the Company's
gross margin and may have a materially adverse effect on its operating results.

One of the most important variables affecting the cost of the Company's
products is manufacturing yields. With its customized antifuse manufacturing
process requirements, Actel almost invariably experiences difficulties and
delays in achieving satisfactory, sustainable yields on new processes or at new
foundries. The Company introduced the first members of the MX family in the
fourth quarter of 1997 and is currently scheduled to introduce new members of
the MX family and the first members of the SX family in 1998. Until satisfactory
yields are achieved on these new product families, they generally will be sold
at lower gross margins than Actel's mature product families. Depending upon the
rate at which sales of these new products ramp (and the MX family is directed at
high-volume users) and the extent to which they displace mature products, the
lower gross margins could have a materially adverse effect on the Company's
operating results.

Management of Growth

Actel has recently experienced and expects to continue to experience growth
in the number of its employees and the scope of its operations, resulting in
increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to hire,
train, motivate, and manage a growing number of employees. The future success of
Actel will also depend on its ability to attract and retain qualified technical,
marketing, and management personnel. In particular, the current availability of
qualified silicon design, software design, process, and test engineers is
limited, and competition among companies for skilled and experienced engineering
personnel is very strong. The Company has been attempting to hire a number of
engineering personnel and has experienced delays in filling such positions.
During strong business cycles, Actel expects to experience continued difficulty
in filling its needs for qualified engineers and other personnel. No assurance
can be given that the Company will be able to achieve or manage effectively any
such growth, and failure to do so could delay product development and
introductions or otherwise have a materially adverse effect on Actel's business,
financial condition, or results of operations.

Manufacturing Yields

Actel depends upon its independent wafer suppliers to produce wafers with
acceptable yields and to deliver them to the Company in a timely manner.
Currently, substantially all of the Company's revenues are derived from products
based on Actel's proprietary antifuse process technologies. Successful
implementation of antifuse process technology requires a high degree of
coordination between the Company and its foundry. Therefore, significant lead
time is required to reach volume production on new processes and at a new wafer
supply locations. Accordingly, no assurance can be given that volume production
on Actel's new MX and SX families will be achieved in the near term or at all.

The manufacture of high-performance antifuse wafers is a complex process
that requires a high degree of technical skill, state-of-the-art equipment, and
effective cooperation between the wafer supplier and the circuit designer to
produce acceptable yields. Minute impurities, errors in any step of the
fabrication process, defects in the masks used to print circuits on a wafer, and
other factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be non-functional. As is common in the
semiconductor industry, the Company has from time to time experienced in the
past, and expects that it will experience in the future, production yield
problems and delivery delays. Any prolonged inability to obtain adequate yields
or deliveries could adversely affect the Actel's business and operating results.

One-Time Programmability

While the nonvolatility of Actel's antifuse FPGAs is necessary or desirable
in some applications, logic designers generally would prefer to prototype with a
reprogrammable logic device, all other things being equal. This is because the
designer can reuse the device if he or she makes an error. The visibility
associated with discarding a one-time programmable device often causes designers
to select a reprogrammable device even when the alternative one-time
programmable device offers significant advantages. This bias in favor of
designing with reprogrammable logic devices appears to increase as the size of
the design increases, and is a major reason the Company has decided to enter the
reprogrammable FPGA market.

Patent Infringement

As is typical in the semiconductor industry, the Company has been and
expects to be from time to time notified of claims that it may be infringing
patents owned by others. No assurance can be given that such claims against
Actel will not result in litigation. In January 1994, the Company brought a
patent infringement lawsuit against QuickLogic, which in turn brought a patent
infringement counterclaim against Actel in May 1995. In January 1998, the
Company brought a second patent infringement lawsuit against QuickLogic.
Management of the Company believes that Actel has meritorious claims and
defenses in these matters, and that their resolution will not have a materially
adverse effect on the Company's business, financial condition, or results of
operations, but no assurance can be given to that effect. All litigation,
whether or not determined in favor of Actel, can result in significant expense
to the Company and can divert the efforts of Actel's technical and management
personnel from productive tasks.

Although the Company has obtained patents covering aspects of its FPGA
architecture, logic modules, and certain techniques for manufacturing its
antifuse, no assurance can be given that Actel's patents will be determined to
be valid or that the claims of QuickLogic or any assertions of infringement or
invalidity by other parties (or claims for indemnity from customers resulting
from any infringement claims) will not be successful. In the event of an adverse
ruling in the QuickLogic cases or any other litigation involving intellectual
property, the Company could suffer significant (and possibly treble) monetary
damages, which might have a materially adverse effect on Actel's business,
financial condition, or results of operations. The Company may also be required
to discontinue the use of infringing processes; cease the manufacture, use, and
sale of infringing products; expend significant resources to develop
non-infringing technology; or obtain licenses under patents that it is
infringing. Although patent holders commonly offer licenses to alleged
infringers, no assurance can be given that licenses will be offered or that the
terms of any offered licenses will be acceptable to Actel. In the event of a
successful claim against the Company, Actel's failure to develop or license a
substitute technology on commercially reasonable terms would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.

Potential Acquisitions

In pursuing its business strategy, Actel may acquire products,
technologies, or businesses from third parties. Identifying and negotiating
these acquisitions may divert substantial management time away from the
Company's operations. An acquisition could absorb substantial cash resources,
require Actel to incur or assume debt obligations, and/or involve the issuance
of additional equity securities of the Company. The issuance of additional
equity securities may dilute, and could represent an interest senior to the
rights of, the holders of Actel's Common Stock. An acquisition accounted for as
a purchase, such as the Company's acquisition of TI's antifuse FPGA business in
1995, could involve significant one-time write-offs, possibility resulting in a
loss for the fiscal year in which it is taken, and would require the
amortization of any goodwill over a number of years, which would adversely
affect earnings in those years. Any acquisition would require attention from the
Company's management to integrate the acquired entity into Actel's operations,
may require the Company to develop expertise outside its existing business, and
could result in departures of management from either Actel or the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time it is acquired by the Company.

Protection of Intellectual Property

Actel has historically devoted significant resources to research and
development and believes that the intellectual property derived from such
research and development is a valuable asset that has been and will continue to
be important to the success of the Company's business. Actel relies primarily on
a combination of nondisclosure agreements, other contractual provisions, and
patent and copyright laws to protect its proprietary rights. No assurance can be
given that the steps taken by the Company will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which
Actel's products are or may be developed, manufactured, or sold, including Asia
and Europe, may not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Failure of Actel to
enforce its patents or copyrights or to protect its trade secrets could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.

Reliance on Distributors

In 1997, more than half of Actel's sales in the United States and virtually
all of the Company's sales outside the United States were made through
distributors. Three of Actel's distributors, Wyle, Arrow, and Pioneer, accounted
for approximately 17%, 17%, and 12%, respectively, of the Company's net revenues
in 1997. No assurance can be given that future sales by these or other
distributors will continue at current levels or that the Company will be able to
retain its current distributors on terms that are acceptable to Actel.

The Company's distributors generally offer products of several different
companies, including products that are competitive with Actel's products.
Accordingly, there is a risk that these distributors may give higher priority to
products of other suppliers, thus reducing their efforts to sell the Company's
products. In addition, Actel's agreements with its distributors are generally
terminable at the distributor's option. A reduction in sales efforts by one or
more of the Company's current distributors or a termination of any distributor's
relationship with Actel could have a materially adverse effect on the Company's
business, financial condition, or results of operations.

Actel generally defers recognition of revenue on shipments to distributors
until the product is resold by the distributor to the end user. The Company's
distributors have on occasion built inventories in anticipation of substantial
growth in sales and, when such growth did not occur as rapidly as anticipated,
substantially decreased the amount of product ordered from Actel in subsequent
quarters. Such a slowdown in orders would generally reduce the Company's profit
margins on future sales of higher cost products because Actel would be unable to
take advantage of any manufacturing cost reductions while the distributor
depleted its inventory at lower average selling prices. In addition, while the
Company believes that its major distributors are currently adequately
capitalized, no assurance can be given that one or more of Actel's distributors
will not experience financial difficulties. The failure of one or more of the
Company's distributors to pay for products ordered from Actel or to continue
operations because of financial difficulties or for other reasons could have a
materially adverse effect on the Company's business, financial condition, or
results of operations.

Reliance on International Sales

Sales to customers located outside the United States accounted for
approximately 31%, 33%, and 38% of net revenues for 1997, 1996, and 1995,
respectively. Actel expects that revenues derived from international sales will
continue to represent a significant portion of its total revenues. International
sales are subject to a variety of risks, including longer payment cycles,
greater difficulty in accounts receivable collection, currency restrictions,
tariffs, trade barriers, taxes, export license requirements, and the impact of
recessionary environments in economies outside the United States. All of the
Company's foreign sales are denominated in U.S. dollars, so Actel's products
become less price competitive in countries with currencies that are declining in
value against the dollar. In addition, since virtually all of the Company's
foreign sales are made through distributors, such sales are subject to the risks
described above in "Reliance on Distributors."

Semiconductor Industry Risks

The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, which are characterized by diminished
product demand, accelerated price erosion, and overcapacity. The Company may in
the future experience substantial period-to-period fluctuations in business and
results of operations due to general semiconductor industry conditions, overall
economic conditions, or other factors, including legislation and regulations
governing the import or export of semiconductor products.

Software Development Challenges

The computational complexities are not yet well understood for the software
tools required to support the largest members of the ES family of products. It
is anticipated that both the computational memory capacities and tool runtimes
will be several times greater than those presently required for Actel's current
antifuse products, which are significantly smaller. It is expected that the
Company will need to develop and deploy tools incorporating significantly more
compact, memory-resident data structures, which must be combined with algorithms
capable of dealing very efficiently with the large circuit sizes.

Technological Change and Dependence on New Product Development

The market for Actel's products is characterized by rapidly changing
technology, frequent new product introductions, and declining average selling
prices over product life cycles, each of which makes the timely introduction of
new products a critical objective of the Company. Actel's future success is
highly dependent upon the timely completion and introduction of new products at
competitive price and performance levels. In evaluating new product decisions,
Actel must anticipate well in advance both the future demand and the technology
that will be available to supply such demand. Failure to anticipate customer
demand, delays in developing new products with anticipated technological
advances, and failure to coordinate the design and development of silicon and
associated software products each could have a materially adverse effect on
Actel's business, financial condition, or results of operation.

In addition, there are greater technological and operational risks
associated with new products. The inability of the Company's wafer suppliers to
produce advanced products; delays in commencing or maintaining volume shipments
of new products; the discovery of product, process, software, or programming
failures; and any related product returns could each have a materially adverse
effect on Actel's business, financial condition, or results of operation.

Actel is currently scheduled to introduce new members of the MX, SX, and ES
families in 1998. No assurance can be given that the Company's design and
introduction schedules for such products or the supporting software will be met
or that such products will be well-received by customers. No assurance can be
given that any other new products will gain market acceptance or that the
Company will respond effectively to new technological changes or new product
announcements by others. Any failure of Actel to successfully define, develop,
market, manufacture, assemble, or test competitive new products could have a
materially adverse effect on its business, financial condition, or results of
operations.

The Company must also continue to make significant investments in research
and development to develop new products and achieve market acceptance for such
products. Actel currently conducts most of its research and development
activities at facilities operated by Matsushita in Japan and Extel
Semiconductor, Inc. in the United States. Although the Company has not to date
experienced any significant difficulty in obtaining access to its current
facilities, no assurance can be given that access will not be limited or that
such facilities will be adequate to meet Actel's needs in the future.

Volatility of Stock

The price of the Company's Common Stock can fluctuate substantially on the
basis of factors such as announcements of new products by Actel or its
competitors, quarterly fluctuations in the Company's financial results or the
financial results of other semiconductor companies, or general conditions in the
semiconductor industry or in the financial markets. In addition, stock markets
have recently experienced extreme price and volume volatility. This volatility
has had a substantial effect on the market prices of the securities issued by
high technology companies, at times for reasons unrelated to the operating
performance of the specific companies.

Year 2000 Compliance

The Year 2000 issue arises because most computer hardware and software were
developed without considering the impact of the upcoming change in the century.
The hardware and software were originally designed to accept two-digit entries
rather than four-digit entries in the date code field. As a result, certain
computer systems and software packages will not be able to interpret dates
beyond December 31, 1999; they will, for example, interpret January 1, 2000, as
January 1, 1900. This could potentially result in computer failure or
miscalculations, causing operating disruptions, including among other things an
inability to process transactions, send invoices, or engage in other ordinary
activities.

The Company has initiated a comprehensive project to prepare its computer
systems for the Year 2000 and plans to have changes to critical systems
completed by the first quarter of 1999 to permit time for testing. A task force
is identifying all areas of application software, operating system software,
hardware, and external interfaces that require Year 2000 compliance. While the
Company currently expects that the Year 2000 will not pose significant internal
operational problems, delays in the implementation of new information systems,
or a failure to fully identify all Year 2000 dependencies in the Company's
systems, could have a materially adverse effect on the Company's operating
results.

The Company is also assessing the capability of its products sold to
customers over a period of years to handle the Year 2000. The ongoing assessment
has not revealed any significant compliance issues. However, the inability of
these products to properly manage and manipulate data in the Year 2000 could
result in a material adverse impact on the Company, including increased warranty
costs, customer satisfaction issues, and potential lawsuits.

Based on its current understanding, the Company believes that the
likelihood of a material adverse impact due to problems with internal systems or
products sold to customers is remote and expects that the cost of its Year 2000
compliance program over the next two years will not have a material effect on
the Company's financial position or overall trends in results of operations. The
cost of the program and the date on which the Company believes it will become
Year 2000 compliant are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, cooperation of vendors, and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. If Year 2000
modifications and conversions are not properly made, or are not completed in
timely manner, the Year 2000 issue could have a materially adverse impact on the
Company's future business operations and, in turn, on its financial position and
results of operations. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in the area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.

Ultimately, the potential impact of the Year 2000 issue will depend not
only on the corrective measures the Company undertakes, but also on the way in
which the Year 2000 issue is addressed by businesses and other entities who
provide data to, or receive data from the Company, or whose financial condition
or operational capability is important to the Company as suppliers or customers.
Therefore, the Company is also developing a plan to contact critical suppliers
of products and services to determine that the suppliers' operations and the
products and services they provide are Year 2000 capable or to monitor their
progress toward Year 2000 capability. The Company's suppliers and customers are
generally much larger organizations than the Company with a greater number of
suppliers and customers of their own. The Company believes that many of its
suppliers and customers have not completed their own systems modification to be
Year 2000 compliant. The failure of significant suppliers or customers of the
Company to become Year 2000 compliant could have materially adverse consequences
to the Company. Those consequences could include the inability to receive
product in a timely manner or lost sales opportunities, either of which could
result in a material decline in the Company's revenues and profits. In addition,
there can be no guarantee that a conversion by a third party's system on which
the Company's systems rely would be compatible with the Company's systems. It is
not possible at this time to quantify the potential impact of such situations,
but no assurance can be given that another company's failure to ensure Year 2000
capability will not have an adverse effect on the Company.

Executive Officers of the Registrant

The following table identifies each executive officer of Actel as of March
27, 1998:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------- ------- ---------------------------------------------------------
<S> <C> <C>
John C. East......................... 53 President and Chief Executive Officer

Henry L. Perret...................... 52 Vice President of Finance and Chief Financial Officer

Esmat Z. Hamdy....................... 48 Senior Vice President of Technology & Operations

Jeffrey M. Schlageter................ 54 Senior Vice President of Engineering & Corporate Programs

Michelle A. Begun.................... 41 Vice President of Human Resources

Carl N. Burrow....................... 37 Vice President of Marketing

Douglas D. Goodyear.................. 43 Vice President of Worldwide Sales

Fares N. Mubarak..................... 36 Vice President of Engineering

Dennis F. Nye........................ 45 Vice President of Strategic Accounts

Robert J. Smith, II.................. 53 Vice President of Software

David L. Van De Hey.................. 42 Vice President & General Counsel and Secretary
</TABLE>

Mr. East has served as President and Chief Executive Officer of the Company
since December 1988. From April 1979 until joining Actel, Mr. East served in
various positions with Advanced Micro Devices, a semiconductor manufacturer,
including Senior Vice President of Logic Products from November 1986 to November
1988. From December 1976 to March 1979, he served as Operations Manager for
Raytheon Semiconductor. From September 1968 to December 1976, he served in
various marketing, manufacturing, and engineering positions for Fairchild Camera
and Instrument Corporation, a semiconductor manufacturer.

Mr. Perret joined Actel in January 1996 as Controller and has been Vice
President of Finance and Chief Financial Officer since June 1997. From April
1992 until joining the Company, he was the Site Controller for the manufacturing
division of Applied Materials, a maker of semiconductor manufacturing equipment,
in Austin, Texas. From 1978 to 1991, Mr. Perret held various financial
positions, including divisional controllerships with National Semiconductor, a
semiconductor manufacturer.

Dr. Hamdy is a founder of the Company, was Vice President of Technology
from August 1991 to March 1996 and Senior Vice President of Technology from
March 1996 to September 1996, and has been Senior Vice President of Technology
and Operations since September 1996. From November 1985 to July 1991, he held a
number of management positions with the Company's technology and development
group. From January 1981 to November 1985, Dr. Hamdy held various positions at
Intel Corporation, a semiconductor manufacturer, lastly as project manager.

Mr. Schlageter joined the Company in February 1989 as Vice President of
Engineering, was Senior Vice President of Engineering from November 1992 to
October 1997, and has been Senior Vice President of Engineering and Corporate
Programs since October 1997. From July 1985 to January 1989, he held various
positions at Advanced Micro Devices, a semiconductor manufacturer, where he last
served as Managing Director of Peripheral Products. From February 1981 to July
1985, Mr. Schlageter was Vice President of Semicustom Products at Mostek
Corporation, a semiconductor manufacturer.

Ms. Begun joined Actel in May 1989 as Director of Human Resources, and has
been Vice President of Human Resources since August 1991. From May 1984 to May
1989, she held various human resources management positions at Intel
Corporation, a semiconductor manufacturer, her last position being Human
Resources Manager. From October 1977 to May 1984, she held various human
resources management positions at Synertek, Inc., a subsidiary of Honeywell, a
semiconductor manufacturer.

Mr. Burrow joined the Company in January 1992 as Southwest Regional Sales
Manager, was Director of Western Area Sales from February 1996 to October 1997,
and has been Vice President of Marketing since October 1997. From June 1983
until January 1992, he held various sales and marketing positions at Texas
Instruments, a semiconductor manufacturer.

Mr. Goodyear joined the Company in February 1996 as Vice President of
Worldwide Sales. From November 1991 until joining the Company, he served as Vice
President of Sales for the components division of Sharp Electronics Corporation,
a semiconductor manufacturer. From January 1987 to November 1991, Mr. Goodyear
held various sales management positions at Hitachi America, a semiconductor
manufacturer, lastly as Western Area Sales Manager. From June 1983 to January
1987, he held various sales and sales management. positions at Advanced Micro
Devices, a semiconductor manufacturer.

Mr. Mubarak joined the Company in November 1992, was Director of Product
and Test Engineering until October 1997, and has been Vice President of
Engineering since October 1997. From 1989 until joining Actel, he held various
engineering and engineering management positions with Samsung Semiconductor
Inc., a semiconductor manufacturer, and its spin-off, Integrated Circuit Works,
Inc. From 1984 to 1989, Mr. Mubarak held various engineering, product planning,
and engineering management positions with Advanced Micro Devices, a
semiconductor manufacturer.

Mr. Nye joined Actel in October 1990 as European Business Manager with
Actel Europe Ltd., the Company's United Kingdom subsidiary, was Vice President
of Marketing from January 1994 until October 1997, and has been Vice President
of Strategic Accounts since October 1997. From January 1990 to October 1990, Mr.
Nye served as Director of Sales of Genrad Corporation, a software company. From
November 1986 to January 1990, he served as European Sales Manager of Viewlogic
Corporation, a software company.

Dr. Smith joined Actel in March 1997 as Vice President of Software. Prior
to joining the Company, he was an independent consultant specializing in product
development and positioning, software team building, pragmatic software
engineering practices, and small company trouble shooting. From September 1985
to March 1995, Dr Smith held various positions with Microelectronics and
Computer Technology Corporation (MCC), a consortial systems and software R&D
company, where he last served as Vice President of Advanced Systems and
Networks.

Mr. Van De Hey joined Actel in July 1993 as Corporate Counsel, became
Secretary in May 1994, and has been Vice President & General Counsel since
August 1995. From November 1988 to September 1993, he was an associate with
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, a law firm in Palo
Alto, California, and the Company's outside legal counsel. From August 1985
until October 1988, he was an associate with the Cleveland office of Jones, Day,
Reavis & Pogue, a law firm.

Executive officers serve at the discretion of the Board of Directors.

ITEM 2. PROPERTIES

Actel's principal administrative, marketing, sales, customer support,
design, research and development, and testing facilities are located in
Sunnyvale, California, in three buildings that comprise approximately 138,000
square feet. These buildings are leased through June 2003, and the Company has a
renewal option for an additional five-year term. Actel also leases sales offices
in the metropolitan areas of Atlanta, Baltimore, Basingstoke (England), Boston,
Chicago, Dallas, Denver, Destin (Florida), Los Angeles, Milano (Italy),
Minneapolis, Munich (Germany), Ottawa (Canada), and Paris (France),
Philadelphia, Raleigh, Seoul (Korea), and Tokyo (Japan). The Company believes
its facilities will be adequate for its needs in 1998, but is investigating
options for continued expansion beyond that time.

ITEM 3. LEGAL

Except as described below, there are no pending legal proceedings of a
material nature to which Actel is a party or of which any of its property is the
subject. There are no such legal proceedings known by the Company to be
contemplated by any governmental authority.

Actel v. QuickLogic (CV C-94 20050 JW (PVT))

Claims Asserted

Actel commenced the above-referenced action against QuickLogic in the
United States District Court for the Northern District of California (the
"Court") on January 20, 1994. The Complaint asserted claims for
infringement of U. S. Patents Nos. 4,758,745, 4,873,459, 5,055,718, and
5,198,705, respectively, each relating to field programmable gate array
technology. The Complaint sought injunctive relief, treble damages in an
unspecified amount, and attorneys' fees.

On February 10, 1994, QuickLogic filed an Answer and Counterclaim,
denying infringement, asserting invalidity defenses, and seeking
declaratory relief.

On March 15, 1995, Actel filed an Amended and Supplemental Complaint
against QuickLogic asserting, in addition to claims previously asserted, a
claim for infringement of U.S. Patent No. 5,367,208. Actel's Supplemental
Complaint sought injunctive relief, treble damages in an unspecified
amount, and attorneys' fees.

On April 14, 1995, QuickLogic filed an Answer and Counterclaim denying
infringement, asserting invalidity defenses, and asserting two claims
against Actel for alleged infringement of U.S. Patents Nos. 5,220,213 and
5,396,127 relating to logic modules. QuickLogic's Counterclaim sought
declaratory and injunctive relief, and treble damages in an unspecified
amount. On May 25, 1995, QuickLogic filed an Amended Answer and
Counterclaim, adding allegations of inequitable conduct.

In response to QuickLogic's counterclaims, on June 11, 1995, Actel
filed a Reply and Counterclaim, denying infringement, asserting invalidity
defenses, naming John Birkner as an individual defendant, and asserting
causes of action for trade secret misappropriation, breach of contract,
breach of confidential business relationship, and unfair competition.
Actel's Counterclaim sought declaratory and injunctive relief, damages in
an unspecified amount, and an assignment to Actel of QuickLogic's two
patents-in-suit. In response, both QuickLogic and Mr. Birkner denied all
allegations.

On March 7, 1996, Actel filed a Second Supplemental Complaint, adding
a claim against QuickLogic for infringement of U.S. Patent No. 5,479,113.

As of June 13, 1997, QuickLogic amended its complaint to assert that
Actel's ACT 3 products infringe U.S. Patent No. 5,594,364.

On August 1, 1997, Actel answered QuickLogic's amended complaint
denying liability and restating Actel's trade secret and related
counterclaims.

On August 15, 1997, Actel filed an amended and supplemental complaint.
This complaint reasserted the patent claims described above and added a
claim under U.S. Patent No. 5,610,534, issued March 11, 1997.

On September 3, 1997, QuickLogic and Birkner filed an answer to
Actel's Second Amended and Supplemental Complaint, and alleged amended
counterclaims asserting invalidity and other customary affirmative defenses
in patent cases and demanding jury. On September 9, 1997, QuickLogic and
Birkner filed an answer to Actel's Amended Counterclaims.

On March 3, 1998, QuickLogic advised that it will seek leave to amend
its answer to assert additional defenses of invalidity and
unenforceability.

In summary, Actel has asserted claims of patent infringement as
against all QuickLogic products under U.S. Patents Nos. 4,758,745,
4,873,459, 5,055,718, 5,198,705, 5,357,208, 5,479,113 and 5,610,534. Actel
has also asserted various counterclaims against QuickLogic and Mr. Birkner
based on misappropriation of Actel trade secrets. QuickLogic denies
infringement and asserts invalidity and unenforceability of all Actel
patents-in-suit. As explained below, the Court has granted a summary
judgment finding that QuickLogic's products infringe the `705 patent.

QuickLogic has asserted claims of patent infringement against Actel's
ACT 2 and ACT 3 product lines under U.S. Patents Nos. 5,220,213 and
5,396,127 and against ACT 3 products under U.S. Patent No. 5,594,364. Actel
denies infringement and asserts invalidity and unenforceability of the
QuickLogic patents. Actel further asserts that it is entitled to impose a
constructive trust on the QuickLogic patents because those patents were
obtained using Actel trade secrets.

Motions

On November 15, 1994 Actel moved for summary judgment of infringement
of its `705 patent. On October 4, 1996, after extensive discovery and
briefing, the Special Master, to whom all pretrial matters have been
referred, filed a recommendation with the Court that Actel's motion be
granted. After further hearings, on August 8, 1997, the Court adopted the
Special Master's recommendation.

On January 18, 1996, Actel filed a motion seeking summary judgment of
invalidity of the two QuickLogic patents-in-suit based on the sale of
Actel's ACT 2 product line more than one year prior to the filing of the
application which is the parent of the applications from which QuickLogic
obtained Patents Nos. 5,220,213 and 5,396,127. This motion was argued to
the Special Master on December 12, 1997, and is awaiting his action.

On February 5, 1996, QuickLogic filed a motion for summary judgment of
infringement of QuickLogic patent no. 5,520,213. This motion has been
withdrawn without prejudice to refiling of a similar motion.

On February 26, 1996, QuickLogic filed a motion to disqualify Actel
counsel, the law firm of Lyon & Lyon, on the ground that a Lyon & Lyon
attorney, in previous employment with QuickLogic counsel, Skjerven,
Morrill, MacPherson, Franklin & Friel, had access to confidential
QuickLogic information and attorney work product. The Special Master issued
a recommendation in favor of QuickLogic's motion and, on May 29, 1996, the
Court entered an Order disqualifying Lyon & Lyon. On June 19, 1996,
O'Melveny & Myers was substituted as counsel of record on behalf of Actel.

On November 25, 1996, QuickLogic moved for Summary Judgment of
invalidity with respect to Claim 1 of Actel patent no. 5,198,705. This
motion is being held in abeyance pending further pretrial planning.

On June 27, 1997, Actel moved for a summary judgment that QuickLogic's
products infringe Claim 11 of U.S. Patent No. 4,873,459. This motion is
being held in abeyance pending further pretrial planning.

On July 3, 1997, QuickLogic and Mr. Birkner moved for summary judgment
that all of the Actel counterclaims based on misappropriation of trade
secrets are barred by applicable statutes of limitation. This motion was
argued to the Special Master on December 12, 1997. In Recommendations dated
February 13, 1998 and March 3, 1998, the Special Master recommended that
this motion be granted in its entirety. Actel has filed objections to the
Special Master's recommendations. This matter awaits further briefing and
argument before the district judge.

On September 9, 1997, Actel moved for leave to file an amended and
supplemental complaint joining two individuals as additional defendants on
Actel's counterclaims. One objective of this motion was to establish that
Actel's trade secret counterclaims against QuickLogic relate back to the
date of Actel's original complaint. If the relation-back doctrine applies,
this would obviate QuickLogic's summary judgment defense. On December 5,
1997, pursuant to recommendation of the Special Master, the district court
denied Actel's motion to join the two additional defendants. On March 13,
1998, the Special Master recommended that the district judge hold that
Actel's counterclaims do not relate back. Actel has filed objections to
this recommendation, and the matter awaits further proceedings before the
district judge.

Each side has advised the Special Master that additional motions for
summary judgment will be made after completion of discovery.

Trial Schedule

By order of the Court entered March 19, 1997, the Court established a
deadline for completion of fact discovery of January 31, 1998. This
deadline has passed, but limited specific fact discovery that could not be
completed by the deadline remains to be conducted. Expert disclosures will
be required in advance of trial, but no specific date for such disclosures
is currently in effect.

The parties are discussing a process for simplification of the issues
to be tried and expect to enter into a stipulation to bifurcate damage
issues from liability and infringement issues and to try a limited subset
of issues in phases. A process for selecting claims has commenced, but it
is too early to predict what claims will be selected for trial.

No trial date has been set. The parties have stipulated that purely
equitable will be tried to the judge prior to jury trial of selected
claims. Trial of the equitable issues is currently expected to take place
in the fourth quarter of 1998.

Actel v. QuickLogic (CV C-97 21107 JW (EAI))

Claims Asserted

On December 15, 1997, Actel commenced the above-referenced action
against QuickLogic in the Court. The Complaint asserts claims for
infringement of U. S. Patents Nos. 5,132,571 and 5,191,214, respectively,
each relating to field programmable gate array technology. The Complaint
seeks injunctive relief, treble damages in an unspecified amount, and
attorneys' fees.

On January 13, 1998, QuickLogic filed an Answer and Counterclaim,
denying infringement, asserting invalidity defenses and seeking declaratory
relief.

Motions

No motions have been filed in this action.

Trial

The parties have begun to disclose relevant information as required
under the Local Rules of the United States District Court for the Northern
District of California. There have been no communications from the Court
concerning a trial date.

After considering the facts currently known, management does not believe
that the ultimate outcome of the either case will have a materially adverse
effect on the Company's business, financial condition, or operating results,
although no assurance can be given to that effect.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS

The information appearing under the caption "Stock Listing" in the
Registrant's annual report to security holders for the fiscal year ended
December 28, 1997 (the "1997 Annual Report"), is incorporated herein by this
reference.

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under the caption "Selected Consolidated
Financial Data" in the 1997 Annual Report is incorporated herein by this
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The information appearing under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" of the 1997 Annual
Report is incorporated herein by this reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information appearing under the captions "Consolidated Balance Sheets,"
"Consolidated Statements of Operations," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," and "Report of Ernst & Young LLP,
Independent Auditors" in the 1997 Annual Report is incorporated herein by this
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Except for the information specifically incorporated by reference from
Actel's definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on May 22, 1998, as filed on or about April 7, 1998, with the Securities
and Exchange Commission (the "1997 Proxy Statement") in Part III of this Annual
Report on Form 10-K, the 1997 Proxy Statement shall not be deemed to be filed as
part of this Report. Without limiting the foregoing, the information under the
captions "Compensation Committee Report" and "Company Stock Performance" under
the main caption "OTHER INFORMATION" in the 1997 Proxy Statement are not
incorporated by reference in this Annual Report on Form 10-K.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding the identification and business experience of
Actel's directors under the caption "Nominees" under the main caption "PROPOSAL
NO. 1 -- ELECTION OF DIRECTORS" in the 1997 Proxy Statement and the information
under the main caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934" in the 1997 Proxy Statement are incorporated herein by this
reference. For information regarding the identification and business experience
of Actel's executive officers, see "Executive Officers of the Registrant" at the
end of Item 1 in Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information under the caption "Director Compensation" under the main
caption "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS" in the 1997 Proxy Statement
and the information under the caption "Executive Compensation" under the main
caption "OTHER INFORMATION" in the 1997 Proxy Statement are incorporated herein
by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Share Ownership" under the main caption
"INFORMATION CONCERNING SOLICITATION AND VOTING" in the 1997 Proxy Statement and
the information under the caption "Security Ownership of Management" under the
main caption "OTHER INFORMATION" in the 1997 Proxy Statement are incorporated
herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Certain Transactions" under the main
caption "OTHER INFORMATION" in the 1997 Proxy Statement is incorporated herein
by this reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on Form
10-K:

(1) Financial Statements. The following consolidated financial
statements of Actel Corporation included in the 1997 Annual Report are
incorporated by reference in Item 8 of this Annual Report on Form 10-K:

Consolidated balance sheets at December 31, 1997 and 1996

Consolidated statements of operations for each of the three years in
the period ended December 31, 1997

Consolidated statements of shareholders' equity for each of the three
years in the period ended December 31, 1997

Consolidated statements of cash flows for each of the three years in
the period ended December 31, 1997

Notes to consolidated financial statements

(2) Financial Statement Schedule. The financial statement schedule
listed under 14(d) hereof is filed with this Annual Report on Form 10-K.

(3) Exhibits. The exhibits listed under Item 14(c) hereof are filed
with, or incorporated by reference into, this Annual Report on Form 10-K.

(b) Reports on Form 8-K. No reports on Form 8-K were filed by Actel during
the quarter ended December 28, 1997.

Exhibit Number Description
- ------------------------ -------------------------------------------------------

2.1 (1) Asset Purchase Agreement dated as of February 12, 1995,
between the Registrant and Texas Instruments
Incorporated (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K (File No. 0-21970) filed
with the Securities and Exchange Commission on April
17, 1995).

2.2 Amendment No. 1 to the Asset Purchase Agreement dated
as of March 31, 1995, between the Registrant and Texas
Instruments Incorporated (filed as Exhibit 2.2 to the
Registrant's Current Report on Form 8-K (File No.
0-21970) filed with the Securities and Exchange
Commission on April 17, 1995).

3.1 Restated Articles of Incorporation (filed as Exhibit
3.2 to the Registrant's Registration Statement on Form
S-1 (File No. 33-64704), declared effective on August
2, 1993).

3.2 Restated Bylaws of the Registrant (filed as Exhibit 3.3
to the Registrant's Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993).

3.3 Certificate of Determination of Rights, Preferences and
Privileges of Series A Preferred Stock of the
Registrant (filed as Exhibit 3.3 to the Registrant's
Current Report on Form 8-K (File No. 0-21970) filed
with the Securities and Exchange Commission on April
17, 1995).

10.1 (2) Form of Indemnification Agreement for directors and
officers (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-64704),
declared effective on August 2, 1993).

10.2 (2) 1986 Incentive Stock Option Plan (filed as Exhibit 10.2
to the Registrant's Annual Report on Form 10-K (File
No. 0-21970) for the fiscal year ended December 28,
1997).

10.3 (2) 1993 Directors' Stock Option Plan, as amended and
restated.

10.4 (2) 1993 Employee Stock Purchase Plan, as amended and
restated.

10.5 (2) 1995 Employee and Consultant Stock Plan, as amended and
restated (filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended December 28, 1997).

10.6 Form of Distribution Agreement (filed as Exhibit 10.13
to the Registrant's Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993).

10.7 (1) Patent Cross License Agreement dated April 22, 1993
between the Registrant and Xilinx, Inc. (filed as
Exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 (File No. 33-64704), declared
effective on August 2, 1993).

10.8 Subscription and Participation Agreement dated February
3, 1994 between the Registrant, Singapore Technologies
Ventures Pte Ltd and Chartered Semiconductor
Manufacturing Pte Ltd (filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended January 2, 1994).

10.9 Manufacturing Agreement dated February 3, 1994 between
the Registrant and Chartered Semiconductor
Manufacturing Pte Ltd (filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended January 2, 1994).

10.10 Distribution Agreement dated June 1, 1994, between the
Registrant and Arrow Electronics, Inc. (filed as
Exhibit 10.18 to the Registrant's Quarterly Report on
Form 10-Q (File No. 0-21970) for the quarterly period
ended July 3, 1994).

10.11 (1) Product Development and Marketing Agreement dated
August 1, 1994, between the Registrant and Loral
Federal Systems Company (filed as Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-Q (File No.
0-21970) for the quarterly period ended October 2,
1994).

10.12 (1) M2M Joint Development and Marketing Agreement dated
August 1, 1994, between the Registrant and Loral
Federal Systems Company (filed as Exhibit 10.20 to the
Registrant's Quarterly Report on Form 10-Q (File No.
0-21970) for the quarterly period ended October 2,
1994).

10.13 (1) License Agreement dated as of April 1, 1995, between
the Registrant and Texas Instruments Incorporated
(filed as Exhibit 10.22 to the Registrant's Current
Report on Form 8-K (File No. 0-21970) filed with the
Securities and Exchange Commission on April 17, 1995).

10.14 (1) Foundry Agreement dated as of June 29, 1995, between
the Registrant and Matsushita Electric Industrial Co.,
Ltd and Matsushita Electronics Corporation (filed as
Exhibit 10.25 to the Registrant's Quarterly Report on
Form 10-Q (File No. 0-21970) for the quarterly period
ended July 2, 1995).

10.15 (1) Distribution Agreement dated as of June 29, 1995,
between the Registrant and Matsushita Electric
Industrial Co., Ltd and Matsushita Electronics
Corporation (filed as Exhibit 10.26 to the Registrant's
Quarterly Report on Form 10-Q (File No. 0-21970) for
the quarterly period ended July 2, 1995).

10.16 Lease Agreement for the Registrant's offices in
Sunnyvale, California, dated May 10, 1995 (filed as
Exhibit 10.19 to the Registrant's Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
December 31, 1995).

10.17 (1) License Agreement dated as of March 6, 1995, between
the Registrant and BTR, Inc. (filed as Exhibit 10.20 to
the Registrant's Annual Report on Form 10-K (File No.
0-21970) for the fiscal year ended December 28, 1997).

13 Portions of Registrant's Annual Report to Shareholders
for the fiscal year ended December 28, 1997,
incorporated by reference into this Report on Form
10-K.

21 Subsidiaries of Registrant (see page 47).

23 Consent of Ernst & Young LLP, Independent Auditors (see
page 45).

24 Power of Attorney (see page 44).

27.1 Financial Data Schedule - 1997.

27.2 Financial Data Schedule - 1996.

- ---------------------------------------

(1) Confidential treatment requested as to a portion of this Exhibit.

(2) This Exhibit is a management contract or compensatory plan or
arrangement.

Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to Exhibit 2.1
have been omitted. The Registrant hereby agrees to furnish supplementally a copy
of any omitted schedule to the Securities and Exchange Commission upon request.
The omitted schedules are listed below:

Schedule 1.1(a) Capital Equipment
Schedule 1.1(b) Expensed Assets
Schedule 1.1(d) Contracts
Schedule 1.1(f) Software
Schedule 1.1(h) Testing Hardware and Software
Schedule 1.1(i) Research and Development Projects
Schedule 2.2 Calculation of Net Revenues of the Business
Schedule 2.5 Inventory Transfer Pricing
Schedule 5.2(a) Seller Consents
Schedule 5.16 Seller's Knowledge
Schedule 6.2(a) Buyer Consents
Schedule 6.2(b) Buyer Violations
Schedule 6.4 Capitalization of Buyer
Schedule 6.7 Registration Rights
Schedule 12.3(d) Buyer's Knowledge

(d) Financial Statement Schedule. The following financial statement
schedule of Actel Corporation is filed as part of this Report on Form 10-K and
should be read in conjunction with the Consolidated Financial Statements of
Actel Corporation, including the notes thereto, and the Report of Independent
Auditors with respect thereto:

Schedule Description Page
- --------------- ----------------------------------------------------- ---------
II Valuation and qualifying accounts 46

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ACTEL CORPORATION

March 27, 1998 By: /s/ John C. East
-------------------------------------------
John C. East
President and Chief Executive Officer

<PAGE>

SCHEDULE II

ACTEL CORPORATION

--------------------------------------

Valuation and Qualifying Accounts
(in thousands)

<TABLE>
<CAPTION>
Balance at Balance at
beginning end of
of period Provisions Write-Offs period
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995........................... $ 597 $ -- $ 30 $ 567
Year ended December 31, 1996........................... 567 81 15 633
Year ended December 31, 1997........................... 633 1,611 612 1,632
</TABLE>

ACTEL CORPORATION

1993 DIRECTORS' STOCK OPTION PLAN

Amended and Restated as of January 23, 1998

1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.

All options granted hereunder shall be "nonstatutory stock options".

2. Definitions. As used herein, the following definitions shall apply:

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Company" shall mean Actel Corporation, a California corporation.

(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.

(f) "Director" shall mean a member of the Board.

(g) "Effective Date" shall have the meaning as set forth in Section 6
below.

(h) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.

(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(j) "First Option" shall have the meaning as set forth in Section
4(b)(ii) below.

(k) "Option" shall mean a stock option granted pursuant to the Plan.

(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.

(m) "Optionee" shall mean an Outside Director who receives an Option.

(n) "Outside Director" shall mean a Director who is not an Employee.

(o) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.

(p) "Plan" shall mean this 1993 Directors' Stock Option Plan.

(q) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.

(r) "Subsequent Option" shall have the meaning as set forth in
Section 4(b)(iii) below.

(s) "Subsidiary" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 230,000 Shares (the "Pool") of Common Stock, increased
annually (subsequent to the January 23, 1998, amendment and restatement of the
Plan) on the first day of each fiscal year by (x) 100,000 less (y) the number of
shares available for issuance under the Director Plan on the last day of the
immediately preceding fiscal year. The Shares may be authorized, but unissued,
or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.

4. Administration of and Grants of Options under the Plan.

(a) Administrator. Except as otherwise required herein, the Plan
shall be administered by the Board.

(b) Procedure for Grants. The Board may grant Options to Outside
Directors hereunder, and on such terms, as are decided in its discretion.
Additionally, Options shall automatically be granted hereunder in
accordance with the following provisions:

(i) After August 1, 1997, each person who first becomes an
Outside Director shall be automatically granted an Option to purchase
15,000 Shares (the "First Option") on the date on which such person
first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board of Directors
to fill a vacancy.

(ii) Beginning on August 1, 1997, each Outside Director shall be
automatically granted an Option to purchase 5,000 Shares (a
"Subsequent Option") on August 1 of each year if, on such date, he or
she shall have served on the Board for at least six (6) months.

(iii) Notwithstanding the provisions of subsections (i) and (ii)
hereof, in the event that a grant would cause the number of Shares
subject to outstanding Options plus the number of Shares previously
purchased upon exercise of Options to exceed the Pool, then each such
automatic grant shall be for that number of Shares determined by
dividing the total number of Shares remaining available for grant by
the number of Outside Directors on the automatic grant date. Any
further grants shall then be deferred until such time, if any, as
additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may
be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.

(iv) Notwithstanding the provisions of subsections (i) and (ii)
hereof, any grant of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 17 hereof
shall be conditioned upon obtaining such shareholder approval of the
Plan in accordance with Section 17 hereof.

(v) The terms of a First Option granted hereunder shall be as
follows:

(A) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set
forth in Section 9 hereof.

(B) the exercise price per Share shall be 100% of the fair
market value (as defined in Section 8(b) hereunder) per Share on
the date of grant of the First Option.

(C) the First Option shall vest and become exercisable as
to 25% of the Shares subject to the First Option on the first
anniversary of the date of the Company's annual shareholder
meeting occurring in each of the first, second, third, and fourth
calendar year following the calendar year in which the date of
grant occurred, subject to the provisions set forth in Section 9
below.

(vi) The terms of a Subsequent Option granted hereunder shall be
as follows:

(A) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as
set forth in Section 9 hereof.

(B) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent
Option.

(C) the Subsequent Option shall become exercisable as to
one hundred percent (100%) of the Shares subject to the
Subsequent Option on the date of the Company's annual shareholder
meeting occurring in the fourth calendar year following the
calendar year in which the date of grant occurred, subject to the
provisions set forth in Section 9 below.

(c) Powers of the Board. Subject to the provisions and restrictions
of the Plan, the Board shall have the authority, in its discretion: (i) to
grant discretionary stock options to Outside Directors, upon such terms as
are determined by the Board in its discretion, (ii) to determine, upon
review of relevant information and in accordance with Section 8(b) of the
Plan, the fair market value of the Common Stock; (iii) to determine the
exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iv) to
interpret the Plan and to prescribe, amend and rescind rules and
regulations relating to the Plan; (v) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted hereunder; and (vi) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.

(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.

(e) Suspension or Termination of Option. If the President or his or
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the
Outside Director accused of such misconduct). If the Board of Directors
(excluding the Outside Director accused of such misconduct) determines an
Optionee has committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of fiduciary duty
or deliberate disregard of the Company rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure
of any Company trade secret or confidential information, engages in any
conduct constituting unfair competition, induces any Company customer to
breach a contract with the Company or induces any principal for whom the
Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any option
whatsoever. In making such determination, the Board of Directors (excluding
the Outside Director accused of such misconduct) shall act fairly and shall
give the Optionee an opportunity to appear and present evidence on
Optionee's behalf at a hearing before the Board or a committee of the
Board.

5. Eligibility. Options may be granted only to Outside Directors. An
Outside Director who has been granted an Option may, if he or she is otherwise
eligible, be granted an additional Option or Options.

The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.

6. Term of Plan; Effective Date. The Plan shall become effective on the
date on which the Company's registration statement on Form S-1 (or any successor
form thereof) is declared effective by the Securities and Exchange Commission
(the "Effective Date"). It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 13 of the Plan, subject to the
limitations set forth in this Plan.

7. Term of Option. The term of each Option shall be ten (10) years from
the date of grant thereof.

8. Exercise Price and Consideration.

(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.

(b) Fair Market Value. The fair market value per Share shall be the
mean of the bid and asked prices of the Common Stock in the
over-the-counter market on the date of grant, as reported in The Wall
Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System) or, in the event that the Common Stock is traded on the NASDAQ
National Market System or listed on a stock exchange, the fair market value
per Share shall be the closing price on such system or exchange on the date
of grant of the Option, as reported in The Wall Street Journal, provided,
however, that if such market or exchange is closed on the date of the grant
of the Option then the fair market value per Share shall be based on the
most recent date on which such trading occurred immediately prior to the
date of the grant of the Option; provided, further, that for purposes of
First Options granted on the Effective Date, the fair market value per
share shall be the initial public offering price as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to
Rule 424 under the Securities Act of 1933, as amended.

(c) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised (which, if acquired from the Company, shall
have been held for at least six months), delivery of a properly executed
exercise notice together with instructions to a broker to deliver promptly
to the Company the amount of sale proceeds required to pay the exercise
price, or any combination of such methods of payment and/or any other
consideration or method of payment as shall be permitted under applicable
corporate law.

9. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof or, with respect to a discretionary grant, as decided
by the Board in its discretion; provided, however, that no Options shall be
exercisable until shareholder approval of the Plan in accordance with
Section 17 hereof has been obtained.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 8(c) of the Plan. Until the
issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. A share
certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is
prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.

Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.

(b) Termination of Status as a Director. If an Outside Director
ceases to serve as a Director, he or she may, but only within three (3)
months (or such other period of time not exceeding six (6) months as is
determined by the Board) after the date he or she ceases to be a Director
of the Company, exercise his or her Option to the extent that he or she was
entitled to exercise it at the date of such termination. Notwithstanding
the foregoing, in no event may the Option be exercised after its term set
forth in Section 7 has expired. To the extent that such Outside Director
was not entitled to exercise an Option at the date of such termination, or
does not exercise such Option (which he or she was entitled to exercise)
within the time specified herein, the Option shall terminate.

(c) Disability of Optionee. Notwithstanding the provisions of Section
9(b) above, in the event a Director is unable to continue his or her
service as a Director with the Company as a result of his or her total and
permanent disability (as defined in Section 22(e)(3) of the Internal
Revenue Code), he or she may, but only within six (6) months (or such other
period of time not exceeding twelve (12) months as is determined by the
Board) from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent
that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (which he or she
was entitled to exercise) within the time specified herein, the Option
shall terminate.

(d) Death of Optionee. In the event of the death of an Optionee:

(i) during the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in
Continuous Status as a Director since the date of grant of the Option,
the Option may be exercised in full, at any time within six (6) months
(or such lesser period of time as is determined by the Board)
following the date of death, by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or
inheritance, whether or not the right to exercise that would have
accrued had the Optionee continued living. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set
forth in Section 7 has expired.

(ii) within three (3) months (or such lesser period of time as is
determined by the Board) after the termination of Continuous Status as
a Director, the Option may be exercised, at any time within six (6)
months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination. Notwithstanding the foregoing, in
no event may the option be exercised after its term set forth in
Section 7 has expired.

10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution. The designation of a beneficiary
by an Optionee does not constitute a transfer. An Option may be exercised during
the lifetime of an Optionee only by the Optionee or a transferee permitted by
this Section.

11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.

In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each outstanding Option shall be assumed or an equivalent option
shall be substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that such successor corporation refuses
to assume such Option or to substitute an equivalent option, such Options shall
become fully vested and exercisable as to all of the Optioned Stock, including
the Shares as to which the Options would not otherwise be vested and
exercisable. If Options become fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.

12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.

13. Amendment and Termination of the Plan

(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the shareholders of the Company to
Plan amendments to the extent and in the manner required by such law or
regulation.

(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall
not affect Options already granted to such Optionee and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and
the Company.

14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.

Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.

17. Shareholder Approval.

(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company at or prior to the first annual meeting of
shareholders held subsequent to the granting of an Option hereunder. If
such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of
the outstanding shares of the Company present or represented and entitled
to vote thereon. If such shareholder approval is obtained by written
consent, it may be obtained by the written consent of the holders of a
majority of the outstanding shares of the Company.

(b) Any required approval of the shareholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange
Act and the rules and regulations promulgated thereunder.

18. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports to shareholders, proxy statements and other
information provided to all shareholders of the Company.

ACTEL CORPORATION

1993 EMPLOYEE STOCK PURCHASE PLAN

Amended and Restated as of January 23, 1998

The following constitute the provisions of the 1993 Employee Stock Purchase
Plan of Actel Corporation.

1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.

2. Definitions.

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Company" shall mean Actel Corporation, a California corporation.

(e) "Compensation" shall mean all base straight time gross earnings
including commissions, overtime and shift premiums, and all incentive
compensation, incentive payments, bonuses and other compensation.

(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

(g) "Employee" shall mean any individual who is an employee of the
Company or any Designated Subsidiary for tax purposes whose employment with
the Company or any Designated Subsidiary averages at least twenty (20)
hours per week and more than five (5) months in any calendar year. For
purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days
and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.

(h) "Enrollment Date" shall mean the first day of each Offering
Period.

(i) "Exercise Date" shall mean the last day of each Purchase Period.

(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market
Value shall be the closing sale price for the Common Stock (or the
mean of the closing bid and asked prices, if no sales were reported),
as quoted on such exchange (or the exchange with the greatest volume
of trading in Common Stock) or system on the date of such
determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable, or;

(2) If the Common Stock is quoted on the NASDAQ system (but not
on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean of the closing bid and asked
prices for the Common Stock on the date of such determination, as
reported in the Wall Street Journal or such other source as the Board
deems reliable, or;

(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Board.

(4) For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value of the Common Stock shall
be the Price to Public as set forth in the final prospectus filed with
the Securities and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, as amended.

(k) "Offering Period" shall mean the period of approximately
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised. The first offering period shall commence with the date on
which the Company's registration statement on Form S-1 (or any successor
form thereof) is declared effective by the Securities and Exchange
Commission. This first offering period shall terminate on the last Trading
Day in the period ending August 1 or February 1 approximately 24 months
later. Subsequent offering periods shall commence on the first Trading Day
on or after August 1 and February 1 of each year and terminate on the last
Trading Day of the periods ending twenty-four months later. The duration
and timing of Offering Periods may be changed pursuant to Section 4 of this
Plan.

(l) "Plan" shall mean this Employee Stock Purchase Plan.

(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.

(n) "Purchase Period" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence
on the Enrollment Date and end with the next Exercise Date. However, the
first Purchase Period of the first Offering Period under the Plan may be
more or less than six months in duration.

(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and
the number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under options.

(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.

(q) "Trading Day" shall mean a day on which national stock exchanges
and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.

3. Eligibility.

(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate
in the Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if immediately after
the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would
own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans of the Company and
its subsidiaries to accrue at a rate which exceeds twenty-five thousand
dollars ($25,000) of Fair Market Value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time.

4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with the first Offering Period commencing with the
date on which the Company's registration statement on Form S-1 (or any successor
form thereof) is declared effective by the Securities and Exchange Commission.
The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without shareholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected.
Absent action by the Board, each Offering Period shall be for a period of
approximately twenty-four months (24) and new Offering Periods shall commence on
the first Trading Day of February and August of each year. The first Offering
Period under the Plan may be more or less than twenty-four (24) months in
duration.

5. Participation.

(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions (in the
form of Exhibit A to this Plan) and filing it with the Company's payroll
office prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.

6. Payroll Deductions.

(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%)
of the Compensation which he or she receives on each pay day during the
Offering Period, and the aggregate of such payroll deductions during the
Offering Period shall not exceed fifteen percent (15%) of the participant's
Compensation during said Offering Period.

(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into
such account.

(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.

(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% if the following should occur:
For the Purchase Periods that end during a single calendar year, the sum of
all payroll deductions that have been used to purchase stock under the Plan
plus all payroll deductions accumulated for the purchase of stock equals
$21,250. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the subsequent calendar year, unless
terminated by the participant as provided in Section 10 hereof.

(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise
upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Employee.

7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof;
provided, further, that in no event shall any Employee purchase in excess of ten
thousand shares in any Offering Period. Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant to
Section 10 hereof, and the option shall expire on the last day of the Offering
Period.

8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to the option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.

9. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.

10. Withdrawal; Termination of Employment.

(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically
terminated, and no further payroll deductions for the purchase of shares
will be made during the Offering Period. If a participant withdraws from an
Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a
new subscription agreement.

(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, including by virtue of him or her
having failed to remain an Employee of the Company for at least twenty (20)
hours per week during a Purchase Period in which the Employee is a
participant, he or she will be deemed to have elected to withdraw from the
Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option will be
returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 14 hereof, and such
participant's option will be automatically terminated.

11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.

12. Stock.

(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 3,019,680
shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 18 hereof. If on a given Exercise Date
the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company
shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.

(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse.

13. Administration.

(a) Administrative Body. The Plan shall be administered by the Board
or a committee of members of the Board appointed by the Board. The Board or
its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan.
Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding
upon all parties. Members of the Board who are eligible Employees are
permitted to participate in the Plan, provided that:

(1) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the
Plan or the grant of any option pursuant to the Plan.

(2) If a Committee is established to administer the Plan, no
member of the Board who is eligible to participate in the Plan may be
a member of the Committee.

(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor provision ("Rule 16b-3") provides specific requirements
for the administrators of plans of this type, the Plan shall be only
administered by such a body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
committee or person that is not "disinterested" as that term is used in
Rule 16b-3.

14. Designation of Beneficiary.

(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to
such participant of such shares and cash. In addition, a participant may
file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.

(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant
and in the absence of a beneficiary validly designated under the Plan who
is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one
or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as
the Company may designate.

15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.

17. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.

18. Adjustments Upon Changes in Capitalization.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to
an option.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods will
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board.

(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless
the Board determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, to shorten the Offering Periods then in
progress by setting a new Exercise Date (the "New Exercise Date") or to
cancel each outstanding option to purchase and refund all sums collected
from participants during the Offering Period then in progress. If the Board
shortens the Offering Periods then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall
notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for his option has been
changed to the New Exercise Date and that his option will be exercised
automatically on the New Exercise Date, unless prior to such date he has
withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be
deemed to be assumed if, following the sale of assets or merger, the option
confers the right to purchase, for each share of stock subject to the
option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale
of assets or merger by holders of Common Stock for each share of Common
Stock held on the effective date of the transaction (and if such holders
were offered a choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the sale of
assets or merger was not solely common stock of the successor corporation
or its parent (as defined in Section 424(e) of the Code), the Board may,
with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be
solely common stock of the successor corporation or its parent equal in
fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.

The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its
outstanding Common Stock, and in the event of the Company being
consolidated with or merged into any other corporation.

19. Amendment or Termination.

(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Sections 18 and
19 hereof, no such termination can affect options previously granted,
provided that outstanding and/or future Offering Periods may be shortened
and/or terminated by the Board of Directors at any time. Except as provided
in Section 18 hereof and in the preceding sentence, no amendment may make
any change in any option theretofore granted which adversely affects the
rights of any participant. To the extent necessary to comply with Rule
16b-3 or under Section 423 of the Code (or any successor rule or provision
or any other applicable law or regulation), the Company shall obtain
shareholder approval in such a manner and to such a degree as required.

(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during
an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent
with the Plan.

20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.

23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.

24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Securities Exchange Act of 1934, as amended, if
the Fair Market Value of the Common Stock on any Exercise Date in an Offering
Period is lower than the Fair Market Value of the Common Stock on the Enrollment
Date of such Offering Period, then all participants in such Offering Period
shall be automatically withdrawn from such Offering Period immediately after the
exercise of their options on such Exercise Date and automatically re-enrolled in
the immediately following Offering Period as of the first day thereof.

EXHIBIT A

ACTEL CORPORATION
1993 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

__________ Original Application Enrollment Date: ______________________
__________ Change in Payroll Deduction Rate
__________ Change of Beneficiary(ies)

1. ____________________________________________________ hereby elects to
participate in the Actel Corporation 1993 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount
of _________% of my Compensation on each payday (not to exceed 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)

3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Employee Stock Purchase Plan. I understand that if I do
not withdraw from an Offering Period, any accumulated payroll deductions will be
used to automatically exercise my option.

4. I have received a copy of the complete "Actel Corporation 1993
Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of the
Plan. I understand that the grant of the option by the Company under this
Subscription Agreement is subject to obtaining shareholder approval of the
Employee Stock Purchase Plan.

5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse Only):
_______________________________________________________________________________.

6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal to
the excess of the fair market value of the shares at the time such shares were
purchased over the price which I paid for the shares. I hereby agree to notify
the Company in writing within 30 days after the date of any disposition of my
shares and I will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.

7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.

8. In the event of my death, I hereby designate the following as my
beneficiary to receive all payments and shares due me under the Employee Stock
Purchase Plan (if you wish to designate more than one beneficiary, execute and
deliver copies of this page):

PLEASE PRINT!

NAME:___________________________________________________________________________
(First) (Middle) (Last)

_______________________________________
Relationship
________________________________________
________________________________________
________________________________________
(Address)

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:_________________________________ ________________________________________
Signature of Employee

________________________________________
Spouse's Signature
(If beneficiary other than spouse)

EXHIBIT B

ACTEL CORPORATION

1993 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the Actel Corporation
1993 Employee Stock Purchase Plan which began on __________________________,
19_____ (the "Enrollment Date") hereby notifies the Company that he or she
hereby withdraws from the Offering Period. He or she hereby directs the Company
to pay to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

________________________________________
________________________________________
________________________________________
________________________________________
(Name and Address of Participant)

________________________________________
(Signature)

________________________________________
(Date)

ACTEL CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues................................ $ 155,858 $ 148,779 $ 108,516 $ 76,007 $ 59,598
Costs and expenses:
Cost of revenues......................... 64,244 64,420 52,517 33,349 26,389
Research and development................. 26,465 23,934 20,560 14,406 10,953
Selling, general, and administrative..... 41,194 38,395 27,364 19,699 16,708
In-process R&D (1)....................... -- -- 16,600 -- --
------------ ------------ ------------ ------------ ------------
Total costs and expenses........... 131,903 126,749 117,041 67,454 54,050
------------ ------------ ------------ ------------ ------------
Income (loss) from operations............... 23,955 22,030 (8,525) 8,553 5,548
Interest expense............................ -- (13) (93) (232) (559)
Interest income and other, net.............. 1,842 1,068 846 935 569
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes.................. 25,797 23,085 (7,772) 9,256 5,558
Tax provision (benefit)..................... 9,029 8,147 (6,640) 1,389 555
------------ ------------ ------------ ------------ ------------
Net income (loss)........................... $ 16,768 $ 14,938 $ (1,132) $ 7,867 $ 5,003
============ ============ ============ ============ ============
Net income (loss) per share:
Basic (2)................................ $ 0.82 $ 0.84 $ (0.07) $ 0.46 $ 0.33
============ ============ ============ ============ ============
Diluted (2).............................. $ 0.76 $ 0.70 $ (0.07) $ 0.45 $ 0.32
============ ============ ============ ============ ============
Shares used in computing net income (loss) per share:
Basic.................................... 20,370 17,826 17,367 16,995 15,086
============ ============ ============ ============ ============
Diluted.................................. 21,968 21,485 17,367 17,579 15,811
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital............................ $ 76,279 $ 55,397 $ 39,867 $ 35,971 $ 32,330
Total assets............................... 159,994 136,712 107,119 67,855 61,130
Long-term obligations (3).................. -- -- -- 72 926
Convertible preferred stock (4)............ -- 18,147 18,147 -- --
Total shareholders' equity................. 109,010 69,357 50,920 49,311 40,223

- -----------------------------------------------------------
<FN>
(1) Represents a charge for in-process research and development incurred
in the first quarter of 1995 in connection with the Company's
acquisition of the field programmable gate array business of Texas
Instruments Incorporated ("TI").

(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." See Notes 1 and 13 of Notes to
Consolidated Financial Statements for further discussion of earnings
per share and the impact of Statement No. 128.

(3) Includes long-term portion of notes payable, capital lease
obligations, and settlement payable.

(4) Represents redeemable, convertible preferred stock issued to TI in
connection with the Company's acquisition of TI's field programmable
gate array business. On March 12, 1997, TI converted the Series A
Preferred Stock into 2,631,578 shares of Common Stock.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Actel Corporation is the world's leading supplier of antifuse-based field
programmable gate arrays ("FPGAs") and associated software development tools.
FPGAs are used by designers of communication, computer, industrial control,
military/aerospace, and other electronic systems to differentiate their products
and get them to market faster.

Results of Operations

The following table sets forth certain financial data from the Consolidated
Statements of Operations expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues............................................................ 100.0% 100.0% 100.0%
Cost of revenues........................................................ 41.2 43.3 48.4
------------ ------------ ------------
Gross margin............................................................ 58.8 56.7 51.6
Research and development................................................ 17.0 16.1 19.0
Selling, general, and administrative.................................... 26.4 25.8 25.2
In-process research and development..................................... -- -- 15.3
------------ ------------ ------------
Income (loss) from operations........................................... 15.4 14.8 (7.9)
Interest and other income, net.......................................... 1.2 0.7 0.7
------------ ------------ ------------
Income (loss) before taxes.............................................. 16.6 15.5 (7.2)
Tax provision (benefit)................................................. 5.8 5.5 (6.2)
------------ ------------ ------------
Net income (loss)....................................................... 10.8% 10.0% (1.0)%
============ ============ ============
</TABLE>

The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
1997, 1996, and 1995 ended on December 28, 1997, December 29, 1996, and December
31, 1995, respectively. For ease of presentation, December 31 has been utilized
as the fiscal year-end for all years.

Acquisition of TI Antifuse FPGA Business

On March 31, 1995, the Company completed its acquisition of the antifuse
FPGA business of Texas Instruments Incorporated ("TI"), the only second-source
supplier of the Company's products, in a transaction accounted for using the
purchase method. As consideration for the business acquired, the Company paid
$10.0 million in cash and issued 1,000,000 shares of Series A Preferred Stock.
The Preferred Stock was valued for purposes of the transaction at $18.9 million
and was converted on March 12, 1997, into 2,631,578 shares of Common Stock. The
Company expensed the in-process research and development acquired in the
transaction, taking a pretax charge of $16.6 million against income in the first
quarter of 1995. The Company allocated $4.4 million of the purchase price to
intangible assets (i.e., the customer base and goodwill acquired), which are
being amortized over five years. Amortization expense was $877,000, $876,000,
and $657,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.

As a result of the acquisition, the revenues of the business acquired from
TI are included (beginning with the second quarter of 1995) in the net revenues
of the Company. The Company assumed and subsequently fulfilled TI's backlog,
which consisted primarily of lower-margin ACT 1 and ACT 2 products with average
selling prices generally lower than those charged by the Company for comparable
products. These product mix and average selling price influences negatively
affected the Company's gross margin for 1995 and the absence of these influences
positively affected the Company's gross margin in subsequent quarters. In
addition, the Company ceased receiving royalties (which had no associated costs)
from TI on sales of FPGAs following the acquisition. See Note 3 of Notes to
Consolidated Financial Statements.

Net Revenues

Net revenues for fiscal 1997 were $155.9 million, an increase of 5% over
net revenues for fiscal 1996. This compares with an increase in net revenues of
37% for fiscal 1996 over fiscal 1995. The Company's acquisition of TI's antifuse
FPGA business had a negative influence on net revenues for the first quarter of
1995 and a positive effect on net revenues for subsequent quarters. Accordingly,
the year-over-year growth rates in net revenues are not necessarily indicative
of future results.

The Company derives its revenues primarily from the sale of FPGAs, which
accounted for 98% of net revenues for 1997, compared with 97% for 1996 and 95%
for 1995. The Company also derives revenues from the sale of development systems
and receipt of royalties.

Net revenues from the sale of FPGAs for 1997 increased 6% over net revenues
from the sale of FPGAs for 1996. This compares with an increase of 41% in net
revenues from the sale of FPGAs for 1996 over 1995. The growth in net revenues
from the sale of FPGAs for 1997 over 1996 was due primarily to a 3% increase in
unit sales coupled with a 2% increase in the overall average selling price of
FPGAs. The growth in net revenues from the sale of FPGAs for 1996 over 1995 was
due primarily to a 39% increase in unit sales coupled with a 7% increase in the
overall average selling prices of FPGAs. The increase in unit sales of FPGAs for
1996 was due principally to the Company's acquisition of TI's antifuse FPGA
business. The increases in the overall average selling price of FPGAs for 1997
and 1996 was due principally to proportionately greater unit sales of the
Company's newer (ACT 3, XL, DX, and RH) product families, which generally
command higher average selling prices than the Company's older (ACT 1 and ACT 2)
product families.

Net revenues from the sale of FPGAs for the second half of 1997 declined
from the first half of 1997. This decline occurred in the Company's business for
both commercial and high-reliability (or HiRel) FPGAs. Commercial FPGAs are
processed using the Company's standard testing, screening, and packaging
procedures. In 1997, the Company's HiRel business consisted of military and
radiation-hardened (or RH) FPGAs. Military FPGAs undergo special or extended
testing, screening, and packaging procedures. RH FPGAs are purchased by the
Company from Lockheed Martin Federal Systems, which has a proprietary process
that makes RH products radiation-hardened without special testing, screening, or
packaging. Orders for military and RH products tend to be large but irregular,
and hence difficult to predict. While the Company believes that the demand for
HiRel FPGAs should rebound eventually, no assurance to that effect can be given.
The Company further believes that its commercial business will resume a pattern
of growth as new products are introduced and designed into systems and those
systems come into production. The Company introduced a new family of products
(MX) in the second half of 1997 and currently expects to introduce another new
family (SX) in the first half of 1998. Since design wins take time and design
cycles are lengthy, the Company views the introduction of new products and
technologies as having an impact on revenues in the medium- to long-term.

As is typical in the semiconductor industry, the average selling prices of
the Company's products generally decline over the lives of such products. To
increase revenues, the Company seeks to increase unit sales of existing
products, principally by reducing prices, and to introduce and sell new
products. No assurance can be given that these efforts will be successful.

Over the last three fiscal years, sales to the Company's principal
distributors have increased as a percentage of the Company's net revenues. The
Company's principal distributors are Wyle Electronics Marketing Group ("Wyle")
and Pioneer-Standard Electronics, Inc. ("Pioneer") in North America and Arrow
Electronics, Inc. and Zeus Electronics (collectively, "Arrow") worldwide. The
following table sets forth, for each of the last three years, the percentage of
revenues derived from all customers accounting for 10% or more of net revenues
in any of such years:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Wyle.................................................................... 17% 14% 14%
Arrow................................................................... 17 14 12
Pioneer................................................................. 12 11 11
</TABLE>

The Company generally does not recognize revenue on a product shipped to a
distributor until the distributor resells the product to its customer.

Sales to customers outside the United States for 1997, 1996, and 1995
accounted for 31%, 33%, and 38% of net revenues, respectively. Of these export
sales, the largest portion was derived from European customers. Export sales
have declined as a percentage of net revenues principally because the Company's
radiation-hardened (RH) product family, which was introduced in 1996, is sold
almost exclusively to customers within the United States.

Gross Margin

Gross margin for 1997 was 59% of net revenues, compared with 57% of net
revenues for 1996 and 52% of net revenues for 1995. The improvement in gross
margin for 1997 over 1996 resulted primarily from improved manufacturing yields;
wafer price reductions; the generation of an increased percentage of net
revenues from sales of the company's newer product families, which generally
command higher margins; and appreciation in the value of the United States
dollar versus the Japanese yen, in which some of the Company's wafer purchases
are denominated.

The improvement in gross margin for 1996 over 1995 resulted primarily from
the Company's acquisition of TI's FPGA business, which positively influenced the
Company's net revenues and overall average selling price. The Company's gross
margin for 1996 also benefited from many of the same factors indicated above
that contributed to gross margin improvement for 1997.

As is typical in the semiconductor industry, margins on the Company's
products generally decline as the average selling prices of such products
decline. The Company seeks to offset margin erosion by selling a higher
percentage of new products, which tend to have higher margins than more mature
products, and by reducing costs. The Company seeks to reduce costs by improving
wafer yields, negotiating price reductions with suppliers, increasing the level
and efficiency of its testing and packaging operations, achieving economies of
scale by means of higher production levels, and increasing the number of die
produced per wafer by shrinking the die size of its products. No assurance can
be given that these efforts will be successful. The capability of the Company to
shrink the die size of its FPGAs is dependent on the availability of more
advanced manufacturing processes. Due to the custom steps involved in
manufacturing antifuse FPGAs, the Company typically obtains access to new
manufacturing processes later than its competitors using standard manufacturing
processes.

Research and Development

Research and development expenditures for 1997 were $26.5 million, or 17%
of net revenues, compared with $23.9 million, or 16% of net revenues, for 1996
and $20.6 million, or 19% of net revenues, for 1995. Research and development
expenditures for 1997 increased by 11% compared with 1996, and increased as a
percentage of net revenues principally because net revenues for the second half
of 1997 declined from the first half of 1997. Research and development
expenditures for 1996 increased by 16% compared with 1995, but declined as a
percentage of net revenues due to economies of scale resulting from the expanded
scope of the Company's operations. The Company currently intends to boost the
level of its research and development expenditures to accelerate the
introduction of new products. As a result, research and development expenditures
may again increase as a percentage of net revenues.

The Company's research and development consists of circuit design, software
development, and process technology activities. The Company believes that
continued substantial investment in research and development is critical to
maintaining a strong technological position in the industry and, therefore,
expects to continue increasing its research and development expenditures. Since
the Company's antifuse FPGAs are manufactured using a customized process, the
Company's research and development expenditures will probably always be higher
as a percentage of net revenues than that of its major competitors.

Selling, General, and Administrative

Selling, general, and administrative expenses for 1997 were $41.2 million,
or 26% of net revenues, compared with $38.4 million, or 26% of net revenues, for
1996 and $27.4 million, or 25% of net revenues, for 1995. Selling, general, and
administrative expenses for 1997 increased by 7% compared with 1996, while the
Company's net revenues for 1997 increased by 5% compared with 1996. Selling,
general, and administrative expenses for 1997 increased as a percentage of net
revenues principally because net revenues for the second half of 1997 declined
from the first half of 1997. Selling, general, and administrative expenses for
1996 increased by 40% compared with 1995, while the Company's net revenues for
1996 increased by 37% compared with 1995. Selling, general, and administrative
expenses for 1996 increased as a percentage of net revenues principally because
of an increased level of sales and marketing activities in support of new
products. The Company currently intends to again increase its level of sales and
marketing activity in support of new products. In addition, the Company believes
that its legal expenses will increase as a percentage of net revenues,
principally because of the Company's continuing litigation with QuickLogic
Corporation. See Note 12 of Notes to Consolidated Financial Statements. As a
result, selling, general, and administrative expenditures may again increase as
a percentage of net revenues.

In-Process Research and Development

The $16.6 million pretax charge for in-process research and development for
1995 resulted from a write-off taken in the first quarter of 1995 in connection
with the Company's acquisition of TI's antifuse FPGA business. The value of the
in-process research and development was established by an independent valuation
specialist.

Tax Provision

The Company's effective tax rate for 1997 and 1996 was 35%. Significant
components affecting the effective tax rate include benefits of federal research
and development credits, and the recognition of certain deferred tax assets
subject to valuation allowances as of December 31, 1996, and December 31, 1995.

The Company recorded a credit for income taxes for 1995 due to the
realization of deferred tax assets previously subject to valuation allowances.
The Company recorded additional deferred tax assets of approximately $3.0
million related to the 1995 charge for acquired in-process research and
development, the realization of which is dependent upon the generation of future
taxable income.

Financial Condition, Liquidity, and Capital Resources

The Company's total assets were $160.0 million at the end of 1997, compared
with $136.7 million at the end of 1996. The increase in total assets was
attributable principally to increased cash, cash equivalents, and short-term
investments. The following table sets forth certain financial data from the
Consolidated Balance Sheets expressed as the percentage change from the end of
fiscal 1996 to the end of fiscal 1997:
<TABLE>
<CAPTION>
Percentage Change
From 1996 to 1997
--------------------------
<S> <C>
Cash, cash equivalents, and short-term investments..................................... 102.4%
Accounts receivable, net............................................................... (14.8)
Inventories............................................................................ (23.7)
Property and equipment, net............................................................ (5.6)
Total assets........................................................................... 17.0
Total current liabilities.............................................................. 3.6
Shareholders' equity................................................................... 57.2
</TABLE>

Cash, Cash Equivalents, and Short-Term Investments

The Company's cash, cash equivalents, and short-term investments were $59.0
million at the end of 1997, compared with $29.2 million at the end of 1996. The
amount of cash, cash equivalents, and short-term investments increased as a
result of $34.0 million of cash provided by operations and $4.0 million of cash
provided by financing activities, which were offset in part by $8.2 million of
cash used in investing activities.

The Company presently has no material financial obligations to its current
wafer suppliers. However, wafer manufacturers are increasingly demanding
financial support from customers in the form of equity investments and advance
purchase price deposits, which in some cases are substantial. Should the Company
require additional capacity, it may be required to incur significant
expenditures to secure such capacity.

The Company believes that the availability of adequate financial resources
is a substantial competitive factor. To take advantage of opportunities as they
arise, or to withstand adverse business conditions should they occur, it may
become prudent or necessary for the Company to raise additional capital. The
Company intends to monitor the availability and cost of potential capital
resources, including equity, debt, and off-balance sheet financing arrangements,
with a view toward raising additional capital on terms that are acceptable to
the Company. No assurance can be given that additional capital will become
available on acceptable terms.

Notwithstanding the foregoing, the Company believes that existing cash,
cash equivalents, and short-term investments, together with cash from
operations, will be sufficient to meet its cash requirements for 1998. A portion
of available cash may be used for investment in or acquisition of complementary
businesses, products, or technologies.

Accounts Receivable

The Company's net accounts receivable were $25.1 million at the end of
1997, compared with $29.5 million at the end of 1996. This decline of 15% in net
accounts receivable compares favorably with the 5% increase in net revenues for
1997 compared with 1996. The Company believes that its net accounts receivable
for 1997 declined through more focused collection efforts and process
improvements.

Inventories

The Company's inventories were $20.5 million at the end of 1997, compared
with $26.8 million at the end of 1996. With the decline of inventories in 1997,
the Company is approaching its inventory model of 120 days. Since the Company's
FPGAs are manufactured using customized steps that are added to the standard
manufacturing processes of its independent wafer suppliers, the Company's
manufacturing cycle is longer and hence more difficult to adjust in response to
changing demands or delivery schedules. Accordingly, the Company's inventory
model will probably always be higher than that of its major competitors using
standard processes. Excess inventories increase the risk of obsolescence,
represent a non-productive use of capital resources, increase handling costs,
and delay realization of the price and performance benefits associated with more
advanced manufacturing processes.

Property and Equipment

The Company's net property and equipment was $15.1 million at the end of
1997, compared with $16.0 million at the end of 1996. The Company invested $6.8
million in property and equipment in 1997, compared with $7.8 million in 1996.
Depreciation and amortization of property and equipment were $7.5 million for
1997, compared with $5.9 million for 1996. Capital expenditures during the past
two years have been primarily for leasehold improvements and for engineering,
manufacturing, and office equipment. The Company anticipates that capital
expenditures may increase in 1998.

Current Liabilities

The Company's total current liabilities were $51.0 million at the end of
1997, compared with $49.2 million at the end of 1996.

Shareholders' Equity

Shareholders' equity was $109.0 million at the end of 1997, compared with
$69.4 million at the end of 1996. The increase included $18.1 million from the
conversion of the Series A Preferred Stock into Common Stock, $16.8 million of
net income, and proceeds of $4.0 million from the sale of Common Stock under
employee stock plans.

Employees

At the end of 1997, the Company had 380 full-time employees, including 117
in marketing, sales, and customer support; 137 in research and development; 94
in operations; and 32 in administration and finance. This compares with 356
full-time employees at the end of 1996, an increase of 7%. Net revenues per
employee was approximately $410,000 for 1997, compared with approximately
$418,000 for 1996.

Impact of Recently Issued Accounting Standards

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"), which is applicable to all financial
statements issued for periods ending after December 15, 1997. Under SFAS 128,
the Company is required to change the method it has used to compute earnings per
share and to restate all prior periods. The new requirements include a
calculation of basic earnings per share, from which the dilutive effect of stock
options, warrants, and convertible debt are excluded; and a calculation of
diluted earnings per share, which does not differ from previously reported net
income (loss) per share. Accordingly, the Company adopted the provisions of SFAS
128 for the year ended December 31, 1997, and all share and per share data have
been adjusted retroactively to comply with the new requirement.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose statements and is
expected to be first reflected in the Company's first quarter of 1998 interim
financial statements. The Company's management is currently evaluating the
impact of SFAS 130 on operations.

In June 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which established
standards for the way pubic enterprises report information in annual statements
and financial reports regarding operating segments, products, services,
geographic areas, and major customers. SFAS 131 will be first reflected in the
Company's 1998 Annual Report. The Company's management is currently evaluating
the impact of SFAS 131 on operations.

Quarterly Information

The following table presents certain unaudited quarterly results for each
of the eight quarters in the period ended December 28, 1997. In the opinion of
management, this information has been presented on the same basis as the audited
consolidated financial statements appearing elsewhere in this Annual Report and
all necessary adjustments (consisting only of normal recurring accruals) have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the audited consolidated
financial statements of the Company and notes thereto. These quarterly operating
results, however, are not necessarily indicative of the results for any future
period.

<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Dec. 28, Sept. 28, June 29, Mar. 30, Dec. 29, Sept. 29, June 30, Mar. 31,
1997 1997 1997 1997 1996 1996 1996 1996
--------- -------- ---------- --------- ---------- --------- ---------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues.......................... $ 37,012 $ 38,220 $ 40,823 $ 39,803 $ 39,027 $ 38,014 $ 36,694 $ 35,043
Cost of revenues...................... 15,287 15,788 16,731 16,439 16,381 16,164 16,105 15,769
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Gross profit.......................... 21,725 22,432 24,092 23,364 22,646 21,850 20,589 19,274
Research and development.............. 6,816 6,641 6,461 6,547 5,855 6,417 5,650 6,011
Selling, general, and administrative.. 10,313 10,355 10,394 10,131 10,651 9,854 9,582 8,308
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Income from operations................ 4,596 5,436 7,237 6,686 6,140 5,579 5,357 4,955
Net income............................ $ 3,382 $ 3,921 $ 4,934 $ 4,531 $ 4,153 $ 3,905 $ 3,606 $ 3,277
Net income per share:
Basic (1)........................... $ 0.16 $ 0.19 $ 0.24 $ 0.24 $ 0.23 $ 0.22 $ 0.20 $ 0.19
========= ======== ========== ========= ========== ========= ========== =========
Diluted (1)......................... $ 0.16 $ 0.18 $ 0.23 $ 0.21 $ 0.19 $ 0.18 $ 0.17 $ 0.16
========= ======== ========== ========= ========== ========= ========== =========
Shares used in computing
net income per share:
Basic............................... 21,032 20,956 20,834 18,636 17,971 17,890 17,761 17,667
========= ======== ========== ========= ========== ========= ========== =========
Diluted............................. 21,623 22,172 21,890 22,082 21,893 21,475 21,467 21,068
========= ======== ========== ========= ========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Dec. 28, Sept. 28, June 29, Mar. 30, Dec. 29, Sept. 29, June 30, Mar. 31,
1997 1997 1997 1997 1996 1996 1996 1996
--------- -------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Net Revenues:
Net revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 41.3 41.3 41.0 41.3 42.0 42.5 43.9 45.0
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Gross margin.......................... 58.7 58.7 59.0 58.7 58.0 57.5 56.1 55.0
Research and development.............. 18.4 17.4 15.8 16.4 15.0 16.9 15.4 17.2
Selling, general, and administrative.. 27.9 27.1 25.5 25.5 27.3 25.9 26.1 23.7
--------- -------- ---------- --------- ---------- --------- ---------- ---------
Income from operations................ 12.4 14.2 17.7 16.8 15.7 14.7 14.6 14.1
Net income............................ 9.1 10.3 12.1 11.4 10.6 10.3 9.8 9.4

- ------------------------------------------------
<FN>
(1) The 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share."

</FN>
</TABLE>
<PAGE>

Year 2000 Compliance and Other Factors Affecting Future Operating Results

Like most other companies, the year 2000 computer issue creates risk for
the Company. If internal systems do not correctly recognize date information
when the year changes to 2000, there could be an adverse impact on the Company's
operations. The Company has initiated a comprehensive project to prepare its
computer systems for the year 2000 and plans to have changes to critical systems
completed by the first quarter of 1999 to allow time for testing. The Company is
also assessing the capability of its products sold to customers over a period of
years to handle the year 2000, but does not currently believe there are product
issues. Management believes that the likelihood of a material adverse impact due
to problems with internal systems or products sold to customers is remote and
expects that the cost of these projects over the next two years will not have a
material effect on the Company's financial position or overall trends in results
of operations. The Company is also developing a plan to contact critical
suppliers of products and services to determine that the suppliers' operations
and the products and services they provide are year 2000 capable or to monitor
their progress toward year 2000 capability. There can be no assurance that
another company's failure to ensure year 2000 capability will not have an
adverse effect on the Company.

The Company's operating results are subject to general economic conditions
and a variety of risks characteristic of the semiconductor industry (including
booking and shipment uncertainties, wafer supply fluctuations, and price
erosion) or specific to the Company, any of which could cause the Company's
operating results to differ materially from past results. For a discussion of
such risks, see "Risk Factors" in Part I of the Company's Annual Report on Form
10-K for 1997, which is incorporated herein by this reference.

ACTEL CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 7,763 $ 3,543
Short-term investments.............................................................. 51,272 25,626
Accounts receivable, net............................................................ 25,135 29,495
Inventories, net.................................................................... 20,472 26,848
Deferred income taxes............................................................... 20,782 16,677
Notes receivable from officers...................................................... 364 --
Other current assets................................................................ 1,475 2,416
----------- -----------
Total current assets.......................................................... 127,263 104,605
Property and equipment, net............................................................ 15,081 15,973
Investment in Chartered Semiconductor.................................................. 10,680 10,680
Other assets, net...................................................................... 6,970 5,454
----------- -----------
$ 159,994 $ 136,712
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 12,440 $ 9,933
Accrued salaries and employee benefits.............................................. 4,718 5,967
Other accrued liabilities........................................................... 2,898 5,922
Deferred income..................................................................... 30,928 27,386
----------- -----------
Total current liabilities..................................................... 50,984 49,208

Commitments and contingencies

Redeemable, convertible preferred stock (Series A), $.001 par value, $25.00 liquidation
preference; 1,000,000 shares authorized; none and 1,000,000 shares issued and
outstanding at December 31, 1997 and 1996, respectively............................. -- 18,147

Shareholders' equity:
Preferred stock, $.001 par value; 4,000,000 shares authorized; none issued and
outstanding....................................................................... -- --
Common stock, $.001 par value; 30,000,000 shares authorized; 21,046,894 and
17,991,503 shares issued and outstanding at December 31, 1997 and 1996,
respectively...................................................................... 21 18
Additional paid-in capital.......................................................... 85,965 63,133
Retained earnings .................................................................. 23,024 6,206
----------- -----------
Total shareholders' equity.................................................... 109,010 69,357
----------- -----------
$ 159,994 $ 136,712
=========== ===========
</TABLE>

<PAGE>

ACTEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues............................................................ $ 155,858 $ 148,779 $ 108,516
Costs and expenses:
Cost of revenues..................................................... 64,244 64,420 52,517
Research and development............................................. 26,465 23,934 20,560
Selling, general, and administrative................................. 41,194 38,395 27,364
In-process research and development.................................. -- -- 16,600
------------ ------------ ------------
Total costs and expenses....................................... 131,903 126,749 117,041
------------ ------------ ------------
Income (loss) from operations........................................... 23,955 22,030 (8,525)
Interest expense........................................................ -- (13) (93)
Interest income and other, net.......................................... 1,842 1,068 846
------------ ------------ ------------
Income (loss) before taxes.............................................. 25,797 23,085 (7,772)
Tax provision (benefit)................................................. 9,029 8,147 (6,640)
------------ ------------ ------------
Net income (loss)....................................................... $ 16,768 $ 14,938 $ (1,132)
============ ============ ============
Net income (loss) per share:
Basic................................................................ $ 0.82 $ 0.84 $ (0.07)
============ ============ ============
Diluted.............................................................. $ 0.76 $ 0.70 $ (0.07)
============ ============ ============
Shares used in computing net income (loss) per share:
Basic................................................................ 20,370 17,826 17,367
============ ============ ============
Diluted.............................................................. 21,968 21,485 17,367
============ ============ ============
</TABLE>

<PAGE>

ACTEL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share amounts)

Retained
Earnings/ Total
Additional (Accumulated Shareholders'
Common Stock Paid-In Capital Deficit) Equity
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994................ $ 17 $ 57,306 $ (8,012) $ 49,311
Issuance of 455,393 shares of common stock
under employee stock plans............... 1 1,894 -- 1,895
Securities valuation adjustment............. -- -- 408 408
Tax benefit from exercise of stock options.. -- 438 -- 438
Net loss.................................... -- -- (1,132) (1,132)
--------------- ---------------- --------------- -----------------
Balance at December 31, 1995................ $ 18 $ 59,638 $ (8,736) $ 50,920
=============== ================ =============== =================
Issuance of 429,745 shares of common stock
under employee stock plans............... -- 2,955 -- 2,955
Securities valuation adjustment............. -- -- 4 4
Tax benefit from exercise of stock options..
-- 540 -- 540
Net income.................................. -- -- 14,938 14,938
--------------- ---------------- --------------- -----------------
Balance at December 31, 1996................ $ 18 $ 63,133 $ 6,206 $ 69,357
=============== ================ =============== =================
Conversion of 1,000,000 shares of redeemable,
convertible preferred stock into 2,631,578
shares of common stock................... 3 18,144 -- 18,147
Issuance of 423,813 shares of common stock
under employee stock plans............... -- 3,970 -- 3,970
Securities valuation adjustment............. -- -- 50 50
Tax benefit from exercise of stock options.. -- 718 -- 718
Net income.................................. -- -- 16,768 16,768
--------------- ---------------- --------------- -----------------
Balance at December 31, 1997................ $ 21 $ 85,965 $ 23,024 $ 109,010
=============== ================ =============== =================
</TABLE>

<PAGE>

ACTEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................................... $ 16,768 $ 14,938 $ (1,132)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization...................................... 8,358 6,755 4,412
Loss on disposal of fixed assets................................... 175 -- --
In-process research and development................................ -- -- 16,600
Changes in operating assets and liabilities:
Accounts receivable.............................................. 4,360 (11,690) (4,973)
Inventories...................................................... 6,376 878 (9,095)
Deferred income taxes............................................ (5,050) (6,373) (9,394)
Other current assets............................................. 577 (319) 2,710
Accounts payable, accrued salaries and employee benefits, and
other accrued liabilities...................................... (1,048) 5,140 8,058
Deferred income.................................................. 3,542 8,238 10,802
------------ ------------ ------------
Net cash provided by operating activities............................ 34,058 17,567 17,988
Investing activities:
Purchase of TI FPGA business......................................... -- -- (10,000)
Purchases of property and equipment.................................. (6,764) (7,786) (10,111)
Purchases of short-term investments.................................. (157,753) (49,429) --
Sales and maturities of short-term investments....................... 132,156 26,096 16,761
Investment in Chartered Semiconductor................................ -- (3,611) (3,033)
Other assets......................................................... (1,447) 126 (2,629)
------------ ------------ ------------
Net cash used in investing activities................................ (33,808) (34,604) (9,012)
Financing activities:
Sale of common stock................................................. 3,970 2,955 1,895
Proceeds from line of credit......................................... -- -- 4,500
Payments on line of credit........................................... -- -- (4,500)
Principal payments under notes payable and capital lease obligations. -- (66) (494)
------------ ------------ ------------
Net cash provided by financing activities............................ 3,970 2,889 1,401
Net increase (decrease) in cash and cash equivalents.................... 4,220 (14,148) 10,377
Cash and cash equivalents, beginning of year............................ 3,543 17,691 7,314
------------ ------------ ------------
Cash and cash equivalents, end of year.................................. $ 7,763 $ 3,543 $ 17,691
============ ============ ============
Supplemental disclosures of cash flows information and non-cash
investing and financing activities:
Cash paid during the year for interest............................... $ -- $ 2 $ 88
Cash paid during the year for taxes.................................. 15,398 12,370 4,593
Tax benefits from exercise of stock options............................. 718 540 438
Preferred stock issued to TI, net of estimated future issuance costs.... -- -- 18,147
Conversion of preferred stock into common stock......................... (18,147) -- --
</TABLE>

ACTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Actel Corporation (the "Company") was incorporated under the laws of
California on October 17, 1985. The Company designs, develops, and markets field
programmable gate arrays ("FPGAs") and associated development system software
and programming hardware. Net revenues from the sale of FPGAs accounted for 98%
of the Company's net revenues for 1997, compared with 97% for 1996 and 95% for
1995. FPGAs are logic integrated circuits, which adapt the microprocessing and
memory capabilities of electronic systems to specific applications. The
Company's operating results are therefore subject to a variety of risks
characteristic of the semiconductor industry, including booking and shipment
uncertainties, wafer yield fluctuations, and price erosion, as well as general
economic conditions. FPGAs are used by designers of communication, computer,
industrial control, military/aerospace, and other electronic systems to
differentiate their products and get them to market faster. Information on the
Company's sales by geographic area is included in Note 11.

Advertising and Promotion Costs

The Company's policy is to expense advertising and promotion costs as they
are incurred. The Company's advertising and promotion expenses were
approximately $4,050,000, $3,595,000, and $2,736,000 for 1997, 1996, and 1995,
respectively.

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Cash Equivalents and Short-Term Investments

For financial statement purposes, the Company considers all highly liquid
debt instruments with insignificant interest rate risk and with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents
consist primarily of cash deposits in money market funds that are available for
withdrawal without restriction. Short-term investments consist principally of
state and local municipal obligations.

The Company accounts for its investment in accordance with the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. At December 31,
1997, all debt securities are designated as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported in shareholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
and other income. Realized gains and losses and declines in value judged to be
other than temporary on available-for-sale securities are included in interest
income and other. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income and other.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company invests in securities of A, A1, or P1 grade. The
Company manufactures and sells its products to customers in diversified
industries. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral. Three of the Company's
distributors -- Wyle, Arrow, and Pioneer -- accounted for approximately 17%,
17%, and 12% of the Company's net revenues for 1997, respectively. The same
three distributors accounted in the aggregate for approximately 39% of the
Company's net revenues for 1996 and 37% for 1995. The loss of any one of these
distributors could have a materially adverse effect on the Company's results of
operations and financial position.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents. The carrying amount reported in the balance
sheets for cash and cash equivalents approximate fair value.

Investment Securities. The fair values for marketable debt securities
are based on quoted market prices.

Foreign Currency Exchange Contracts. The fair value of the Company's
foreign currency exchange forward contracts are estimated based on quoted
market prices of comparable contracts.

Impact of Recently Issued Accounting Standards

Income Taxes

The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the liability method is used in accounting
for income taxes. Deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value). Given the volatility of the market for the Company's
products, the Company makes inventory provisions for potentially excess and
obsolete inventory based on backlog and forecast demand. However, such backlog
demand is subject to revisions, cancellations, and rescheduling. Actual demand
will inevitably differ from such backlog and forecast demand, and such
differences may be material to the financial statements. Excess inventories
increase the risk of obsolescence, represent a non-productive use of capital
resources, increase handling costs, and delay realization of the price and
performance benefits associated with more advanced manufacturing processes.

Off-Balance-Sheet Risk

The Company enters into foreign exchange contracts to hedge firm purchase
commitments denominated in foreign currencies. The Company's accounting policies
for these instruments are based on the Company's designation of such instruments
as hedging transactions. The criteria the Company uses for designating an
instrument as a hedge includes its effectiveness in exposure reduction and
one-to-one matching of the derivative financial instrument to the underlying
transaction being hedged. Gains and losses on these contracts are recognized
upon maturity of the contracts and are included in the cost of sales. At
December 31, 1997, the Company had foreign exchange contracts maturing in
January 1998 to purchase Japanese yen for approximately $830,000 at an average
rate of 124 yen per dollar.

In addition, the Company had approximately $775,000 outstanding under a
standby letter of credit at December 31, 1997.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation
(see Note 2). Depreciation and amortization have been provided on a
straight-line basis over the following estimated useful lives:

Equipment...................... 2 to 5 years
Furniture and fixtures......... 3 to 5 years
Leasehold improvements......... Estimated useful life or lease term,
whichever is shorter

Revenue Recognition

Revenue from product shipped to customers is generally recorded at the time
of shipment. Revenue related to products shipped subject to customers'
evaluation is recognized upon final acceptance. Shipments to distributors are
made under agreements allowing certain rights of return and price protection on
unsold merchandise. For that reason, the Company defers recognition of revenues
and related cost of revenues on sales of products to distributors until such
products are sold by the distributor. Royalty income is recognized upon the sale
by others of products subject to royalties.

Stock-Based Compensation

The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, no
compensation cost has been recognized for its fixed cost stock option plans or
its associated stock purchase plan. The Company provides additional pro forma
disclosures as required under Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("SFAS 123").

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimated.

2. Balance Sheet Detail

<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Accounts receivable:
Trade accounts receivable.......................................................... $ 26,767 $ 30,128
Allowance for doubtful accounts.................................................... (1,632) (633)
------------ ------------
$ 25,135 $ 29,495
============ ============
Inventories:
Purchased parts and raw materials.................................................. $ 3,681 $ 1,792
Work-in-process.................................................................... 8,438 17,080
Finished goods..................................................................... 8,353 7,976
------------ ------------
$ 20,472 $ 26,848
============ ============
Property and equipment:
Equipment.......................................................................... $ 33,664 $ 27,539
Furniture and fixtures............................................................. 2,171 2,088
Leasehold improvements............................................................. 4,476 4,210
------------ ------------
40,311 33,837
Accumulated depreciation and amortization.......................................... (25,230) (17,864)
------------ ------------
$ 15,081 $ 15,973
============ ============
</TABLE>

Depreciation and amortization expense was approximately $7,481,000,
$5,879,000, and $3,755,000 for 1997, 1996, and 1995, respectively.

3. Purchase of TI FPGA Business

On February 12, 1995, the Company entered into an Asset Purchase Agreement
with Texas Instruments Incorporated ("TI") under which TI agreed to convey to
the Company all tangible and intangible assets and intellectual property rights
necessary to operate TI's antifuse FPGA business (the "TI FPGA Business"). The
acquisition was completed on March 31, 1995, in a transaction accounted for as a
purchase. The Company acquired approximately $9,100,000 of inventory, prepaid
research and development, and other credits receivable. The Company also
acquired certain fixed assets used in the TI FPGA Business. Beginning with the
second quarter of 1995, the Company's net revenues included the revenues of the
TI FPGA Business, but no longer included royalties from TI.

As consideration for the TI FPGA Business, the Company assumed certain
liabilities, paid $10,000,000 in cash, and issued 1,000,000 shares of Series A
Preferred Stock (valued at approximately $18,947,000 for purposes of the
transaction), which on March 12, 1997, were converted by TI into 2,631,578
shares of Common Stock. The total purchase price booked by the Company was
approximately $28,947,000, of which approximately $16,600,000 of in-process
research and development was charged against income in the first quarter of
1995. The amount was established by an independent valuation specialist. The
remaining amount of consideration, approximately $4,400,000, represents the
valuation of the customer base and goodwill acquired, was allocated to
intangible assets, and is being amortized over a five-year period. Amortization
expense was $877,000, $876,000, and $657,000 for the years ended December 31,
1997, 1996, and 1995, respectively.

4. Short-Term Investments

The following is a summary of available-for-sale securities at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Values
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1997
Municipal obligations included in short-term investments
$ 51,222 $ 50 $ -- $ 51,272
============ ============ ============ ============
December 31, 1996
Municipal obligations included in short-term investments
$ 25,618 $ 8 $ -- $ 25,626
============ ============ ============ ============
</TABLE>

There were no realized gains or losses in 1997 or 1996. Gross realized
gains and (losses) were approximately $4,000 and ($8,000), respectively, for
1995.

The adjustments to net unrealized gains and (losses) on investments
included as a separate component of shareholders' equity totaled approximately
$50,000 and $4,000 for 1997 and 1996, respectively.

The expected maturities of the Company's investments at December 31, 1997,
are shown below. Expected maturities may differ from contractual maturities
because the issuers of the securities may have the right to prepay obligations
without prepayment penalties.

Available-for-sale (in thousands):
Due in less than one year.................................... $ 19,061
Due in one year or more...................................... 32,211
------------
$ 51,272
============

A significant proportion of the Company's securities represent investments in
floating rate municipal bonds with contractual maturities greater than ten
years. However, the interest rates on these debt securities generally reset
every ninety days, at which time the Company has the option to sell the security
or roll-over the investment at the new interest rate. As it is not the Company's
intention to hold these securities until their contractual maturities, these
amounts have been classified as short-term investments.

5. Investment in Chartered Semiconductor

In February 1994, the Company entered into an agreement to invest
approximately $10,000,000 in Chartered Semiconductor Manufacturing Ltd
("Chartered Semiconductor"), a semiconductor company located in Singapore. Under
the terms of the agreement, the Company has acquired an equity interest in
Chartered Semiconductor of less than 2%. The investment was payable in Singapore
dollars, with the initial installment of approximately $2,000,000 paid in March
1994, the second installment of approximately $2,000,000 paid in September 1994,
the third installment of approximately $3,000,000 paid in March 1995, and the
last installment of approximately $2,900,000 paid in January 1996. In 1996, the
Company purchased an additional equity interest in Chartered Semiconductor,
pursuant to a contractual right of first refusal, for approximately $698,000.
The investment in Chartered Semiconductor is accounted for under the cost
method; therefore, changes in the value of the investment are not recognized
unless an impairment in the value of the investment is deemed by management to
be "other than temporary."

6. Line of Credit

The Company has a line of credit with a bank that provides for borrowings
not to exceed $10,000,000. The agreement contains covenants that require the
Company to maintain certain financial ratios and levels of net worth. At
December 31, 1997, the Company was in compliance with the covenants for the line
of credit. Borrowings against the line of credit bear interest at the bank's
prime rate. There were no borrowings against the line of credit at December 31,
1997. The line of credit, which expires in May 1998, may be terminated by either
party upon not less than thirty days' prior written notice.

7. Commitments

The Company leases its facilities and certain equipment under
non-cancellable lease agreements. The principal facility lease expires in June
1998, and provides for two consecutive five-year renewal options. The equipment
leases are accounted for as operating leases. The lease terms expire at various
dates through September 2001. All of these leases require the Company to pay
property taxes, insurance, and maintenance and repair costs. At December 31,
1997, the Company had no capital lease obligations.

Future minimum lease payments under all non-cancellable leases are as
follows:

Operating
Leases
------------
1998............................................................ $ 1,530
1999............................................................ 866
2000............................................................ 805
2001............................................................ 575
2002............................................................ 101
------------
Total minimum lease payments.................................... $ 3,877
============

Rental expense under operating leases was approximately $2,481,313,
$1,615,000, and $1,193,000 for 1997, 1996, and 1995, respectively.

8. Retirement Plan

Effective December 10, 1987, the Company adopted a tax deferred savings
plan for the benefit of qualified employees. The plan is designed to provide
employees with an accumulation of funds at retirement. Employees may elect at
any time to have salary reduction contributions made to the plan.

The Company may make contributions to the plan at the discretion of the
Board of Directors. The first contributions to the plan by the Company were made
in March 1998, based on net revenues and net income for the 1997 fiscal year.
For 1997, the plan provided for a maximum contribution of 2.5% of an eligible
employee's gross earnings or $1,500, whichever is less, if the Company achieved
its net revenue and net income goals. To be eligible for the contribution, an
employee must have been hired on or before July 15, 1997, and been an active,
regular employee on December 31, 1997. Since the Company did not achieve its net
revenue or net income goals in 1997 for purposes of the plan, the amount of the
contribution was reduced to 1.7% of an eligible employee's gross earnings, up to
a maximum of $1,500. The aggregate amount contributed to the plan was $340,750.
The contributions vest annually, retroactively from an eligible employee's date
of hire, at the rate of 25% per year. In addition, contributions become fully
vested upon retirement from the Company at age 65. There is no guarantee the
Company will make any contributions to the plan in the future, regardless of its
financial performance. If the Company, at its discretion, chooses to make a
contribution again in the future, the amount could be higher or lower.

9. Shareholders' Equity

Stock Option Plans

The Company has adopted stock option plans under which officers and
employees may be granted incentive stock options or nonqualified options to
purchase shares of the Company's common stock. At December 31, 1997, 7,364,533
shares of common stock were reserved for issuance under these plans, of which
521,100 were available for grant. In January 1998, the Board of Directors
authorized the Company to exchange stock options granted under these plans to
all employees (except officers with more than one year seniority) and having an
exercise price greater than $11.75 for options with an exercise price of $11.75
(the fair market value of the Company's stock on January 26, 1998, when the
exchange was effected). Under the terms of this stock option repricing, no
portion of any repriced option was exercisable until July 27, 1998. Options
representing the right to purchase a maximum of 1,777,016 shares of common stock
were repriced.

The Company has also adopted a Directors' Stock Option Plan, under which
directors who are not employees of the Company may be granted nonqualified
options to purchase shares of the Company's common stock. At December 31, 1997,
200,000 shares of common stock were reserved for issuance under such plan, of
which 70,000 were available for grant.

The Company grants stock options under its plans at a price equal to the
fair value of the Company's common stock on the date of grant. Subject to
continued service, options generally vest over a period of four years and expire
ten years from the date of grant.

The following table summarizes the Company's stock option activity and
related information for the three years ended December 31, 1997:

<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
------------- ----------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1...... 3,542,836 $ 12.38 2,506,331 $ 10.17 1,588,565 $ 6.42
Granted....................... 1,252,895 17.39 2,633,911 14.24 1,315,860 12.96
Exercised..................... (214,821) 8.29 (204,344) 6.60 (270,365) 2.25
Cancelled..................... (328,795) 13.40 (1,393,062) 12.79 (127,729) 8.99
------------- -------------- --------------
Outstanding at December 31.... 4,252,115 13.98 3,542,836 12.38 2,506,331 10.17
============= ============== ==============
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number of Contract Exercise Number of Exercise
Range of Exercise Prices Shares Life Price Shares Price
- --------------------------------------------- ----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.80 - $ 8.00.................... 588,679 5.69 years $ 6.77 406,441 $ 6.38
8.13 - 10.50.................... 241,275 7.13 9.35 82,619 9.40
10.63.................... 842,625 8.01 10.63 375,099 10.63
12.25 - 13.56.................... 222,850 8.37 13.24 52,624 13.21
14.88.................... 548,225 8.55 14.88 56,107 14.88
15.00 - 16.25.................... 121,625 8.54 15.30 31,416 15.16
16.38.................... 737,116 9.51 16.38 8,065 16.38
17.00 - 20.88.................... 557,670 8.62 19.06 51,643 18.34
21.00 - 22.50.................... 327,400 9.14 21.78 35,045 22.34
22.69.................... 64,650 9.69 22.69 0 0
----------- -----------
1.80 - 22.69.................... 4,252,115 8.19 13.98 1,099,059 10.21
=========== ===========
</TABLE>

691,944 and 564,195 outstanding options were exercisable at December 31, 1996
and 1995, respectively. The weighted-average grant-date fair value of options
granted during 1997, 1996, and 1995 were $7.38, $4.92, and $6.11, respectively.

Employee Stock Purchase Plan

The Company has adopted an Employee Stock Purchase Plan (the "ESPP"), under
which eligible employees may designate not more than 15% of their cash
compensation to be deducted each pay period for the purchase of common stock (up
to a maximum of $25,000 worth of common stock in any year). At December 31,
1997, 1,150,000 shares of common stock were reserved for issuance under the
ESPP. The ESPP is administered over offering periods of up to 24 months each,
with each offering period divided into four consecutive six-month purchase
periods beginning August 1 and February 1 of each year. On the last business day
of each purchase period, shares of common stock are purchased with employees'
payroll deductions accumulated during the six months at a price per share equal
to 85% of the market price of the common stock on the first day of the
applicable offering period or the last day of the purchase period, whichever is
lower. There were 208,992 and 225,401 shares issued under the ESPP in 1997 and
1996, respectively, and 387,292 remained available for issuance at December 31,
1997.

Pro Forma Disclosures

Pro forma information regarding net income/(loss) and net income/(loss) per
share is required by SFAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method. The fair
value for these options was estimated at the date of grant using the
Black-Scholes pricing model with the following weighted-average assumptions for
1997, 1996, and 1995: risk-free interest rates of 5.95%, 5.84%, and 6.55%,
respectively; no dividend yield; volatility factor of the expected market price
of the Company's common stock of 48%, 50%, and 50%, respectively; and a weighted
average expected life of the options of four years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>

Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Pro forma net income (loss)............................................. $ 11,405 $ 10,452 $ (2,780)
Pro forma earnings (loss) per share:
Basic................................................................ 0.56 0.59 (0.16)
Diluted.............................................................. 0.54 0.50 (0.16)
</TABLE>

Since SFAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until subsequent years.
The effects on pro forma disclosures of applying SFAS 123 are not likely to be
representative of the effects on pro forma disclosures in future years.

10. Tax Provision (Benefit)

The tax provision (benefit) consists of:
<TABLE>
<CAPTION>

December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Federal - current....................................................... $ 11,585 $ 12,150 $ 4,113
Federal - deferred...................................................... (4,544) (5,571) (8,977)
State - current......................................................... 2,304 2,460 1,149
State - deferred........................................................ (506) (1,089) (3,044)
Foreign - current....................................................... 190 197 119
------------ ------------ ------------
$ 9,029 $ 8,147 $ (6,640)
============ ============ ============
</TABLE>

The tax provision (benefit) reconciles to the amount computed by
multiplying income (loss) before tax by the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Provision (benefit) at statutory rate................................... $ 9,029 $ 8,079 $ (2,719)
Change in valuation allowance........................................... (440) (432) (2,396)
Federal research credits................................................ (772) (425) (937)
State taxes, net of federal benefit..................................... 1,169 891 (813)
Other................................................................... 43 34 225
------------ ------------ ------------
Tax provision (benefit)................................................. $ 9,029 $ 8,147 $ (6,640)
============ ============ ============
</TABLE>

Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as follows:

<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Depreciation................................................................... $ 219 $ --
Distributor reserve............................................................ 12,350 11,033
Charge for in-process research expenses........................................ 5,450 5,962
Inventories.................................................................... 5,323 3,293
Other, net..................................................................... 3,905 2,453
------------ ------------
27,247 22,741
Valuation allowance............................................................ (2,606) (3,046)
------------ ------------
24,641 19,695
============ ============
Deferred tax liabilities:
Depreciation................................................................... -- (104)
------------ ------------
-- (104)
------------ ------------
Net deferred tax assets................................................ $ 24,641 $ 19,591
============ ============
</TABLE>

The valuation allowance declined by approximately $432,000 during 1996.

11. Industry and Geographic Information

The Company operates in a single industry segment. The Company markets its
products in the United States and in foreign countries through its sales
personnel, independent sales representatives, and distributors. The Company's
geographic sales are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
(in thousands, except percentages)

<S> <C> <C> <C> <C> <C> <C>
United States................. $ 107,308 69% $ 99,131 67% $ 67,156 62%
Export:
Europe................... 26,239 17 26,105 18 18,706 17
Japan.................... 13,328 8 15,340 10 13,238 12
Other international...... 8,983 6 8,203 5 9,416 9
------------ ------------ ------------ ------------ ------------ ------------
$ 155,858 100% $ 148,779 100% $ 108,516 100%
============ ============ ============ ============ ============ ============
</TABLE>

12. Patent Infringement

In January 1994, the Company brought a patent infringement lawsuit against
QuickLogic Corporation ("QuickLogic"), which in turn brought a patent
infringement counterclaim against the Company in May 1995. The parties are
currently engaged in discovery and motion proceedings. Although the Company
believes that it has meritorious claims and defenses in this matter, and that
its resolution will not have a materially adverse effect on the Company's
business, financial position, or results of operations, no assurance can be
given to that effect.

As is typical in the semiconductor industry, the Company has been and
expects to be from time to time notified of claims that it may be infringing
patents owned by others. As it has in the past, the Company may obtain licenses
under patents that it is alleged to infringe. Although the Company is unable to
estimate with any degree of confidence the cost of such licenses, no assurance
can be given that they would not, individually or in the aggregate, have a
materially adverse effect on the Company's financial condition, and/or results
of operations. In addition, no assurance can be given that such claims against
the Company will not result in litigation. All litigation, whether or not
determined in favor of the Company, can result in significant expense to the
Company and can divert the efforts of the Company's technical and management
personnel from productive tasks.

Although the Company has obtained patents covering elements of its circuit
architecture and certain techniques for manufacturing its antifuse, no assurance
can be given that the Company's patents will be determined to be valid or that
the claims of QuickLogic or any assertions of infringement by other parties (or
claims for indemnity from customers resulting from any infringement claims) will
not succeed. In the event of an adverse ruling in the QuickLogic case or any
other litigation involving intellectual property, the Company could suffer
significant (and possibly treble) monetary damages. The Company may also be
required to discontinue the use of certain processes; cease the manufacture,
use, and sale of infringing products; expend significant resources to develop
non-infringing technology; or obtain licenses under patents that it is
infringing. Any of these outcomes could have a materially adverse effect on the
Company's business, financial condition, and/or results of operations.

13. Earnings Per Share

Under SFAS 128, the Company is required to change the method it has used to
compute earnings per share and to restate all prior periods. The new
requirements include a calculation of basic earning per share, from which the
dilutive effect of stock options, warrants, and convertible debt are excluded;
and a calculation of diluted earnings per share, which will not change the
primary earnings per share previously reported. For the fiscal year ended
December 31, 1995, the dilutive effect of stock options, warrants, and
convertible preferred stock was excluded from the calculation of common shares
used in the denominator for diluted earnings per share because it is
anti-dilutive.

The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands, except per share amounts)
Basic:
Average common shares outstanding....................................... 20,370 17,826 17,367
------------ ------------ ------------
Shares used in computing net income (loss) per share.................... 20,370 17,836 17,367
============ ============ ============
Net income (loss)....................................................... $ 16,768 $ 14,938 $ (1,132)
============ ============ ============
Net income (loss) per share............................................. $ 0.82 $ 0.84 $ (0.07)
============ ============ ============

Diluted:
Average common shares outstanding....................................... 20,370 17,826 17,367
Net effect of dilutive stock options, warrants, and convertible preferred
stock - based on the treasury stock method........................... 1,598 3,659 --
------------ ------------ ------------
Shares used in computing net income (loss) per share.................... 21,968 21,485 17,367
============ ============ ============
Net income (loss)....................................................... $ 16,768 $ 14,938 $ (1,132)
============ ============ ============
Net income (loss) per share............................................. $ 0.76 $ 0.70 $ (0.07)
============ ============ ============
</TABLE>

<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS

ACTEL CORPORATION

We have audited the accompanying consolidated balance sheets of Actel
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, cash flows, and shareholders' equity for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Actel
Corporation at December 31, 1997 and 1996 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
January 21, 1998

STOCK LISTING

Actel's common stock has been traded on the over-the-counter market since
the Company's initial public offering (IPO) on August 2, 1993, and is quoted on
the NASDAQ National Market System under the symbol "ACTL." The Company has never
paid cash dividends on its common stock and has no present plans to do so.

On March 25, 1998, there were 304 shareholders of record. Since many
shareholders have their shares held of record in the name of their brokerage
firm, the actual number of shareholders is estimated by the Company to be about
5,000.

During the last two years, the quarterly high and low sale prices for the
common stock were:

1997 High Low
- --------------------------------------------------- ------------ ------------
First Quarter...................................... $ 29.125 $ 17.875
Second Quarter..................................... 22.125 15.375
Third Quarter...................................... 24.125 15.75
Fourth Quarter..................................... 19.25 11.25

1996 High Low
- --------------------------------------------------- ------------ ------------
First Quarter...................................... $ 17.125 $ 9.00
Second Quarter..................................... 21.875 14.50
Third Quarter...................................... 20.25 12.375
Fourth Quarter..................................... 24.625 16.25

EXHIBIT 21

ACTEL CORPORATION

--------------------------------------

Subsidiaries

Actel Europe, Ltd., a U.K. corporation

Actel Europe SARL, a French corporation

Actel GmbH, a German corporation

Actel Pan-Asia Corporation, a Nevada corporation

EXHIBIT 21

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form
10-K) of Actel Corporation of our report dated January 21, 1998, included in the
1997 Annual Report to Shareholders of Actel Corporation.

Our audits also included the financial statement schedule of Actel
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements as a whole, presents
fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-74492) pertaining to the 1986 Incentive Stock Option
Plan, the 1993 Employee Stock Purchase Plan, and the 1993 Directors' Stock
Option Plan, and in the Registration Statement (Form S-8 No. 333-3398)
pertaining to the 1986 Incentive Stock Option Plan, the 1993 Employee Stock
Purchase Plan, and the 1995 Consultant Stock Plan, of our report dated January
21, 1998, with respect to the consolidated financial statements of Actel
Corporation incorporated by reference in its Annual Report (Form 10-K) for the
year ended December 31, 1997, and our report included in the preceding paragraph
with respect to the financial statement schedule included in this Annual Report
(Form 10-K) of Actel Corporation.

/s/ Ernst & Young LLP

San Jose, California
March 27, 1998

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John C. East, Henry L. Perret, and
David L. Van De Hey, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------ --------------------------------------------------- ----------------
<S> <C> <C>
/s/ John C. East President and Chief Executive Officer (Principal March 27, 1998
(John C. East) Executive Officer) and Director

/s/ Henry L. Perret Vice President of Finance and Chief Financial March 27, 1998
(Henry L. Perret) Officer (Principal Financial and Accounting
Officer)

Director
(Keith B. Geeslin)

/s/ Jos C. Henkens Director March 27, 1998
(Jos C. Henkens)

/s/ Frederic N. Schwettmann Director March 27, 1998
(Frederic N. Schwettmann)

/s/ Robert G. Spencer Director March 27, 1998
(Robert G. Spencer)
</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1997
<PERIOD-END> DEC-28-1997
<CASH> 7,763
<SECURITIES> 51,272
<RECEIVABLES> 26,767
<ALLOWANCES> 1,632
<INVENTORY> 20,472
<CURRENT-ASSETS> 127,263
<PP&E> 40,311
<DEPRECIATION> 25,230
<TOTAL-ASSETS> 159,994
<CURRENT-LIABILITIES> 50,984
<BONDS> 0
<COMMON> 85,965
0
0
<OTHER-SE> 23,024
<TOTAL-LIABILITY-AND-EQUITY> 159,994
<SALES> 155,858
<TOTAL-REVENUES> 155,858
<CGS> 64,244
<TOTAL-COSTS> 131,903
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 25,797
<INCOME-TAX> 9,029
<INCOME-CONTINUING> 16,768
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,768
<EPS-PRIMARY> .82
<EPS-DILUTED> .76

</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-29-1996
<CASH> 3,543
<SECURITIES> 25,626
<RECEIVABLES> 30,917
<ALLOWANCES> 1,422
<INVENTORY> 26,848
<CURRENT-ASSETS> 104,605
<PP&E> 33,837
<DEPRECIATION> 17,864
<TOTAL-ASSETS> 136,712
<CURRENT-LIABILITIES> 49,208
<BONDS> 0
<COMMON> 63,151
0
18,147
<OTHER-SE> 6,206
<TOTAL-LIABILITY-AND-EQUITY> 136,712
<SALES> 148,779
<TOTAL-REVENUES> 148,779
<CGS> 64,420
<TOTAL-COSTS> 126,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,055
<INCOME-PRETAX> 23,085
<INCOME-TAX> 8,147
<INCOME-CONTINUING> 14,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,938
<EPS-PRIMARY> .84
<EPS-DILUTED> .70

</TABLE>