<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
------- Exchange Act of 1934 For the quarterly period ended September 30,
1997 or
------- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________to________
COMMISSION FILE NO. 0-13836
SILICON VALLEY RESEARCH, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2743735
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6360 San Ignacio Avenue San Jose, CA 95119-1231
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 361-0333
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
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 the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Common Shares Outstanding at September 30, 1997: 16,776,883
<PAGE> 2
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
Part I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and September 30, 1997 (unaudited) 3
Consolidated Statements of Operations -
Three and Six Months Ended September 30, 1996 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended September 30, 1996 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
Part II. OTHER INFORMATION 15-16
-----------------
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of
Securities Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures 17
Exhibit 27. Financial Data Schedule 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Assets March 31, 1997 September 30, 1997
- ------ -------------- ------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,064 $ 2,264
Accounts receivable, net of allowances of
$150 in each period 1,129 1,265
Prepaid expenses and other current assets 453 273
-------- --------
3,646 3,802
Fixed assets, net 879 740
Other assets, net 3,952 2,134
-------- --------
$ 8,477 $ 6,676
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ -- $ 254
Current portion of long-term debt 189 227
Accounts payable 515 992
Accrued expenses 1,443 963
Deferred revenue 1,018 933
-------- --------
3,165 3,369
Long-term debt, less current portion 254 201
-------- --------
3,419 3,570
-------- --------
Contingencies (Note 7)
Shareholders' Equity:
Preferred stock, no par value:
Authorized: 1,000 shares
Issued and outstanding: none -- --
Common stock, no par value:
Authorized: 40,000 shares
Issued and outstanding:
12,227 shares at March 31, 1997
and 16,777 shares at September 30, 1997 32,375 36,263
Accumulated deficit (27,308) (33,116)
Cumulative translation adjustment (9) (41)
-------- --------
5,058 3,106
-------- --------
$ 8,477 $ 6,676
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
License fees and other $ 195 $ 487 $ 1,764 $ 729
Maintenance fees 748 497 1,401 968
-------- -------- -------- --------
Total revenue 943 984 3,165 1,697
-------- -------- -------- --------
Cost of revenue:
License fees and other 178 212 297 1,530
Maintenance fees 137 155 236 261
-------- -------- -------- --------
Total cost of revenue 315 367 533 1,791
-------- -------- -------- --------
Gross profit 628 617 2,632 (94)
-------- -------- -------- --------
Operating expenses:
Engineering, research and development 844 1,152 1,512 1,777
Selling and marketing 1,648 932 3,216 2,273
General and administrative 695 277 1,103 580
Impairment loss on prepaid royalty (Note 7) -- -- -- 1,217
-------- -------- -------- --------
Total operating expenses 3,187 2,361 5,831 5,847
-------- -------- -------- --------
Operating loss (2,559) (1,744) (3,199) (5,941)
-------- -------- -------- --------
Other income (expense):
Interest income 87 34 199 105
Interest expense (8) (8) (16) (12)
Other, net 1 (96) 2 40
-------- -------- -------- --------
Total other income (expense) 80 (70) 185 133
-------- -------- -------- --------
Loss before provision for
income taxes (2,479) (1,814) (3,014) (5,808)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss $ (2,479) $ (1,814) $ (3,014) $ (5,808)
======== ======== ======== ========
Net loss per share $ (0.22) $ (0.11) $ (0.26) $ (0.35)
======== ======== ======== ========
Shares used in per share calculation 11,418 16,773 11,383 16,375
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1996 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (3,014) $ (5,808)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for impairment of prepaid marketing royalty -- 1,217
Amortization of software development costs 263 1,259
Depreciation and amortization 416 522
Changes in assets and liabilities, net:
Accounts receivable 2,388 (136)
Prepaid expenses and other current assets (422) 180
Accounts payable 145 477
Accrued expenses 60 (480)
Deferred revenue (439) (85)
Other, net (1,380) 77
-------- --------
Net cash used in operating activities (1,983) (2,777)
-------- --------
Cash Flows from Investing Activities:
Acquisition of fixed assets (283) (21)
Capitalization of software development costs and
purchase of software licenses (2,102) (1,038)
-------- --------
Net cash used in investing activities (2,385) (1,059)
-------- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt (68) (121)
Advances on credit line -- 301
Proceeds from issuance of common stock 242 3,888
-------- --------
Net cash provided by financing activities 174 4,068
-------- --------
Effect of exchange rate changes on cash 29 (32)
-------- --------
Net increase (decrease) in cash and
cash equivalents (4,165) 200
Cash and cash equivalents at beginning
of period 10,238 2,064
-------- --------
Cash and cash equivalents at end
of period $ 6,073 $ 2,264
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997- UNAUDITED
(IN THOUSANDS EXCEPT FOR SHARE PRICE)
NOTE 1: BASIS OF PRESENTATION AND FINANCIAL STATEMENT INFORMATION
The accompanying consolidated financial statements have been prepared by
the Company, pursuant to the rules and regulations of the Securities and
Exchange Commission for interim financial statements. Therefore, they do not
include all the disclosures which were presented in the Company's annual report
on Form 10-K. These financial statements do not include all disclosures
required by generally accepted accounting principles and accordingly, should
be read in conjunction with the consolidated financial statements and notes
included as part of the Company's latest annual report on Form 10-K.
In the opinion of management, the consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the consolidated financial position, results of
operations and cash flows for the interim period. The results of operations
presented are not necessarily indicative of the results to be expected for the
full year or for any other period.
The report of Price Waterhouse LLP on the Company's fiscal 1997
consolidated financial statements was amended on September 17, 1997 to add an
explanatory paragraph regarding the Company's ability to continue as a going
concern. There can be no assurance that the Company will not continue to incur
significant operating losses or that required additional financing will be
available to meet the Company's business plans in fiscal 1998 and beyond.
In February 1997, the Company restated its unaudited consolidated
financial statements for the quarters ended June 30, 1996 and September 30,
1996 to reverse certain transactions and related expenses which were recognized
other than in accordance with the Company's accounting policies. The financial
statements for the three and six months ended September 30, 1996 include the
effect of the restatement referred to above.
NOTE 2: EARNINGS PER SHARE
The calculation of net loss per share is based upon the weighted
average number of shares outstanding during the period. During the three and
six month periods ended September 30, 1997 and 1996, the common equivalent
shares were antidilutive due to losses and, accordingly, were excluded from the
computation of net loss per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share".
This Statement is effective for the Company's quarter ending December 31, 1997.
The Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. The Company does not expect the adoption of this
Statement to have a significant impact on the previously reported losses per
share.
NOTE 3: STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
September 30
------------------
1996 1997
---- ----
<S> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $16 $12
Income Taxes 13 --
</TABLE>
6
<PAGE> 7
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1997- UNAUDITED
(IN THOUSANDS EXCEPT FOR SHARE PRICE)
NOTE 4: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1997
------- -------
<S> <C> <C>
Other Assets:
Software development costs $ 2,163 $ 1,685
Software licenses 2,388 2,869
------- -------
4,551 4,554
Less accumulated amortization (2,425) (2,953)
------- -------
2,126 1,601
Prepaid royalties, net 1,592 317
Other 234 216
------- -------
$ 3,952 $ 2,134
======= =======
Accrued Expenses:
Payroll and related costs $ 434 $ 447
Taxes payable 108 106
Other 901 410
------- -------
$ 1,443 $ 963
======= =======
</TABLE>
NOTE 5: BANK LINE OF CREDIT
In June 1997, the Company entered into an additional line of credit
with its bank. The revolving line of credit will provide for borrowings up to
$2,000 with available borrowings limited to certain percentages of eligible
accounts receivable. Interest at prime plus one percent will be due monthly
with principal due in one year. As of September 30, 1997, $254 has been
borrowed under the line of credit.
NOTE 6: REPRICING OF STOCK OPTIONS
On July 17, 1997, the Compensation Committee of the Board of Directors
approved a proposal under which all employees could elect to amend certain
stock options with exercise prices in excess of $0.875 to change the price to
the fair market value of the Company's common stock on that date, which was
$0.875, with continuation of the existing vesting schedule. Options for the
purchase of a total of 1,563 shares were amended.
NOTE 7: CONTINGENCIES
The Company is subject to various types of litigation during its
normal course of business. In January 1997, Gambit Automated Design, Inc.
("Gambit"), a competitor of the Company, filed a complaint alleging
misappropriation of trade secrets, breach of contract, inducing breach of
contract, breach of fiduciary duty, unfair competition and unjust enrichment
against the Company and a former employee of Gambit who is a current employee
of the Company. Gambit seeks injunctive relief, compensation and punitive
damages, restitution and attorneys' fees and costs. The parties are currently
engaged in discovery. The Company believes the lawsuit is without merit and
intends to defend itself vigorously.
In June 1996, the Company entered into an agreement whereby the
Company was granted the exclusive marketing rights to Bell Labs' CLOVER line of
deep submicron verification products worldwide, with the exception of Japan and
Taiwan, where the Company would co-market with Bell Labs' existing
distributors. Pursuant to the four year agreement, the Company made prepaid
royalty payments of $1,750. The agreement also provided for future prepaid
royalty payments of: $1,250 in fiscal 1998 and $1,000 in fiscal 1999. Despite
active marketing efforts, the product had limited success due to product issues
and to strong competitive factors. The Company recognized an impairment loss
on the balance of unamortized prepaid royalties totaling $1,217 during the six
months ended September 30, 1997. In July and August 1997, both parties sent
notices of termination, alleging breach of the agreement by the other party.
The agreement provides that any dispute,
7
<PAGE> 8
controversy or claim arising out of the agreement shall be resolved through
good faith consultation for a specified period. That period has passed. The
agreement provides that if the dispute is not resolved by consultation, it
shall be referred to and finally resolved by arbitration. Request for
arbitration has been made and arbitrators are in the process of being
appointed. Lucent's request for arbitration includes a "Prayer for Relief" of
$750 of royalty prepayments, consequential, special and incidental damages in
an unspecified sum and punitive damages in an unspecified sum. The Company has
filed a counterclaim, which includes a "Prayer for Relief" of direct and
consequential damages according to proof at the arbitration hearing in an
amount in excess of $1,750, recision of the License Agreement and the return of
the consideration exchanged thereunder, declaratory relief and punitive
damages in an unspecified sum. The dispute is in its early stages and the
ultimate outcome cannot presently be determined. Accordingly, no provision for
any liability that may result upon adjudication has been made in the
consolidated financial statements. The Company believes that Lucent's "Prayer
for Relief" is without merit and intends to vigorously dispute the claim.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current view with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in the Other Factors Affecting Future
Results section of this Item 2, elsewhere in this Form 10-Q and as set forth in
the Company's form 10-K on file with the SEC that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "intends," "future,"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.
RESULTS OF OPERATIONS
REVENUE
Revenue for the second quarter of fiscal year 1998, which ended
September 30, 1997, was $984, an increase from $943 in the second quarter a year
ago. The 4% increase in revenues was due to an increase in license revenue
recorded from a multi-license order for SonIC from a leading design services
company during the quarter ended September 30, 1997. The two companies are
entering into a joint development program to maximize SonIC's capabilities. In
addition, the Company is purchasing two copies of a set of libraries from this
company, at an amount substantially equivalent to the license order, to utilize
in conjunction with the Company's customer benchmark and development engineering
for the Company's products to achieve maximum utilization of the library data.
Revenue for the six month period ended September 30, 1997 decreased to $1,697
from $3,165 over the six month period ended September 30, 1996. The 46%
decrease is primarily due to weakened demand based on a reduction in capital
investment by semiconductor manufacturers, particularly in Asia, in the first
quarter of fiscal 1998, increased competition and the timing of renewals of
maintenance contracts. International sales, primarily Japan and the Far East,
accounted for 24% of total revenue in the second quarter of fiscal 1998 compared
to 36% in the second quarter a year ago.
The Company's expense levels are based, in part, on its expectations
as to future revenue levels, which are difficult to predict. A substantial
portion of the Company's revenues in each quarter results from shipments during
the last month of that quarter, and for that reason among others, the Company's
revenues are subject to significant quarterly fluctuations. If revenue levels
are below expectations, as in the six months ended September 30, 1997,
operating results may be materially and adversely affected. In addition, the
Company's quarterly and annual results may fluctuate as a result of many
factors, including the size and timing of software license fees, timing of
co-development projects with customers, timing of operating expenditures,
increased competition, new product announcements and releases by the Company
and its competitors, gain or loss of significant customers or distributors,
expense levels, renewal of maintenance contracts, pricing changes by the
Company or its competitors, personnel changes, foreign currency exchange rates,
and economic conditions generally and in the electronics industry
specifically.
COST OF REVENUE
Cost of license fees and other revenue for the second quarter of
fiscal year 1998 was $212, compared to $178 in the second quarter of fiscal
1997. Cost of license fees for the six months ended September 30, 1997 was
$1,530, compared to $297 in the six months ended September 30, 1996. Cost of
sales of license fees is primarily the amortization of software development
costs and amortization of prepaid royalty payments to third parties. As a
result of the significant reduction in revenue and due to the Company's
expanded product development program, the Company wrote-off $1,036 of
unamortized software development costs in the six months ended September 30,
1997.
Cost of maintenance fees for the second quarter of fiscal year 1998
was $155 compared to $137 in the second quarter of fiscal 1997. Cost of
maintenance fees for the six months ended September 30, 1997 was $261 compared
to $236 in the six months ended September 30, 1996. Cost of maintenance fees
is primarily the cost of providing technical support and technical
documentation.
9
<PAGE> 10
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
Engineering, research and development expenses for the second quarter
of fiscal year 1998 were $1,152 compared to $844 in the second quarter a year
ago. Comparing the second quarter of fiscal 1998 and the second quarter of
fiscal 1997, engineering, research and development expenses were 117% and 90%
of total revenue, respectively. Engineering, research and development expenses
for the six months ended September 30, 1997 were $1,777 compared to $1,512 for
the six months ended September 30, 1996. Comparing these periods, engineering,
research and development expenses were 105% and 48% of total revenue,
respectively. Engineering, research and development expenses were lower in
previous quarters due to the capitalization of software development costs,
which was not required during the second fiscal quarter of 1998.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses for the second quarter of fiscal year
1998 decreased to $932 from $1,648 in the second quarter a year ago. In the
second quarter of fiscal 1998 and the second quarter of fiscal 1997, selling
and marketing expenses were 95% and 175% of total revenue, respectively.
Selling and marketing expenses for the six months ended September 30, 1997
decreased to $2,273 from $3,216 in the six months ended September 30, 1996.
Comparing the six month periods, selling and marketing expenses were 134% and
102% of total revenue, respectively. The dollar decrease is due to the effects
of the Company's cost-cutting measures, a consistent reserve for bad debts from
the previous year's increase and lower commissions resulting from reduced
revenue during the six months ended September 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased to $277 for the second
quarter of fiscal year 1998 from $695 in the second quarter a year ago. In the
second quarter of fiscal 1998 and the second quarter of fiscal 1997, general
and administrative expenses were 28% and 74% of total revenue, respectively.
General and administrative expenses for the six months ended September 30, 1997
decreased to $580 from $1,103 in the six months ended September 30, 1996.
Comparing the six month periods, general and administrative expenses were 34%
and 35% of total revenue, respectively. General and administrative expenses
have decreased due to streamlining the organization, lower relocation expenses,
lower consulting and legal expenses and cost-cutting measures instituted by
management.
IMPAIRMENT LOSS ON PREPAID ROYALTY
In June 1996, the Company entered into an agreement whereby the
Company was granted the exclusive marketing rights to Bell Labs' CLOVER line of
deep submicron verification products worldwide, with the exception of Japan and
Taiwan. Pursuant to the four year agreement, the Company has made prepaid
royalty payments of $1,750. Despite active marketing efforts, the product had
limited success due to product issues and to strong competitive factors.
Accordingly, the Company recently ceased sales of the product line. Provision
was made in the accompanying financial statements to expense the full amount of
unamortized prepaid royalty of $1,217, the future value of which was considered
impaired.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through sales of equity securities and to a lesser extent, cash generated from
operations. To date in fiscal 1998, the Company has received net cash of $3,888
from the private placement of equity securities and the exercise of warrants and
options to purchase Common Stock ("financing activities"). During the six
months ended September 30, 1997, cash and cash equivalents increased $200 from
$2,064 to $2,264. This increase resulted from cash provided by financing
activities of $4,069 less cash used by operations of $2,777 and $1,059 of cash
used for investing activities.
10
<PAGE> 11
The Company incurred a significant loss in the first six months of
fiscal 1998 and expects operating losses to continue, at least in the near
term, as it expands its product development and marketing capabilities. The
achievement of profitability is primarily dependent upon the continued
development and commercial acceptance of the Company's products, the successful
management of the business and management's ability to strategically focus the
Company. There can be no assurance as to whether or when achievement of
profitable operations will occur. In addition, the Company is experiencing
negative cash flow from operations and it is expected that it will continue to
experience negative cash flow at least through fiscal 1998 and potentially
thereafter.
The Company's primary unused sources of funds at September 30, 1997
consisted of cash and cash equivalents of $2,264 and an available line of credit
of $1,746 from its bank, limited to certain percentages of eligible accounts
receivable. The Company believes its cash and cash generated from operations
and available borrowings may not be sufficient to finance its operations through
its 1998 fiscal year. Management is exploring financing alternatives to
supplement the Company's cash position. Potential sources of additional
financing include private equity financings, mergers, strategic investments,
strategic partnerships or various forms of debt financings. The Company has no
commitments or arrangements to obtain any additional funding and there can be no
assurance that the required financing of the Company will be available on
acceptable terms, if at all. The unavailability or timing of any financing
could prevent or delay the continued development and marketing of the products
of the Company and could require substantial curtailment of operations of the
Company.
The report of Price Waterhouse LLP on the Company's fiscal 1997
consolidated financial statements was amended on September 17, 1997 to add an
explanatory paragraph regarding the Company's ability to continue as a going
concern. There can be no assurance that the Company will not continue to incur
significant operating losses or that required additional financing will be
available to meet the Company's business plans in fiscal 1998 and beyond.
OTHER FACTORS AFFECTING FUTURE RESULTS
DEPENDENCE ON SINGLE PRODUCT LINE. Revenues from sales of the SVR GARDS family
of products have historically represented a substantial majority of the
Company's revenues. Although the Company has introduced its SVR SonIC family
of products, the Company expects that revenues from the sale of SVR GARDS
products will continue to account for at least a significant portion of the
Company's revenues for the foreseeable future. The life cycles of the
Company's products are difficult to predict due to the effect of new product
introductions or product enhancements by the Company or its competitors, market
acceptance of new and enhanced versions of the Company's products and
competition in the Company's marketplace. Declines in the demand for the SVR
GARDS family of products, whether as a result of competition, technological
change, price reductions or otherwise, could have a material adverse effect on
the Company's business, operating results and financial condition.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS. The EDA
industry is characterized by extremely rapid technological change, frequent new
product introductions and enhancements, evolving industry standards and rapidly
changing customer requirements. The development of more complex ICs embodying
new technologies will require increasingly sophisticated design tools. The
Company's future results of operations will depend, in part, upon its ability
to enhance its current products and to develop and introduce new products on a
timely and cost-effective basis that will keep pace with technological
developments and evolving industry standards and methodologies, as well as
address the increasingly sophisticated needs of the Company's customers. The
Company has in the past, and may in the future, experience delays in new
product development and product enhancements.
The Company has recently released significant upgrades to GARDS to
provide a new Power Router, to SonIC to provide a new placer and new routing
capabilities, and to SC to provide a rewritten Global Router and fast new
placement. There can be no assurance that these new products will gain market
acceptance or that the Company will be successful in developing and marketing
product enhancements or other new products that respond to technological
change, evolving industry standards and changing customer requirements, that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products or product
enhancements, or that its new products and product enhancements will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance.
11
<PAGE> 12
In addition, all of the Company's current products operate in, and
planned future products will operate in, the Unix operating system. In the
event that another operating system, such as Windows NT, were to achieve broad
acceptance in the EDA industry, the Company would be required to port its
products to such an operating system, which would be costly and time consuming
and could have a material adverse effect on the Company's business, operating
results or financial condition. Failure of the Company, for technological or
other reasons, to develop and introduce new products and product enhancements
in a timely and cost-effective manner would have a material and adverse effect
on the Company's business, operating results and financial condition. In
addition, the introduction, or even announcement of products by the Company or
one or more of its competitors embodying new technologies or changes in
industry standards or customer requirements could render the Company's existing
products obsolete or unmarketable. There can be no assurance that the
introduction or announcement of new product offerings by the Company, or one or
more of its competitors, will not cause customers to defer purchases of
existing Company products. Such deferment of purchases could have a material
adverse effect on the Company's business, operating results or financial
condition.
Software products as complex as those offered by the Company may
contain defects or failures when introduced or when new versions are released.
The Company has in the past discovered software defects in certain of its
products and may experience delays or lost revenue to correct such defects in
the future. Although the Company has not experienced material adverse effects
resulting from any such defects to date, there can be no assurance that,
despite testing by the Company, errors will not be found in new products or
releases after commencement of commercial shipments, resulting in loss of
market share or failure to achieve market acceptance. Any such occurrence
could have a material effect upon the Company's business, operating results or
financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Numerous factors may
materially and unpredictably affect operating results of the Company, including
the uncertainties of the size and timing of software license fees, timing of
co-development projects with customers, timing of operating expenditures,
increased competition, new product announcements and releases by the Company
and its competitors, gain or loss of significant customers or distributors,
expense levels, renewal of maintenance contracts, pricing changes by the
Company or its competitors, personnel changes, foreign currency exchange rates,
and economic conditions generally and in the electronics industry specifically.
Any unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. Many of
the Company's customers order on an as-needed basis and often delay delivery of
firm purchase orders until their project commencement dates are determined,
and, as a result, the Company operates with no significant backlog. Quarterly
revenue and operating results will therefore depend on the volume and timing of
orders received during the quarter, which are difficult to forecast accurately.
Historically, the Company has often recognized a substantial portion of its
license revenues in the last month of the quarter, with these revenues
frequently concentrated in the last two weeks of the quarter. Operating
results would be disproportionately affected by a reduction in revenue because
only a small portion of the Company's expenses vary with its revenue.
Operating results in any period should not be considered indicative of the
results to be expected for any future period, and there can be no assurance
that the Company's revenues will increase or that the Company will achieve
profitability.
LENGTHY SALES CYCLE. The licensing and sales of the Company's software
products generally involves a significant commitment of capital by prospective
customers, with the attendant delays frequently associated with large capital
expenditures and lengthy acceptance procedures. For these and other reasons,
the sales cycle associated with the licensing of the Company's products is
typically lengthy and subject to a number of significant risks over which the
Company has little or no control. Because the timing of customer orders is
hard to predict, the Company believes that its quarterly operating results are
likely to vary significantly in the future. Actual results of the Company
could vary materially as a result of a variety of factors, including, without
limitation, the high average selling price and long sales cycle for the
Company's products, the relatively small number of orders per quarter,
dependence on sales to a limited number of large customers, timing of receipt
of orders, successful product introduction and acceptance of the Company's
products and increased competition.
12
<PAGE> 13
DEPENDENCE UPON SEMICONDUCTOR AND ELECTRONICS INDUSTRIES; GENERAL ECONOMIC AND
MARKET CONDITIONS. The Company is dependent upon the semiconductor and more
generally, the electronics industries. Each of these industries is
characterized by rapid technological change, short product life cycles,
fluctuations in manufacturing capacity and pricing and gross margin pressures.
Each of these industries is highly cyclical and has periodically experienced
significant downturns, often in connection with, or in anticipation of,
declines in general economic conditions during which the number of new IC
design projects often decreases. Purchases of new licenses from the Company
are largely dependent upon the commencement of new design projects, and factors
negatively affecting any of these industries could have a material adverse
effect on the Company's business, operating results or financial condition.
The Company's business, operating results and financial condition may in the
future reflect substantial fluctuations from period to period as a consequence
of patterns and general economic conditions in either the semiconductor or
electronics industry.
COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS; DISCLOSURE RELATING TO LOW-PRICED
STOCK. The Company's Common Stock is quoted on the Nasdaq National Market ("The
National Market"). However, in order to continue to be included in the National
Market, a company must meet certain maintenance criteria. Continued inclusion
requires, among other things, a minimum bid price of $1.00 per share or, in the
alternative, a public market float of at least $3,000 and net tangible assets of
at least $4,000. Effective February 1998, the maintenance criteria will be
increased, requiring a minimum bid price of $1.00 per share, and $4,000 in net
tangible assets (total assets less total liabilities and goodwill) and $5,000
market value of the public float (excluding shares held directly or indirectly
by any officer or director of the Company and by any person holding beneficially
more than 10% of he Company's outstanding shares). As of November 10, 1997, the
closing sales price of a share of the Company's common stock was $0.75. Failure
to meet these maintenance criteria in the past and future may result in the
delisting of the Company's Common Stock from the National Market and the
quotation of the Company's Common Stock on the Nasdaq SmallCap Market (the
"SmallCap Market"), if the requirements for inclusion on the SmallCap Market are
met. As a result of quotation on the SmallCap Market, an investor may find it
more difficult to dispose of the Company's Common Stock.
Effective February 1998, a company must have $4,000 in net tangible
assets or $50,000 market capitalization or $750 net income in two of the last
three years, a minimum bid price of $4.00 per share and a public float of $5,000
for inclusion in the SmallCap Market, subject to certain exception. Failure to
meet the SmallCap Market inclusion criteria, or the failure to meet the SmallCap
Market maintenance criteria if the initial SmallCap Market inclusion criteria
are met, may result in the delisting of the Company's Common Stock from Nasdaq.
Trading, if any, in the Company's Common Stock would thereafter be conducted in
the non-Nasdaq over-the-counter market. As a result of such delisting, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's Common Stock.
In addition, if the Company's Common Stock were delisted from trading
on Nasdaq and the trading price of the Common Stock was less than $5.00 per
share, trading in the Common Stock would also be subject to certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stock to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burden imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock,
which could severely limit the market liquidity of the Common Stock and limit
the ability of sellers to sell the Common Stock in the secondary market.
INTERNATIONAL SALES. International sales, primarily in Japan, Korea and
Taiwan, accounted for approximately 52%, 43% and 25% of the Company's total
revenue in fiscal 1995, 1996 and 1997, respectively. Declining revenues from
international sales were a result of the reduction in capital expenditures by
semiconductor manufacturers, particularly in Asia, and increased competition in
the electronic design automation (EDA) software market. The Company expects
that international sales will continue to account for a significant portion of
its revenue and plans to continue to expand its international sales and
distribution channels. This revenue involves a number of inherent risks,
including economic downturn in the electronics industry in Asia, traditionally
slower adoption of the Company's products internationally, general strikes or
other disruptions in working conditions, generally longer receivables
collection periods, unexpected changes in or impositions of
13
<PAGE> 14
legislative or regulatory requirements, reduced protection for intellectual
property rights in some countries, potentially adverse taxes, delays resulting
from difficulty in obtaining export licenses for certain technology and other
trade barriers. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's results of operations. Sales orders received by
foreign sales subsidiaries are primarily denominated in currencies other than
the U.S. dollar. In order to reduce the risk of loss between the time the
Company's products are purchased by subsidiaries and the time payment is made,
the subsidiaries enter into foreign exchange contracts when economically
feasible.
COMPETITION. The EDA software market in which the Company competes is
intensely competitive and subject to rapid technological change. The Company
currently faces competition from EDA vendors, including Cadence Design Systems,
Inc. ("Cadence"), which currently holds the dominant share of the market for IC
physical design software, Avant! Corporation and Mentor Graphics. These EDA
vendors have significantly greater financial, technical and marketing
resources, greater name recognition and, in some cases, a larger installed
customer base than the Company. These companies also have established
relationships with current and potential customers of the Company and can
devote substantial resources aimed at preventing the Company from enhancing
relationships with existing customers or establishing relationships with
potential customers. The Company believes that competitive factors in the EDA
software market include product performance, price, support of industry
standards, ease of use, delivery schedule, product enhancements, and customer
technical support and service. The Company believes that, with respect to ease
of use, the Company's products may not be perceived as competing favorably.
Competition from EDA companies that choose to enter the IC physical
design market could present particularly formidable competition due to their
large installed customer base and their ability to offer a complete integrated
IC design solution, which the Company does not offer. The Company expects
additional competition from other established and emerging companies. In
addition, the EDA industry has become increasingly concentrated in recent years
as a result of consolidations, acquisitions and strategic alliances.
Accordingly, it is possible that new competitors or alliances among competitors
could emerge and rapidly acquire significant market share. There can be no
assurance the Company will be able to compete successfully against current and
future competitors or that competitive pressures faced by the Company will not
have a material adverse effect on its business, operating results and financial
condition.
MANAGEMENT TRANSITION. The Company is experiencing a period of management
transition that has placed, and may continue to place, a significant strain on
its resources, including its personnel. Robert R. Anderson resumed the role of
Chief Executive Officer in December 1996 and has assembled a new senior
management team. The Company's ability to manage growth successfully will
require its new management personnel to work together effectively and will
require the Company to improve its operations, management and financial systems
and controls. If the Company management is unable to manage this transition
effectively, the Company's business, competitive position, results of
operations and financial condition will be materially and adversely affected.
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (in thousands):
In June 1996, the Company entered into an agreement whereby
the Company was granted the exclusive marketing rights to Bell
Labs' CLOVER line of deep submicron verification products
worldwide, with the exception of Japan and Taiwan, where the
Company would co-market with Bell Labs' existing distributors.
Pursuant to the four year agreement, the Company made prepaid
royalty payments of $1,750. The agreement also provided for
future prepaid royalty payments of: $1,250 in fiscal 1998 and
$1,000 in fiscal 1999. In July and August 1997, both parties
sent notices of termination, alleging breach of the agreement
by the other party. The agreement provides that any dispute,
controversy or claim arising out of the agreement shall be
resolved through good faith consultation for a specified
period. That period has passed. The agreement provides that
if the dispute is not resolved by consultation, it shall be
referred to and finally resolved by arbitration. Request for
arbitration has been made and arbitrators are in the process
of being appointed. Lucent's request for arbitration includes
a "Prayer for Relief" of $750 of royalty prepayments,
consequential, special and incidental damages in an
unspecified sum and punitive damages in an unspecified sum.
The Company has filed a counterclaim, which includes a "Prayer
for Relief" of direct and consequential damages according to
proof at the arbitration hearing in an amount in excess of
$1,750, recision of the License Agreement and the return of
the consideration exchanged thereunder, declaratory relief
and punitive damages in an unspecified sum. The dispute is in
its early stages and the ultimate outcome cannot presently be
determined. Accordingly, no provision for any liability that
may result upon adjudication has been made in the consolidated
financial statements. The Company believes that Lucent's
"Prayer for Relief" is without merit and intends to vigorously
dispute the claim.
Item 2. Changes in Securities: Not Applicable
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Securities Holders:
(A) On September 4, 1997, the Annual Meeting of the
Shareholders of the Registrant was held. A total of
13,886,648 shares, or approximately 83%, of the shares
outstanding were represented at this meeting.
(B) At the meeting, the Shareholders elected Benjamin Huberman
and Roy Rogers as Directors with 13,759,832 votes in favor
and 126,816 withheld; Robert R. Anderson as Director with
13,757,316 votes in favor and 129,332 votes withheld; and
Thomas A. Sherby as Director with 13,760,832 votes in
favor and 125,816 votes withheld.
(C) The amendment to the Company's Amended and Restated
Articles of Incorporation was approved by 13,457,396 in
favor, 374,111 opposed and 35,141 abstained.
(D) The amendment to the Company's 1988 Stock Option Plan was
approved by 7,439,445 in favor, 484,802 opposed, 32,705
abstained and 5,929,696 broker non-votes.
(E) The amendment to the Company's 1990 Directors' Stock
Option Plan was approved by 9,341,511 in favor, 470,000
opposed, 39,885 abstained and 4,035,252 broker non-votes.
Item 5. Other Information: Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
15
<PAGE> 16
EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3.01 Registrant's Amended and Restated Articles of Incorporation as
amended to date (incorporated by reference to Exhibit 3.01 of
Registrant's Registration Statement on Form S-1 (File No. 2-89943)
filed March 14, 1984, as amended (the "1984 Registration
Statement")).
3.02 Registrant's amendment to Amended and Restated Articles of
Incorporation filed September 19, 1997.
3.03 Registrant's bylaws, as amended to date (incorporated by reference
to Exhibit 4.01 of the 1984 Registration Statement).
3.05 Amendment to Bylaws dated November 12, 1996 (incorporated by
reference to Exhibit 3.04 of Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
10.01* Registrant's 1990 Directors Stock Option Plan, as amended to date.
10.03* Registrant's 1988 Stock Option Plan, as amended to date.
27.00 Financial Data Schedule
*Management Contract or Compensatory Plan or Arrangement
REPORTS ON FORM 8-K:
Two form 8-K's were filed during the quarter covered by this report:
One Current Report on Form 8-K was dated July 7, 1997 and filed on July 14,
1997. This reported the Company's exit from the integrated circuit design
verification market and the cessation of sales and support of the integrated
circuit design verification product line that the Company had licensed from
Lucent Technologies, Inc. The Company also announced the anticipated release
of approximately ten percent of its workforce and a charge to earnings of
approximately $2 million for costs associated with these actions.
One Current Report on Form 8-K was dated September 17, 1997 and filed on
September 18, 1997. This reported that the report of Price Waterhouse LLP on
SVR's fiscal 1997 consolidated financial statements was amended on September
17, 1997 to add an explanatory paragraph regarding SVR's ability to continue as
a going concern and the financial statements were updated to disclose the
cancellation of a significant contract subsequent to March 31, 1997.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements 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.
SILICON VALLEY RESEARCH, INC.
Date: November 7, 1997 /s/ Robert R. Anderson
---------------- ------------------------------
Robert R. Anderson
Chief Executive Officer and
Chairman of the Board
/s/ Laurence G. Colegate, Jr.
------------------------------
Laurence G. Colegate, Jr.
Senior Vice President,
Finance and Administration
(Chief Financial and Accounting
Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.01 Registrant's Amended and Restated Articles of Incorporation as
amended to date (incorporated by reference to Exhibit 3.01 of
Registrant's Registration Statement on Form S-1 (File No. 2-89943)
filed March 14, 1984, as amended (the "1984 Registration
Statement")).
3.02 Registrant's amendment to Amended and Restated Articles of
Incorporation filed September 19, 1997.
3.03 Registrant's bylaws, as amended to date (incorporated by reference
to Exhibit 4.01 of the 1984 Registration Statement).
3.05 Amendment to Bylaws dated November 12, 1996 (incorporated by
reference to Exhibit 3.04 of Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
10.01* Registrant's 1990 Directors Stock Option Plan, as amended to date.
10.03* Registrant's 1988 Stock Option Plan, as amended to date.
27.00 Financial Data Schedule
*Management Contract or Compensatory Plan or Arrangement
18
<PAGE> 1
EXHIBIT 3.02
CERTIFICATE OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF
SILICON VALLEY RESEARCH, INC.
The undersigned, Robert R. Anderson and Laurence G. Colegate, Jr.,
hereby certify that:
1. They are the duly elected and acting Chief Executive Officer
and Senior Vice President of Finance and Administration/Chief Financial
Officer, respectively, of Silicon Valley Research, Inc. a California
corporation.
2. Article Third of the Corporation's Amended and Restated
Articles of Incorporation which presently reads as follows:
Third: The corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock.",
and referred to herein either as Common Stock or Common shares
and Preferred Stock or Preferred shares, respectively. The
number of shares of Common Stock is 25,000,000, without par
value and the number of shares of Preferred Stock is 1,000,000
without par value. Upon amendment of this Article to read as
herein set forth, each two (2) shares of outstanding Common
Stock are converted into and reconstituted as one (1) share of
Common Stock.
is amended to read as follows:
This corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock", and
referred to herein either as Common Stock or Common shares and
Preferred Stock or Preferred shares, respectively. The number of
shares of Common Stock is 40,000,000, without par value and the number
of shares of Preferred Stock is 1,000,000 without par value.
3. The foregoing amendment of the Articles of Incorporation has
been duly approved by the Board of Directors of this corporation.
4. The foregoing amendment of the Articles of Incorporation has
been duly approved by the required vote of the shareholders of this corporation
in accordance with section 902 of the
<PAGE> 2
California Corporations Code. The total number of outstanding shares of this
corporation entitled to vote with respect to the foregoing amendments was
16,764,624 shares of common stock. There are no outstanding shares of
Preferred Stock. The number of shares voting in favor of the amendment equaled
or exceeded the vote required, such required vote being more than 50% of the
outstanding shares of common stock.
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing certificate are true of his own knowledge.
Executed at San Jose, California on the 11th day of September 1997.
/S/ Robert R. Anderson
-------------------------------------------
Robert R. Anderson, Chief Executive Officer
/S/ Laurence C. Colegate, Jr.
-------------------------------------------
Laurence G. Colegate, Jr., Senior Vice
President of Finance and
Administration and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.01
SILICON VALLEY RESEARCH, INC.
AMENDED 1990 DIRECTORS' STOCK OPTION PLAN
AS AMENDED BY THE BOARD THROUGH JUNE 6, 1997
1. PURPOSE.
The Silvar-Lisco 1990 Directors' Stock Option Plan was initially
established effective May 14, 1990 (the "Initial Plan"), and is hereby amended
and restated in its entirety as the Silicon Valley Research, Inc. Amended 1990
Directors' Stock Option Plan (the "Plan") effective as of January 23, 1995 (the
"Effective Date"). The purpose of the Plan is to create additional incentive
for the non-employee directors of Silicon Valley Research, Inc., a California
corporation, and any successor corporation thereto (collectively referred to as
the "Company") to promote the financial success and progress of the Company and
any present or future Parent and/or Subsidiary of the Company.
2. TYPES OF OPTIONS AND SHARES.
Options granted under this Plan (the "Options") shall be nonqualified
stock options; that is, options which are not treated as incentive stock
options within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"). The shares of stock that may be purchased upon
exercise of Options granted under this Plan are shares of the common stock of
the Company ("Shares").
3. NUMBER OF SHARES.
The maximum number of Shares that may be issued pursuant to Options
granted under this Plan is 225,000 Shares, subject to adjustment as provided in
this Plan. If any Option is terminated for any reason without being exercised
in whole or in part, the Shares thereby released from such Option shall be
available for purchase under other Options subsequently granted under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the
Company (the "Board") and/or by a duly appointed committee of the Board having
such powers as shall be specified by the Board. Any subsequent references
herein to the Board shall also mean the committee if such committee has been
appointed and, unless the powers of the committee have been specifically
limited, the committee shall have all of the powers of the Board granted
herein, including, without limitation, the power to terminate or amend the Plan
at any time, subject to the terms of the Plan and any applicable limitations
imposed by law. The Board shall have no authority, discretion, or power to
select the non-employee directors of the Company who will receive options under
the Plan, to set the exercise price of the options granted under the Plan, to
determine the number of shares of common stock to be granted under option or
the time at which such options are to be granted, to establish the duration of
option grants, or alter any other terms or conditions specified in the Plan,
except in the sense of administering the Plan subject to the provisions of the
Plan. All questions of interpretation of the Plan or of any options granted
under the Plan (an "Option") shall be determined by the Board, and such
determinations shall be final and binding upon all persons having an interest
in the Plan and/or any Option. Any officer of the Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
5. ELIGIBILITY.
Options shall be granted only to a person, who, at the time of grant,
is an Investor Director or an Outside Director, as defined in Section 15 (an
"Optionee").
<PAGE> 2
6. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be evidenced by written
agreements specifying the number of shares of stock covered thereby, in
substantially the form attached hereto as Exhibit A (the "Option Agreement"),
which written agreement may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
(a) Automatic Grant of Options. Subject to execution by an Optionee of
an appropriate Option Agreement, Options shall be granted automatically and
without further action of the Board, as follows:
(i) On the Effective Date, each person currently serving as an
Outside Director shall be granted an Option to purchase Fifteen Thousand
(15,000) Shares, less the number of Shares subject to Options granted to such
Outside Director pursuant to the Initial Plan.
(ii) Each Investor Director who is newly elected or appointed to
the Board after the Effective Date shall be granted, on the day immediately
following such initial election or appointment, an Option to purchase Ten
Thousand (10,000) Shares.
(iii) Each Outside Director who is newly elected or appointed to
the Board after the Effective Date and prior to the date of the Annual Meeting
of the Company's shareholders held in 1996 (the "1996 Annual Meeting Date")
shall be granted, on the day immediately following such initial election or
appointment, an Option to purchase Fifteen Thousand (15,000) Shares.
(iv) On the 1996 Annual Meeting Date, each Outside Director then
holding office who received a grant pursuant to Section 6(a)(i) or 6(a)(iii)
prior to such date shall be granted an Option to purchase Five Thousand (5,000)
Shares.
(v) Each Outside Director who is newly elected or appointed to the
Board on or after the 1996 Annual Meeting Date shall be granted, on the day
immediately following such initial election or appointment, an Option to
purchase Twenty Thousand (20,000) Shares.
(vi) On April 1, 1995 and each anniversary thereof, each Investor
Director shall be granted an Option to purchase One Thousand (1,000) Shares.
(vii) On April 1, 1995 and each anniversary thereof which occurs
prior to the 1996 Annual Meeting Date, each Outside Director shall be granted an
Option to purchase One Thousand Five Hundred (1,500) Shares.
(viii) On the 1996 Annual Meeting Date, each Outside Director then
holding office who received a grant pursuant to Section 6(a)(vii) prior to such
date shall be granted an Option to purchase One Thousand Five Hundred (1,500)
Shares.
(ix) On April 1, 1997 and each anniversary thereof, each Outside
Director shall be granted an Option to purchase Three Thousand (3,000) Shares.
(x) On February 11, 1997, each Outside Director serving as a member
of the Audit Committee of the Board shall be granted an Option to purchase Ten
Thousand (10,000) Shares, less the number of Shares subject to any other options
granted to such Outside Director on such date. Shares subject to Options granted
pursuant to this Section 6(a)(x) shall be fully vested on and after the date of
grant, and the term of an Option granted pursuant to this Section 6(a)(x) shall
not be affected by the Outside Director's termination of service.
(xi) Notwithstanding the foregoing, any Optionee may elect not to
receive an Option granted pursuant to this Section 6(a) by delivering written
notice of such election to the Board no later than six (6) months prior to the
date upon which such Option would otherwise be granted.
(xii) Notwithstanding any other provision of the Plan to the
contrary, no Option shall be granted to any individual on a day when he or she
is no longer serving as an Investor Director or an Outside Director.
2
<PAGE> 3
(b) EXERCISE PRICE. The exercise price per Share subject to an Option
shall be the Fair Market Value of a Share on the date the Option is granted.
(c) PAYMENT.
(i) FORMS OF PAYMENT AUTHORIZED. Except as otherwise provided
below, payment of the aggregate exercise price for the number of Shares being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of whole Shares owned by the Optionee
having a Fair Market Value not less than the aggregate exercise price, (iii) by
the assignment in a form acceptable to the Company of the proceeds of a sale of
some or all of the shares being acquired upon the exercise of an Option pursuant
to a program or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "Same-Day Sale"), or (iv) by any combination thereof.
(ii) TENDER OF STOCK. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of Shares to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock. Unless otherwise
provided by the Board, an Option may not be exercised by tender to the Company
of Shares unless such Shares either have been owned by the Optionee for more
than six (6) months or were not acquired, directly or indirectly, from the
Company.
(iii) SAME-DAY SALE. The Company reserves, at any and all times,
the right, in the Company's sole and absolute discretion, to establish, decline
to approve or terminate any program or procedures for the exercise of Options by
means of a Same-Day Sale.
(d) WITHHOLDING TAXES. Prior to issuance of the Shares upon exercise of
an Option, the Optionee shall pay or make adequate provision for any applicable
foreign, federal or state withholding obligations of the Company.
7. AUTHORITY TO VARY TERMS.
Subject to the limitations set forth in Section 4, the Board shall
have the authority from time to time to vary the terms of the Option Agreement
either in connection with the grant of an individual Option or in connection
with the authorization of a new standard form or forms; provided, however, that
the terms and conditions of such revised or amended standard form or forms of
stock option agreement shall be in accordance with the terms of the Plan. Such
authority shall include, but not by way of limitation, the authority to grant
Options which are immediately exercisable subject to the Company's right to
repurchase any unvested Shares acquired by the Optionee on exercise of an
Option in the event such Optionee's service as a director of the Company is
terminated for any reason.
8. NON-TRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be exercisable
only by the Optionee or by the Optionee's guardian or legal representative. No
Option may be sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent and distribution.
9. ADJUSTMENT OF OPTION SHARES.
In the event that the number of outstanding shares of Common Stock of
the Company is changed by a stock dividend, stock split, reverse stock split,
combination, reclassification or similar change in the capital structure of the
Company without consideration, the number of Shares available under this Plan,
the number of shares to be granted to Optionees pursuant to Section 6 and the
number of Shares subject to outstanding Options and the exercise price per
share of such options shall be proportionately adjusted; provided, however,
that no certificate or scrip representing fractional shares shall be issued
upon exercise of any Option and any resulting fractions of a Share shall be
ignored.
3
<PAGE> 4
10. NO OBLIGATION TO RETAIN.
Nothing in this Plan or any Option granted under this Plan shall
confer on any Optionee any right to continue as a director of the Company.
11. EFFECT OF A TRANSFER OF CONTROL ON OPTIONS.
In the event of a Transfer of Control, as defined in Section 15, any
unexercisable or unvested portion of the outstanding Options shall be
immediately exercisable and vested in full as of the date ten (10) days prior
to the date of the Transfer of Control, and the Company shall provide each
Optionee holding an outstanding Option with at least ten (10) days advance
written notice of the pending Transfer of Control prior to the consummation
thereof. In addition, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under outstanding Options or substitute substantially equivalent options for
the Acquiring Corporation's stock for outstanding Options. The exercise or
vesting of any Option that was permissible solely by reason of this Section 11
shall be conditioned upon the consummation of the Transfer of Control. Any
Options which are neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control shall terminate and cease to be outstanding
effective as of the date of the Transfer of Control. If the corporation the
stock of which is subject to the outstanding Options immediately prior to a
Transfer of Control described in Section 15(f)(i) is the surviving or
continuing corporation, the outstanding Options shall be deemed to have been
assumed by the Acquiring Corporation for purposes of this Section 11.
12. AMENDMENT OR TERMINATION OF PLAN.
The Board, including any duly appointed committee of the Board, may
terminate or amend the Plan at any time; provided, however, that without the
approval of the shareholders of the Company, there shall be (a) no increase in
the total number of Shares covered by the Plan (except by operation of the
provisions of Section 9 above), and (b) no expansion in the class of persons
eligible to receive Options; and provided, further, that the provisions of the
Plan addressing eligibility to participate in the Plan and the amount, price
and timing of grants of Options shall not be amended more than once every six
(6) months, other than to comport to changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
In addition to the foregoing, the approval of the Company's shareholders shall
be sought for any amendment to the Plan for which the Board deems shareholder
approval necessary in order to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended. In any case, no amendment of this Plan may
adversely affect any then outstanding Option or any unexercised portion thereof
without the written consent of the Optionee, unless such amendment or
termination is necessary to comply with any applicable law or government
regulation.
13. TERM OF PLAN.
Options may be granted pursuant to this Plan from time to time within
a period of ten years from May 14, 1990.
14. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING OPTIONS.
Any other provision of the Plan to the contrary notwithstanding, the
terms of the Initial Plan shall remain in effect and apply to all Options
granted pursuant to the Initial Plan.
15. CERTAIN DEFINITIONS.
As used in this Plan, the following terms shall have the following
meanings:
(a) "Fair Market Value" means the fair market value of the Shares
as determined by the Board in good faith; provided, however, that where there is
a public market for the Company's Common Stock, the Fair Market Value per Share
shall be the average of the last reported bid and
4
<PAGE> 5
asked price of the Company's Common Stock on the last trading day prior to the
date of grant, as reported in the Wall Street Journal (or if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) system) or, in the event the Company's Common
Stock is listed on a stock exchange, the Fair Market Value per Share shall be
the closing price on such exchange on the last trading day prior to the date of
grant of the Option, as reported in the Wall Street Journal.
(b) "Investor Director" means a director of the Company who (i)
owns 1% or more of the total combined voting power of all classes of stock of
the Company, and (ii) is not an employee of the Company or any Parent or
Subsidiary.
(c) "Outside Director" means a director of the Company who is
neither (i) an employee of the Company or any Parent or Subsidiary, nor (ii) an
Investor Director.
(d) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(e) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
(f) "Transfer of Control" means any of the following which occurs
with respect to the Company:
(i) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company;
(ii) a merger in which the shareholders of the Company
before such merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Company;
(iii) the sale, exchange, or transfer of all or
substantially all of the Company's assets (other than a sale, exchange, or
transfer to one or more corporations where the shareholders of the Company
before such sale, exchange or transfer retain, directly or indirectly, at least
a majority of the beneficial interest in the voting stock of the corporation(s)
to which the assets were transferred); or
(iv) a liquidation or dissolution of the Company.
5
<PAGE> 1
EXHIBIT 10.03
SILICON VALLEY RESEARCH, INC.
AMENDED 1988 STOCK OPTION PLAN
AS AMENDED BY THE BOARD THROUGH JUNE 6, 1997
1. Purpose. This 1988 Stock Option Plan ("Plan") is established
to attract, retain and provide equity incentives to selected persons to promote
the financial success of SILICON VALLEY RESEARCH, INC. (the "Company").
2. Types of Options and Shares. Options granted under this Plan
(the "Options") may be either: (a) incentive stock options ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), or (b)
non-qualified stock options ("NQSO's"), as designated at the time of grant. The
shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the Common Stock of the Company.
3. Number of Shares. The maximum number of Shares that may be
issued pursuant to Options granted under this Plan is 3,745,976 Shares, subject
to adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, or any Shares issued pursuant to an
Option are repurchased by the Company pursuant to a right or repurchase or a
right of first refusal retained by the Company, the unexercised Shares from such
Option and the shares so repurchased shall be available for future grant and
purchase under this Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
4. Eligibility. Options may be granted to employees, officers,
directors who are also employees, consultants, independent contractors and
advisers of the Company or any Parent, Subsidiary or Affiliate of the Company
(as defined in Section 16). ISO's may be granted only to employees (including
officers and employees who are also directors) of the Company or a Parent or
Subsidiary or Affiliate of the Company. The Committee (as defined in Section 14)
in its sole discretion shall select the recipients of Options ("Optionees"). An
Optionee may be granted more than one Option under this Plan. Subject to
adjustment as provided in Section 10, at any such time as the Company or any
Parent, Subsidiary or Affiliate of the Company is a "publicly held corporation"
within the meaning of section 162(m) of the Code and the regulations promulgated
thereunder ("Section 162(m)"), no person shall be granted within any fiscal year
of the Company Options which in the aggregate cover more than 250,000 Shares
(the "Per Optionee Limit").
5. Terms and Conditions of Options. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
(a) Form of Option Grant. Each Option granted under this
Plan shall be evidenced by a written Stock Option Grant (the "Grant") in such
form (which need not be the same for each Optionee) as the Committee shall from
time to time approve.
(b) Date of Grant. The date of grant of an Option shall
be the date on which the Committee makes the determination to grant such Option
unless otherwise specified by the Committee.
(c) Exercise Price. The exercise price of an Option
shall be not less than 100% of the fair market value of the Shares at the time
the Option is granted, as determined by the Committee in good faith. The
exercise price of any Option granted to a person owning more than 10% of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary of the Company ("Ten Percent Shareholder") shall not be less than
110% of the fair
<PAGE> 2
market value of the Shares at the time the Option is granted, as determined by
the Committee in good faith. As long as a public market exists for the Shares,
the fair market value shall be the average of the last reported bid and asked
prices for Common Stock of the Company on the last trading day prior to the
date of determination or, in the event the Common Stock of the Company is
listed on a stock exchange or on the NASDAQ National Market System, the fair
market value shall be the closing or last price on such exchange or quotation
system on the last trading day prior to the date of determination.
(d) Exercise Period. Options shall be exercisable within
the times or upon the events determined by the Committee as set forth in the
Grant; provided, however, that no Option shall be exercisable after the
expiration of ten years from the date the Option is granted, and provided
further that no Option granted to a Ten Percent Shareholder shall be exercisable
after the expiration of five years from the date the Option is granted.
(e) Limitations on ISO's. The aggregate fair market
value (determined as of the time an Option is granted) of stock with respect to
which ISO's are exercisable for the first time by an Optionee during any
calendar year (under this Plan or under any other incentive stock option plan of
the Company or any Parent or Subsidiary of the Company) shall not exceed
$100,000. If the fair market value of stock with respect to which ISO's are
exercisable for the first time by an Optionee during any calendar year exceeds
$100,000, the Options for the first $100,000 worth of stock to become
exercisable shall be ISO's and the Options for the amount in excess of $100,000
shall be NQSO's.
(f) Options Non-Transferable. Options granted under this
Plan shall not be transferable by the Optionee otherwise than by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the Optionee only by the Optionee. During the Optionee's lifetime, no Option
or interest therein may be transferred, assigned, pledged or hypothecated by the
Optionee, whether by operation of law or otherwise, or may be made subject to
execution, attachment or similar process.
6. Exercise of Options.
(a) Notice. Options may be exercised only by delivery to
the Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased plus any withholding required pursuant
to subparagraph (c) below.
(b) Payment. Payment for the Shares may be made: (i) in
cash (by check); (ii) where permitted by applicable law and approved by the
Committee in its sole discretion, by tender of a full recourse promissory note
having such terms as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Section 483 and 7872 of the
Code; or (iii) where permitted by applicable law and approved in advance by the
Committee in its sole discretion, through a "same day sale" commitment from the
Optionee and a broker-dealer that is a member in good standing of the National
Association of Securities Dealers (an "NASD Dealer") whereby the Optionee
irrevocably elects to exercise this Option and to sell a portion of the Shares
so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company. Optionees who are not employees of the Company shall
not be eligible to purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares.
2
<PAGE> 3
(c) Withholding Taxes. Prior to issuance of the Shares
upon exercise of an Option, the Optionee shall pay or make adequate provision
for federal, state or local withholding obligations of the Company, if
applicable.
(d) Limitations on Exercise. Notwithstanding the
exercise periods set forth in the Grant, exercise of an Option shall always be
subject to the following limitations:
(i) If an Optionee ceases to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, the Optionee may exercise such Optionee's Option to
the extent (and only to the extent) that it would have been exercisable upon the
date of termination, within three months after the date of termination (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Option.
(ii) If an Optionee's employment with the Company
or any Parent, Subsidiary or Affiliate of the Company is terminated because of
the death of the Optionee or disability of Optionee within the meaning of
Section 22(e)(3) of the Code, such Optionee's Option may be exercised to the
extent (and only to the extent) that it would have been exercisable by the
Optionee on the date of termination, by the Optionee (or the Optionee's legal
representative) within twelve months after the date of termination (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Option.
(iii) Options shall cease to vest during any leave
of absence, except in the case of sick leave, military leave or other leave of
absence approved by the Committee provided that such leave is for a period of
not more than ninety days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.
(iv) The Committee shall have discretion to
determine whether the Optionee has ceased to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company and the effective date on which
such employment terminated.
(v) The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent the Optionee from exercising
the full number of Shares as to which the Option is then exercisable.
(vi) An Option shall not be exercisable unless
such exercise is in compliance with the Securities Act of 1933, as amended (the
"1933 Act"), all applicable state securities laws and the requirements of any
stock exchange or national market system upon which the Shares may then be
listed, as they are in effect on the date of exercise. The Company shall be
under no obligation to register the Shares with the Securities and Exchange
Commission ("SEC") or to effect compliance with the registration or
qualification requirements of any state securities laws or stock exchange, and
the Company shall have no liability for any inability or failure to do so.
7. Modification, Extension and Renewal of Options. The
Committee shall have the power to modify, extend or renew outstanding Options
and to authorize the grant of new Options in substitution therefor, provided
that any such action may not, without the written consent of the Optionee,
impair any rights under any Option previously granted. The Committee shall have
the power to reduce the exercise price of outstanding options; provided,
however, that the exercise price per share may not be reduced below the fair
market value of a share of Common Stock of the Company (as determined in
accordance with Section 5(c) of this Plan) on the date the action is taken to
reduce the exercise price.
3
<PAGE> 4
8. Privileges of Stock Ownership. No Optionee shall have any of
the rights of a shareholder with respect to any Shares subject to an Option
until such Option is properly exercised and then only beginning on the date of
issuance of a stock certificate therefor. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date such certificate is issued, except as provided in this Plan. The
Company shall provide a balance sheet and an income statement to each Optionee
prior to such Optionee's purchase of Shares under the Plan, and to each Optionee
annually during the period such Optionee has Options outstanding; provided,
however, the Company shall not be required to provide such balance sheet and
income statement to Optionees whose services in connection with the Company
assure them access to equivalent information.
9. No Obligation to Employ. Nothing in this Plan or any Option
granted under this Plan shall confer on any Optionee any right to continue in
the employ of the Company or any Parent, Subsidiary or Affiliate of the Company
or limit in any way the right of the Company or any Parent, Subsidiary or
Affiliate of the Company to terminate the Optionee's employment at any time,
with or without cause.
10. Adjustment of Option Shares. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan, the Per Optionee Limit, the
number of Shares subject to outstanding Options and the exercise price per share
of such Options shall be proportionately adjusted, subject to any required
actions by the Board of Directors (the "Board") or shareholders of the Company
and compliance with applicable securities laws; provided, however, that no
certificate or scrip representing fractional shares shall be issued upon
exercise of any Option and any resulting fractions of a Share shall be ignored.
11. Assumption of Options by Successors. In the event of a
dissolution or liquidation of the Company, a merger in which the Company is not
the surviving corporation, a transaction or series of transactions in which 50%
or more of the then outstanding voting stock is sold or otherwise transferred to
a single transferee or group of related transferees, or the sale of all or
substantially all of the assets of the Company, any or all outstanding Options
may be assumed or replaced by the successor corporation, which assumption or
replacement shall be binding on all Optionees. In the alternative, the successor
corporation may substitute equivalent Options or provide substantially similar
consideration to Optionees as was provided to shareholders (after taking into
account the existing provisions of the Options). The successor corporation may
also issue, in place of outstanding Shares of the Company held by the Optionee,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Optionee. The aggregate fair market value
(determined at the time an Option is granted) of stock with respect to ISO's
that first become exercisable in the calendar year of such dissolution,
liquidation, merger, sale of stock, or sale of assets may not exceed $100,000.
If the fair market value of stock with respect to which ISO's are first
exercisable in such calendar year exceeds $100,000, the Options for the first
$100,000 worth of stock to become exercisable shall be ISO's and the Options for
the amount in excess of $100,000 shall be NQSO's.
12. Adoption and Shareholder Approval. This Plan shall become
effective on the date that it is adopted by the Board. This Plan shall be
approved by the affirmative vote at a meeting of the holders of a majority of
the outstanding shares of the Company within twelve months before or after the
date this Plan is adopted by the Board. Shareholder approval shall be solicited
in accordance with the rules and regulations in effect under Section 14(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
13. Administration.
4
<PAGE> 5
(a) General. The Plan shall be administered by the Board
and/or by a duly appointed committee (the "Committee") having such powers as
shall be specified by the Board and, unless the powers of the Committee have
been specifically limited, the Committee shall have all of the powers of the
Board granted herein, including, without limitation, the power to terminate or
amend the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. As used in this Plan, references to the "Committee"
shall mean either such Committee or the Board if no committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
pursuant to an Option.
(b) Disinterested Administration. With respect to the
participation in the Plan of employees who are also officers or directors of the
Company subject to Section 16 of the Exchange Act, the Plan shall be
administered by the Committee in compliance with the "disinterested
administration" requirement of Rule 16b-3, as promulgated under the Exchange Act
and amended from time to time or any successor rule or regulation.
(c) Compliance with Section 162(m) of the Code. In the
event the Company or any Parent, Subsidiary or Affiliate of the Company is a
"publicly held corporation" within the meaning of Section 162(m), the Company
may establish a committee of "outside directors" within the meaning of Section
162(m) to approve the grant of Options which might reasonably be anticipated to
result in the payment of employee remuneration that would otherwise exceed the
limit on employee remuneration deductible for income tax purposes pursuant to
Section 162(m).
14. Term of Plan. All Options shall be granted pursuant to this
Plan, if at all, on or before May 16, 2008.
15. Amendment or Termination of Plan. The Committee may at any
time terminate or amend this Plan in any respect, including (but not limited to)
amendment of any form of Grant, exercise agreement or instruction to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the holders of a majority of the outstanding voting shares of
the Company:
(a) materially increase the number of Shares subject to
this Plan except by operation of the provisions of this Plan;
(b) materially change the designation of the class of
persons eligible to be granted Options;
(c) remove the administration of the Plan from the Board or
Committee; or
(d) materially increase the benefits accruing to
participants under this Plan.
16. Certain Definitions. As used in this Plan, the following
terms shall have the following meanings:
(a) "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the grating of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock
5
<PAGE> 6
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(c) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 2,264
<SECURITIES> 0
<RECEIVABLES> 1,415
<ALLOWANCES> 150
<INVENTORY> 0
<CURRENT-ASSETS> 3,802
<PP&E> 2,968
<DEPRECIATION> 2,228
<TOTAL-ASSETS> 6,676
<CURRENT-LIABILITIES> 3,369
<BONDS> 0
0
0
<COMMON> 36,263
<OTHER-SE> (33,157)
<TOTAL-LIABILITY-AND-EQUITY> 6,676
<SALES> 729
<TOTAL-REVENUES> 1,697
<CGS> 1,791
<TOTAL-COSTS> 5,874
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (5,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,808)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
