<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SILICON VALLEY RESEARCH, INC.
(Exact name of Registrant as specified in its charter)
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CALIFORNIA 7372 94-2743735
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Number)
6360 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119-1231
(408) 361-0333
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
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ROBERT R. ANDERSON
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
SILICON VALLEY RESEARCH, INC.
6360 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119-1231
(408) 361-0333
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
DIANE HOLT FRANKLE
DIANNE B. SALESIN
Gray Cary Ware & Freidenrich
Professional Corporation
400 Hamilton Avenue
Palo Alto, CA 94301
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than Securities offered only in connection with dividend or
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
-----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
-----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
Title of Each Class of Securities AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
to be Registered REGISTERED PER SHARE (1) PRICE (1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, without par value 811,877 shares $1.09375 $887,990 $269
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) and based on the average of the high and
low prices of the Common Stock of Silicon Valley Research, Inc. as
reported on the Nasdaq National Market on May 2, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
811,877 SHARES
SILICON VALLEY RESEARCH, INC.
COMMON STOCK
The 811,877 shares of Common Stock, without par value ("Common Stock"), of
Silicon Valley Research, Inc. ("SVR" or the "Company") offered by this
Prospectus (the "Shares") are outstanding shares that may be sold from time to
time by or on behalf of certain shareholders (the "Selling Shareholders") of the
Company described in this Prospectus under "Selling Shareholders." The Company
will not receive any of the proceeds from the sale of the Shares by the Selling
Shareholders.
The Company has been advised by the Selling Shareholders that they intend
to sell all of their respective Shares from time to time on the Nasdaq National
Market (the "National Market") on terms and at prices then obtainable, or in
negotiated transactions. The Selling Shareholders and any broker-dealers,
agents or underwriters that participate with the Selling Shareholders in the
distribution of any of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commission received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution."
Except as described in this Prospectus under "Plan of Distribution," the
Company will pay all expenses incident to the offering and sale of the Shares to
the public. See "Plan of Distribution."
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES LAWS OF
ANY STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR DEALERS
EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THE REGISTRATION OF THE
SHARES UNDER THE SECURITIES LAWS OF THE STATES IN WHICH SUCH TRANSACTIONS OCCUR,
OR THE EXISTENCE OF ANY EXEMPTIONS FROM SUCH REGISTRATION.
The Company's Common Stock is listed on the National Market. On May 6,
1997, the last sale price of the Company's Common Stock as reported on the
National Market was $1.1875.
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SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this Prospectus is May ____, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the Commission's public reference room at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, as well as at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The Commission's Web site can be accessed at
http://www.sec.gov. The Company's Common Stock is traded on the National
Market. Reports and other information concerning the Company can also be
inspected at the offices of the Nasdaq Stock Market at 1735 K Street N.W.,
Washington D.C. 20006-1500.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference: (1) Annual Report on
Form 10-K for the year ended March 31, 1996; (2) Quarterly Reports on Form 10-Q
for the quarters ended June 30, 1996 and September 30, 1996; (3) Amendments to
Quarterly Reports on Form 10-Q/A for the quarters ended June 30, 1996 and
September 30, 1996; (4) Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996; (5) Current Report on Form 8-K filed on April 5, 1996; and
(6) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed on September 5, 1985.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus (other than
any exhibits thereto). Requests for such documents should be directed to
Silicon Valley Research, Inc. at 6360 San Ignacio Avenue, San Jose, CA
95119-1231 (telephone number (408) 361-0333), Attn: Laurence G. Colegate, Jr.
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THE COMPANY
The Company designs a broad line of integrated placement, routing and
floorplanning physical layout software products which enable electronics
manufacturers to achieve improved performance and smaller die size in their
integrated circuit ("IC") designs. The Company offers products which
incorporate its proprietary line probe technology to create a denser circuit
design. The Company also offers a full suite of physical verification tools.
The products minimize die size, enabling a high performance design, and improve
manufacturability of the IC, resulting in higher production yield.
The Company was incorporated in California in 1979. The Company's
principal executive offices are located at 6360 San Ignacio Avenue, San Jose,
California 95119-1231, telephone number (408) 361-0333.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED IN CONNECTION WITH THE
OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS
BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. FURTHER, THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF RISK FACTORS SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS.
CONTINUING OPERATING LOSSES. SVR has incurred operating losses in the past
three quarters and expects such losses to continue at least in the near term
as it expands its product development and marketing capabilities. Prior to
that, the Company generated minimal net income from operations during the six
preceding quarters. At December 31, 1996, SVR had an accumulated deficit of
$25.3 million. 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 of SVR 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.
AVAILABILITY OF ADDITIONAL FINANCING. SVR is experiencing negative cash
flow from operations and it is expected that it will continue to experience
negative cash flow at least through mid-fiscal 1998 and potentially thereafter.
On April 16, 1997, the Company completed a private placement (the "Private
Placement") of units ("Units") comprised of 4,517,242 shares of Common Stock and
warrants (the "Warrants") to purchase an additional 4,517,242 shares of Common
Stock at $1.31 per share, with proceeds to the Company of $3,930,000. See
"Material Changes - Private Placement." The Company is currently negotiating
with the lender under its previous credit facility to provide a new $2.0 million
credit facility secured by the Company's accounts receivable and recently
entered into a secured loan agreement for $300,000 secured by all the assets of
the Company. SVR currently anticipates its existing cash and cash equivalents
and available funds from operations will be sufficient to fund the Company's
operations for the next twelve months.
Nevertheless, the Company may require additional financing. Management of
SVR is exploring financing alternatives to supplement SVR's cash position.
Potential sources of additional financing for SVR include private equity
financings, mergers, strategic investments, strategic partnerships or various
forms of debt financings. The Company may be prevented or restricted from
raising additional funds by issuing equity securities or securities convertible
into Common Stock unless the Company amends its Articles of Incorporation to
increase the number of authorized shares of Common Stock. The Company intends
to seek shareholder approval to increase the Company's authorized shares of
Common Stock at its next annual shareholder meeting. However, no assurance can
be given as to whether such shareholder approval will be obtained in a timely
manner, if at all. If additional funds are raised by SVR through the issuance
of equity securities or securities convertible into or exercisable for equity
securities, the percentage ownership of the then current stockholders of SVR
will be reduced. SVR may issue a series of Preferred Stock with rights,
preferences or privileges senior to those of the SVR Common Stock. SVR has no
commitments or arrangements to obtain any additional funding and there can be no
assurance that the required financing of SVR 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 SVR and may
require curtailment of operations of SVR.
3
<PAGE>
INTERNATIONAL SALES. International sales, primarily in Japan, Korea, and
Taiwan, accounted for approximately 43%, 52%, 43% and 30% of the Company's total
revenue in fiscal 1994, 1995 and 1996 and in the nine months ended December 31,
1996, 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 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.
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.
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. In early December 1996, Glenn E. Abood
was removed from his position as Chief Executive Officer, and Robert R.
Anderson, the Company's Chairman of the Board, resumed the position of Chief
Executive Officer as well as the position of Chief Financial Officer, replacing
Cheryl S. Billings. In addition, during the last six months, employment of the
following individuals was terminated by mutual agreement between the Company and
such persons: Vice President, Eastern Area Sales, Craig M. Wentzel; Vice
President, Corporate Development, Arthur E. B. Monk; and Vice President,
Marketing, Randall L. Smith. Gopi Ganapathy, Vice President, Technical
Marketing, ceased to be an employee of the Company as of February 1997. In
February 1997, the Company appointed Laurence G. Colegate, Jr. as Senior Vice
President, Finance and Administration and Chief Financial Officer. The
Company has recently appointed a new Vice President of Sales, Warren C. Wong,
and has recently hired a new director of Quality Assurance, Steve Chuang.
John Doyle resigned as a director of the Company on March 3, 1997. 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 operational, management and financial systems and
controls. If 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.
See "- Dependence on Key Personnel," "Material Changes - Management
Transition" and "Management."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent upon a number of key technical and management employees, in
particular, upon Robert R. Anderson, the Company's Chairman and Chief Executive
Officer. The Company does not currently have "key man" life insurance on
Mr. Anderson or any other members of its senior management. The loss of
services of Mr. Anderson or any of the Company's other key employees could have
a material adverse effect on the Company. See "- Management Transition,"
"Material Changes - Management Transition," and "Management." The Company's
success will depend in large part on its ability to attract and retain
highly-skilled technical, managerial, sales and marketing personnel.
Competition for such personnel is
4
<PAGE>
intense. There can be no assurance that the Company will be successful in
retaining its key technical and management personnel and in attracting and
retaining the personnel it requires to continue to grow.
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. In June 1996, the Company entered into an
agreement whereby SVR 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 will co-market with Bell Labs'
existing distributors. In addition, the Company has recently released or
intends to release in the next three months 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 or that the Company's strategic partnership relationship with
Bell Labs will continue or achieve anticipated results. 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 could
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 adverse effect
upon the Company's business, operating results or financial condition.
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. 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
5
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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 SVR 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 that 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.
DEPENDENCE ON SINGLE PRODUCT LINE. Revenues from licenses of the SVR GARDS
family of products have historically represented a substantial majority of the
Company's license revenues. Although the Company introduced its SVR FloorPlacer
and SVR SonIC products in fiscal 1996 and has recently commenced marketing
CLOVER, a product line under license from Bell Labs, the Company expects that
revenues from the license of SVR GARDS products will continue to account for at
least a significant portion of the Company's license 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. In addition, the Company has a limited history of revenues
in connection with its new marketing rights to Bell Labs Design Automation
CLOVER line. See "- New Products and Rapid Technological Change; Risk of
Product Defects."
DEPENDENCE ON CERTAIN CUSTOMERS AND RESELLERS. A small number of customers
account for a significant percentage of the Company's total revenue. In fiscal
1995, HAL Computer Systems, Inc., a subsidiary of Fujitsu, Ltd. ("HAL"),
accounted for 12% and Sony Corporation and Yamaha Corporation ("Yamaha") each
accounted for 10% of the Company's total revenue; in fiscal 1996, HAL accounted
for 16% and Motorola, Inc. and Yamaha each accounted for 11% of the Company's
total revenue. There can be no assurance that sales to these entities,
individually or as a group, will reach or exceed historical levels in any future
period. Any substantial decrease in sales to one or more of these customers
could have a material adverse effect on the Company's business, operating
results or financial condition. The Company currently sells and markets its
products overseas, other than in Japan, through a limited number of
distributors. The Company hired new distributors in Taiwan and Europe in fiscal
1996 and is in the process of hiring a new distributor in Korea. The Company
has a limited history of performance by its new distributors. In addition,
there can be no assurance that the new distributors will be able to successfully
distribute and support the Company's products on a timely basis or that such
distributors will not reduce their efforts devoted to selling the Company's
products or terminate their relationship with the Company as a result of
competition with other suppliers' products. The loss of or changes in the
relationship with or performance by one or more of the Company's international
distributors could have a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
changes in distribution will permit the Company to maintain or increase
international sales in the future.
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
6
<PAGE>
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.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's
Common Stock has been volatile. Future announcements concerning the Company or
its competitors, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, proprietary rights
or other litigation, changes in earnings estimates by analysts or other factors
could cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stocks of technology companies and that have often been unrelated to
the operating performance of particular companies. These broad market
fluctuations may also adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has occurred against
the issuing company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result
in substantial costs and divert management attention and resources, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Any adverse determination in such litigation could
also subject the Company to significant liabilities.
COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS; DISCLOSURE RELATING TO
LOW-PRICED STOCKS. The Company's Common Stock is quoted on the National Market.
However, in order to continue to be included in the National Market, a company
must maintain, among other things, $1,000,000 in net tangible assets (total
assets less total liabilities and goodwill), which requirement is increased to
$2,000,000 if the company has had losses in two of the most recent three years
or to $4,000,000 if the company had losses in three of the most recent four
years, and a $1,000,000 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 the company's outstanding shares).
In addition, continued inclusion requires two market makers and a minimum bid
price of $1.00 per share; provided, however, that if a company falls below such
minimum bid price, it will remain eligible for continued inclusion in the
National Market if the market value of the public float is at least $3,000,000
and the company has $4,000,000 in net tangible assets. The Nasdaq Stock Market,
Inc. ("Nasdaq") has recently proposed new maintenance criteria which, if
implemented, would eliminate the exception to the $1.00 per share minimum bid
price and require, among other things, $4,000,000 in net tangible assets and
$5,000,000 market value of the public float. Although the Company currently
meets both the current and the proposed National Market maintenance criteria, if
the Company's stock price declines below $1.00, the Company would not meet the
minimum bid price requirement of the proposed new maintenance criteria. Failure
to meet these maintenance criteria in the 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
7
<PAGE>
requirements for inclusion on the Small Cap 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.
Currently, a company must have $4,000,000 in total assets, $2,000,000 in
capital and surplus, $1,000,000 market value of the public float and a minimum
bid price of $3.00 per share for inclusion in the SmallCap Market, unless any of
such requirements are waived by Nasdaq. However, Nasdaq has also recently
proposed new inclusion criteria for the SmallCap Market which, if implemented,
would require, among other things, $4,000,000 in net tangible assets or
$50,000,000 market capitalization or $750,000 net income in two of the last
three years, $5,000,000 market value of the public float and a minimum bid price
of $4.00 per share. 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 transactions prior to sale. The additional
burdens 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 the ability of
purchasers in this offering to sell the Common Stock in the secondary market.
CERTAIN PRICE PROTECTION AND REGISTRATION OBLIGATIONS. Pursuant to the
terms of the settlement agreement (the "Settlement Agreement") between the
Company and Mentor Graphics Corporation ("Mentor") described in this Prospectus
under "Material Changes - Settlement of Mentor Graphics Litigation" and "Selling
Shareholders," Mentor may be entitled to receive up to an aggregate of 1,254,902
additional shares of Common Stock within ten (10) days after the effectiveness
of the Registration Statement (the "Effective Date") and ninety (90) days
thereafter should the average market price of the Common Stock trade below a
certain minimum price. The market price of the Company's Common Stock has been
volatile. See "- Possible Volatility of Stock Price." Shareholders of the
Company will incur immediate dilution if such price protection provisions are
triggered and additional shares of Common Stock are issued to Mentor. Mentor
has the right to require the Company to register any such additional shares
under the Securities Act. In addition, sales by Mentor of any such additional
shares of Common Stock in the public market could adversely affect the market
price for the Company's Common Stock. See "- Shares Eligible for Future Sale,"
"Material Changes - Settlement of Mentor Graphics Litigation" and "Selling
Shareholders."
The Company was obligated under the Settlement Agreement to file a
registration statement covering the 627,451 shares of Common Stock issued
initially to Mentor under the terms of the Settlement Agreement on or before
March 25, 1997. The Company did not file the registration statement by the
required date and advised Mentor on March 24, 1997. Mentor has advised the
Company by letter that it reserves its rights under the Settlement Agreement.
There can be no assurance that Mentor will not file a legal action seeking
damages as a result of the Company's failure to file a registration statement by
the date required under the Settlement Agreement.
LEGAL PROCEEDINGS. As with other companies in the Company's industry, the
Company is subject to the risk of adverse claims and litigation on a variety of
matters, including infringement of intellectual property, intentional and/or
negligent misrepresentation of material facts and breach of fiduciary duties.
On January 10, 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 Anton
8
<PAGE>
Krouglyanskiy, a former employee of Gambit and a current employee of the
Company. Gambit seeks injunctive relief, compensation and punitive damages,
restitution and attorneys's fees and costs. The parties are currently
engaged in discovery. The Company believes the lawsuit is without merit and
intends to defend itself vigorously. Any litigation may result in substantial
cost and expenses to the Company and significant diversion of efforts by the
Company's technical and management personnel. In addition, an adverse ruling
in any litigation could have a material adverse effect on the Company's
business, operating results or financial condition.
PROPRIETARY RIGHTS. The Company's success and ability to compete depends
in part upon its proprietary technology. The Company relies on contract, trade
secret and copyright law to protect its technology. In fiscal 1997, the Company
applied for a U.S. patent and a corresponding foreign patent, related to an
integrated circuit layout application developed by its research and development
engineers. There can be no assurance that the Company's patent applications or
any future patent applications, whether or not challenged by applicable
governmental patent examiners, will be issued with the scope of the claims
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology, duplicate the Company's technology or design around any
patents owned by the Company. The Company generally enters into confidentiality
or license agreements with its employees, distributors and customers, and limits
access to and distribution of its software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries.
There has been substantial industry litigation regarding patents and other
intellectual property rights involving technology companies. In the future,
litigation may be necessary to protect and enforce the Company's intellectual
property rights, to defend the Company against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. Any such litigation could be costly and could divert
management's attention, which could have a material adverse effect on the
Company's business, results of operations or financial condition regardless of
the outcome of the litigation. In addition, third parties making claims against
the Company with respect to intellectual property infringement may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a claim of
infringement, the Company and its customers may be required to obtain one or
more licenses from third parties. There can be no assurance that the Company or
its customers could obtain necessary licenses from third parties at a reasonable
cost or at all.
CONCENTRATION OF STOCK OWNERSHIP. The present directors, executive
officers and 5% shareholders of the Company and their affiliates beneficially
own approximately 51.6% of the outstanding Common Stock. As a result, these
shareholders may be able to exercise significant influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Material Changes - Private Placement."
EFFECT OF CERTAIN CHARTER PROJECTIONS; BLANK CHECK PREFERRED STOCK. The
Company's Board of Directors has the authority to issue up to 1,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, without any further vote or action by
the Company's shareholders. The rights of the holders of the Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares
of Common Stock in the public market following this offering could adversely
affect the market price for the Company's Common Stock. On the date of this
Prospectus, 16,744,597 shares, including the 811,877 Shares offered hereby, are
eligible for sale, subject in some cases to the volume and other restrictions of
Rule 144 under the Securities Act. An additional 128,647 shares of Common Stock
issuable upon exercise of outstanding warrants, other than the Warrants, are
eligible for sale, subject in some cases to the volume and other restrictions
under Rule 144. As a result of the Private Placement, the Company
9
<PAGE>
will be required to register at least 4,517,242 shares of Common Stock, to be
offered for immediate sale in the public market, on or about October 14, 1997.
The Company will also be required to register up to an additional 4,517,242
shares issuable upon the exercise of the Warrants. See "Material Changes -
Private Placement." In addition, the Company may be required to issue to
Mentor and register up to an aggregate of 1,254,902 shares of Common Stock
pursuant to the terms of the Settlement Agreement. See "- Certain Price
Protection Obligations." Further, holders of approximately 427,500 shares of
Common Stock issuable upon exercise of outstanding warrants, other than the
Warrants, are entitled to certain registration rights with respect to such
shares. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price for the
Company's Common Stock.
10
<PAGE>
MATERIAL CHANGES
MANAGEMENT TRANSITION. In early December 1996, Glenn E. Abood was removed
from his position as Chief Executive Officer, and Robert R. Anderson, the
Company's Chairman of the Board, resumed the position of Chief Executive Officer
as well as the position of Chief Financial Officer, replacing Cheryl S.
Billings. In addition, during the last six months, the employment of the
following individuals was terminated by mutual agreement between the Company and
such persons: Vice President, Eastern Area Sales, Craig M. Wentzel; Vice
President, Corporate Development, Arthur E. B. Monk; and Vice President,
Marketing, Randall L. Smith. Gopi Ganapathy, Vice President, Technical
Marketing, ceased to be an employee of the Company as of February 1997. In
February 1997, the Company appointed Laurence G. Colegate, Jr. as Senior Vice
President, Finance and Administration and Chief Financial Officer. The
Company has recently appointed a new Vice President of Sales, Warren C. Wong,
and has recently hired a new director of Quality Assurance, Steve Chuang.
John Doyle resigned as a director of the Company on March 3, 1997. See "Risk
Factors - Management Transition," "-Dependence on Key Personnel" and
"Management."
RESTATEMENT OF FINANCIAL STATEMENTS. 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 Company has filed Forms 10-Q/A for the quarters ended
June 30, 1996 and September 30, 1996. See "Incorporation of Certain Documents
by Reference."
PRIVATE PLACEMENT. On April 16, 1997, SVR completed a private placement
(the "Private Placement") of Units comprised of 4,517,242 shares of Common
Stock, and warrants (the "Warrants") to purchase an additional 4,517,242
shares of Common Stock at $1.31 per share, for an aggregate of $3,930,000.
The exercise price for the Warrants is payable in cash, cancellation of
indebtedness, in shares of the Company's Common Stock, through a "same day
sale" commitment or "margin" commitment from the Warrant holder and a broker
who is a member of the National Association of Securities Dealers, Inc. or by
a "net exercise." The Warrants are exercisable for a term of three years and
are redeemable, at the Company's sole discretion, commencing 18 months after
April 16, 1997 at $.01 per share of Common Stock subject to the Warrants,
subject to certain limitations. The issuance of the Units was deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act and Regulation D promulgated thereunder. As a result
of the proceeds received from the Private Placement, SVR currently
anticipates its existing cash and cash equivalents and available funds from
operations will be sufficient to fund the Company's operations for the next
twelve months. See "Risk Factors - Availability of Additional Financing."
Certain directors, executive officers and 5% shareholders of the Company
participated in the Private Placement and as a result may be able to exercise
greater influence over any matters requiring shareholder approval in the future.
In addition, certain other investors in the Private Placement became
shareholders of 5% or more of the Company's Common Stock and may also be able to
exercise significant influence over matters requiring shareholder approval in
the future. See "Risk Factors - Concentration of Stock Ownership." Further,
the issuance of Common Stock in the Private Placement and upon exercise of the
Warrants has reduced and will further reduce the percentage ownership of current
shareholders who did not participate in the Private Placement. Investors in the
Private Placement received certain registration rights, including piggyback
registration rights and a shelf registration right which requires the Company to
register the 4,517,242 shares issued in the Private Placement by October 14,
1997 and to register an additional 4,517,242 shares of Common Stock issuable
upon exercise of the Warrants, and to keep such registration effective for a
period up to three years. If such investors cause a large number of shares to
be registered and sold in the public market pursuant to such registration
rights, such sales could have a material adverse effect on the market price for
the Company's Common Stock. See "Risk Factors - Shares Eligible for Future
Sale."
SETTLEMENT OF MENTOR GRAPHICS LITIGATION. Effective February 24, 1997, the
Company and Mentor settled a legal action brought by Mentor against the Company
in 1994. The Settlement Agreement required the Company to issue 627,451 shares
of Common Stock to Mentor and to exchange certain technology. The Company
agreed to register such shares under the Securities Act. See "Selling
Shareholders." In addition, the Company may be required to issue up to an
aggregate of 1,254,902 additional shares of Common Stock to Mentor within ten
(10) days after the effectiveness of the Registration Statement and ninety (90)
days thereafter should the average market price of the
11
<PAGE>
Common Stock trade below a certain minimum price. Mentor has the right to
require the Company to register any such additional shares under the Securities
Act. See "Risk Factors - Certain Price Protection and Registration
Obligations."
12
<PAGE>
MANAGEMENT
As of April 16, 1997, the names of the directors and executive officers of
the Company and their respective ages are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Robert R. Anderson (3). . . 59 Chairman of the Board and Chief
Executive Officer
Dr. Teng-Sheng Moh. . . . . 37 Vice President of Engineering
Laurence G. Colegate, Jr. . 54 Chief Financial Officer and Senior
Vice President of Finance and
Administration
Minoru Takagi . . . . . . . 51 Vice President and President of
SVR-KK
Dr. Ching-Chy Wang. . . . . 43 Vice President and President of SVR
Asia Pacific
Dr. Warren C. Wong. . . . . 43 Vice President of Sales
Benjamin Huberman . . . . . 59 Director
Dr. Yoshio Nishi (3). . . . 57 Director
Roy L. Rogers (1)(2). . . . 62 Director
Dr. Thomas Sherby (1) . . . 62 Director
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating Committee
Robert R. Anderson became Chairman of SVR in January 1994 and resumed the
position of Chief Executive Officer in December 1996. Prior to that, Mr.
Anderson was Chief Executive Officer from April 1994 until July 1995 and was
Chief Financial Officer from September 1994 to November 1995. Mr. Anderson
co-founded KLA Instruments Corporation "KLA," a supplier of equipment for
semiconductor companies, in 1975. He served as Vice-Chairman of the Board of
KLA from November 1991 to March 1994 and served as Chairman of the Board of
KLA from May 1985 to November 1991. Prior to that, Mr. Anderson served as
Chief Operating Officer and Chief Financial Officer of KLA for nine years.
Mr. Anderson currently serves as a director of Applied Science & Technology
Inc., a supplier of systems components for the semiconductor industry.
Dr. Teng-Sheng Moh joined SVR as Senior Technologist in June 1994, was
named Director of Engineering in June 1995 and was named Vice President of
Engineering in November 1995. Dr. Moh has over 11 years experience in EDA
research and development. Prior to joining SVR, he was with Cadence, a
developer of electronic design automation software, from July 1990 to June 1994.
Prior to that, he received a Ph.D. in Computer Science at the University of
California at Davis.
Laurence G. Colegate, Jr. joined SVR as Senior Vice President, Finance
and Administration and Chief Financial Officer in February 1997. Mr.
Colegate has over 30 years experience in corporate financing, financial
control, tax, treasury, information systems and risk management. Prior to
joining SVR, he was Vice President and Chief Financial Officer of CBR Cement
Corporation, a producer and distributor of cement and construction materials,
from 1989 to 1995.
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<PAGE>
Minoru Takagi is Vice President of SVR and President and General Manager of
SVR-KK in Japan. He has been an employee of the Company since the mid 1980s.
He began his career in the electronics industry in 1968 and has worked for
Burroughs Computer, Fairchild and Megatest Corp., a manufacturer of automatic
test systems for the integrated circuit industry, in Japan.
Dr. Ching-Chy Wang is President of SVR Asia Pacific. Dr. Ching-Chy Wang
joined SVR in June 1994 as Principle Technologist and was named Vice
President of SVR and President of SVR Asia Pacific in February 1996. Dr.
Wang spent several years as a member of the consulting staff at Cadence, from
1991 to 1994. He was manager of the design languages group with ExperTest, a
software company involved in automatic transparent generation, from 1989 to
1991. Dr. Wang received a BS from National Chiao-Tung University in control
engineering and computer science, an MS in computer science from the
University of Utah, and a Ph.D. in computer science from the University of
Pittsburgh.
Dr. Warren C. Wong joined SVR as Director of the Clover Product Division
in October 1996, and was named Vice President of Sales in January 1997. Dr.
Wong has over 12 years of management experience in EDA research and
development, sales, marketing and customer support. Prior to joining SVR he
was Vice President of Product Management at Anagram, a developer of
electronic design automation software, from August 1996 to October 1996.
Prior to that, he was Director of Logic Modeling at Meta-Software, an EDA
company, from April 1995 to July 1996. From April 1985 to March 1995, Dr.
Wong held various management positions in research and development as well as
customer support at Cadence Design Systems, a developer of electronic design
automation software, most recently as Director of Verification Solution. Dr.
Wong has a Ph.D. in Statistics from the University of California, Berkeley.
Benjamin Huberman has been a director of SVR since October 1995. For the
past five years, Mr. Huberman has been President of the Huberman Consulting
Group in Washington, D.C. He has held numerous governmental positions,
including Deputy Director of the White House Office of Science and Technology
Policy. He is also a member of the Chief of Naval Operations' Executive Panel
and has been Chairman of the Technical Advisory Panel to the U.S. Space Command.
He currently serves on the boards of Zycad and Audre Recognition Systems, Inc.,
a developer of software which is used to convert documents into digital data.
Dr. Yoshio Nishi has been a director of SVR since April 1995. He has been
Vice President and Director of Research and Development for Texas Instruments
Incorporated, a manufacturer of high-tech operating units, since May 1995. For
the prior nine years, he was director of ULSI Labs for Hewlett-Packard.
Dr. Nishi has been a Consulting Professor in the Department of Electrical
Engineering at Stanford University since 1986. He currently serves as a
director of KLA.
Roy L. Rogers has been a director of SVR since January 1994. For the past
nine years, Mr. Rogers has served as a general partner of two venture capital
limited partnerships, R & W Ventures I and R & W Ventures II. Previously, for a
15-year period, he held management positions in research, institutional sales
and corporate finance at Hambrecht & Quist LLC, an investment banking firm.
Dr. Thomas Sherby has been a director of SVR since September 1994. He has
served as the Chief Executive Officer and Chairman of the Board of Directors of
Knights Technology, Inc., a supplier of prepackaged software, since April 1989.
He has over 20 years of management experience in the electronics and computer
industries with Fairchild Semiconductor, Dataproducts Corp., a manufacturer of
peripheral data processing equipment, and AT&T Global Information Solutions
(formerly NCR Corporation), a manufacturer of computers and peripherals.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 16, 1997
with respect to the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) each individual who served as the Company's Chief Executive Officer during
fiscal 1997 and the Company's two most highly compensated executive officers who
were serving as executive officers at the end of fiscal 1997 whose salary and
bonus for fiscal 1997 was at least $100,000, (iv) two former executive officers
whose salary and bonus for fiscal 1997 was at least $100,000 and who would have
been among the Company's most highly compensated executive officers, but for
the fact that the individuals were not serving as executive officers of the
Company at the end of fiscal 1997 and (iv) all executive officers and
directors of the Company as a group.
Name and Address of Beneficial Amount and Nature of
Owner or Identity Group Beneficial Ownership(1) Percent of Class(2)
- ------------------------------ ----------------------- -------------------
Austin W. Marxe(3). . . . . . 4,400,276 23.8
153 E. 53rd Street
51st Floor
New York, NY 10022
J.F. Shea Co., Inc.(4). . . .
655 Brea Canyon Road
Walnut, CA 91789. . . . . . . 3,429,851 19.0
Robert R. Anderson(5) . . . .
6360 San Ignacio Avenue
San Jose, CA 95119. . . . . . 1,368,217 7.9
Roy L. Rogers(6). . . . . . .
2800 Sand Hill Rd., Ste. 120
Menlo Park, CA 94025. . . . . 1,185,352 7.0
Dr. Teng-Sheng Moh(7) . . . . 33,301 *
Dr. Ching-Chy Wang(8) . . . . 20,034 *
Benjamin Huberman(9). . . . . 11,374 *
Yoshio Nishi(10). . . . . . . 9,499 *
Thomas R. Sherby(11). . . . . 21,040 *
All executive officers and
directors as a group(12)
(10 persons). . . . . . . . . 2,808,215 15.9
FORMER OFFICERS:. . . . . . .
Glenn E. Abood. . . . . . . . 1,039 *
Arthur Monk . . . . . . . . . 0 *
Craig Wentzel(13) . . . . . 21,282 *
- ----------------
1 Unless otherwise indicated below, each person or entity named in the table
has sole voting and sole investment power with respect to all shares shown
as beneficially owned, subject to community party laws where applicable.
2 Percentage of ownership is based on 16,744,597 shares of Common Stock
outstanding on April 16, 1997.
15
<PAGE>
3 Includes 574,713 shares and 574,713 shares subject to warrants exercisable
within 60 days of April 16, 1997 held by Special Situations Private Equity
Fund, L.P., 1,620,569 shares and 862,069 shares subject to warrants
exercisable within 60 days of April 16, 1997 held by Special Situations
Fund III, L.P. and 480,856 shares and 287,356 shares subject to warrants
exercisable within 60 days of April 16, 1997 held by Special Situations
Cayman Fund, L.P. Mr. Marxe is a General Partner of Special Situations
Equity Fund, L.P., Special Situations Fund III, L.P. and Special Situations
Cayman Fund, L.P.
4 Includes 1,708,168 shares held by J.F. Shea Co., Inc. (of which Mr. Edmund
H. Shea, Jr. is Vice President) and 472,258 shares held by E&M RP Trust (of
which Mr. Shea is a Trustee). Also includes 1,249,425 shares subject to
warrants held by J.F. Shea Co., Inc. exercisable within sixty days of April
16, 1997.
5 Includes 470,956 shares held in trust of which Mr. Anderson is trustee,
including 400,956 shares held by the Robert R. and Sally E. Anderson Trust,
12,500 shares held by the Robert R. Anderson Trust, 12,500 shares held by
the Sharon Davidson Trust, 35,000 shares held by the Timothy R. Anderson
Trust and 10,000 shares held by the Steven Davidson Trust. Also includes
17,550 shares of which Mr. Anderson disclaims beneficial ownership,
including 2,550 shares owned by Sharon Davidson and 15,000 shares owned by
Steven Davidson, two of Mr. Anderson's children. Also includes 462,356
shares subject to warrants exercisable within 60 days of April 16, 1997 and
29,999 shares subject to options exercisable within 60 days of
April 16, 1997.
6 Includes 283,333 shares held by R&W Ventures, and 645,440 shares and
222,414 shares subject to warrants exercisable within 60 days of April 16,
1997, held by the Rogers Family Trust. Also includes 15,000 shares held by
the Roy L. Roger IRA and 19,165 shares subject to options exercisable
within 60 days of April 16, 1997.
7 Includes 26,301 shares subject to options exercisable within 60 days of
April 16, 1997.
8 Includes 13,437 shares subject to options exercisable within 60 days of
April 16, 1997.
9 Includes 6,374 shares subject to options exercisable within 60 days of
April 16, 1997.
10 Includes 8,249 shares subject to options exercisable within 60 days of
April 16, 1997.
11 Includes 21,040 shares subject to options exercisable within 60 days of
April 16, 1997.
12 Includes 92,494 shares subject to options exercisable within 60 days of
April 16, 1997 and 799,692 shares subject to warrants exercisable within 60
days of April 16, 1997.
13 Includes 18,766 shares subject to options exercisable within 60 days of
April 16, 1997.
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<PAGE>
SELLING SHAREHOLDERS
The following table lists the Selling Shareholders, the number of shares of
the Company's Common Stock which each owned as of March 31, 1997, the number of
Shares expected to be sold by each, and the number and the percentage of the
shares of the Company's Common Stock which each will own after the offering
pursuant to the Registration Statement, assuming the sale of all the Shares
expected to be sold.
Mentor acquired 627,451 shares of the Company's Common Stock pursuant to
the Settlement Agreement between the Company and Mentor. As part of the
Settlement Agreement, the Company agreed to register Mentor's Shares under the
Securities Act, and to use its best efforts to cause the registration statement
covering Mentor's Shares to be declared effective and to remain effective until
the earlier of (i) one year from the date the Registration Statement is declared
effective or (ii) such time as all of Mentor's Shares have been sold by Mentor.
See "Risk Factors - Certain Price Protection and Registration Obligations" and
"Material Changes - Settlement of Mentor Graphics Litigation." The other
Selling Shareholders acquired their Shares through a private offering in June
1995. As part of such offering, these Selling Shareholders received rights to
include their Shares in any registration statement of the Company, subject to
certain limitations.
Shares
Shares Owned Shares To Owned After
Selling Shareholder Before Offering Be Offered Offering
- ------------------- --------------- ---------- -----------
Mentor Graphics Corporation 627,451 627,451 0
8005 S.W. Boeckman Road
Wilsonville, OR 97070-7777
Needham Emerging Growth 102,459 102,459 0
Partners L.P.(1)
400 Park Avenue
New York, NY 10022
Clarion Capital Corporation 81,967 81,967 0
Ohio Savings Plaza
1801 E. 9th Street, Suite 150
Cleveland, OH 44114
- ---------------
(1)Needham Emerging Growth Partners L.P. is an affiliate of Needham & Company
Inc., a Co-Manager in SVR's public offering in February 1996.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Shareholders that they, or
their respective pledgees, donees, transferees or successors in interest, intend
to sell all of the Shares from time to time on the National Market at prices and
at terms prevailing at the time of sale or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by one or
more of the following methods: (a) an over-the-counter distribution in
accordance with the rules of the National Market and at prices prevailing at the
time of sale; (b) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (c) in privately negotiated transactions. There
is no assurance that the Selling Shareholders will sell any or all of the
Shares.
In effecting sales, brokers or dealers engaged by the Selling Shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers
will receive commissions or discounts from the Selling Shareholder in amounts to
be negotiated prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales.
With respect to Shares offered by Mentor, the Company will pay all expenses
incident to the offering and sale of such Shares to the public within the first
ninety (90) days following the date the registration statement is declared
effective including, without limitation, all registration, qualification and
17
<PAGE>
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
and independent accountants for SVR, blue sky fees and expenses and the expense
of any special audits incident to or required by such registration, other than
any selling commissions and stock transfer taxes or similar charges; provided
that, all expenses incurred ninety (90) days following the date the Registration
Statement is declared effective shall be borne by Mentor. With respect to
Shares offered by the other Selling Shareholders, the Company will pay all
expenses incurred in connection with the offering (excluding underwriters' or
brokers' discounts and commissions), including without limitation all filing,
registration and qualification, printers' and accounting fees and the reasonable
fees and disbursements of one counsel for the Selling Shareholders and counsel
for the Company.
The Company has agreed to indemnify in certain circumstances the Selling
Shareholders and various related persons against certain liabilities, including
liabilities under the Securities Act. The Selling Shareholders have agreed to
indemnify in certain circumstances the Company and various related persons
against certain liabilities, including liabilities under the Securities Act.
As part of the Settlement Agreement, the Company agreed to register
Mentor's Shares under the Securities Act, and to use its best efforts to cause
the registration statement covering Mentor's Shares to be declared effective and
to remain effective until the earlier of (i) one year from the date the
registration statement is declared effective or (ii) such time as all of
Mentor's Shares have been sold by Mentor. The other Selling Shareholders
acquired their shares through a private offering in June 1995. As part of such
offering, these Selling Shareholders received rights to include their shares in
any registration statement of the Company, subject to certain limitations.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders.
LEGAL MATTERS
The legality of the Shares is being passed upon by Gray Cary Ware &
Freidenrich, A Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements as of and for the year ended March
31, 1996 incorporated by reference in this Prospectus have been so
incorporated in reliance on the report (which contains an explanatory
paragraph relating to the uncertainty of the litigation as described in Note
8 to the consolidated financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The consolidated financial statements and schedule
of the Company as of March 31, 1995 and for each of the two years in the
period ended March 31, 1995 incorporated by reference into and made a part of
this Prospectus and Registration Statement of the Company, have been audited
by Coopers & Lybrand L.L.P., independent accountants, as set forth in their
reports incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."
18
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES,
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
Available Information. . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Security Ownership of
Beneficial Owners. . . . . . . . . . . . . . . . . . . . . . . . . 15
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 17
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . 17
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
811,877 SHARES
SILICON VALLEY
RESEARCH, INC.
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
May , 1997
----
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the Company
in connection with the sale and distribution of the securities being registered,
other than underwriting discounts and commissions. All of the amounts shown are
estimates except the Securities and Exchange Commission registration fee and the
Nasdaq National Market filing fee.
To Be Paid
By The
Registrant
---------------
Securities and Exchange Commission registration fee . . . . 269
Nasdaq National Market additional listing fee . . . . . . . 0
Accounting fees and expenses. . . . . . . . . . . . . . . . 15,000
Printing expenses . . . . . . . . . . . . . . . . . . . . . 0
Transfer agent and registrar fees and expenses. . . . . . . 0
Blue Sky fees and expenses (including legal fees) . . . . . 0
Legal fees and expenses . . . . . . . . . . . . . . . . . . 15,000
Miscellaneous expenses. . . . . . . . . . . . . . . . . . . 4,000
---------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 34,269
---------------
---------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 204(10) of the California General Corporation Law ("California
Law") permits indemnification of officers, directors, and other corporate agents
under certain circumstances and subject to certain limitations. The Company's
Articles of Incorporation and Bylaws provide that the Company shall indemnify
its directors, officers, or agents to the full extent permitted by California
Law. The right to indemnification conferred to such parties is a contract
right. These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").
In addition, with the approval of its Board of Directors, the Company has
entered into separate indemnification agreements with its directors and officers
which require the Company to, among other things, indemnify them against certain
liabilities which may arise by reason of their status or service.
The Company has obtained liability insurance for the benefit of its
directors and officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company in which
indemnification is being sought.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit Description of Exhibit
- ------- ----------------------
No.
- ---
4.1 Stock Transfer Terms and Conditions between Mentor and SVR effective
as of February 24, 1997.
4.2 Form of Unit Purchase Agreement among the Company and several investors
dated as of April 16, 1997.
4.3 Form of Warrant to Purchase Common Stock among the Company and several
investors dated as of April 16, 1997.
5.1 Opinion and Consent of Gray Cary Ware & Freidenrich, A Professional
Corporation.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement).
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; PROVIDED,
HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
II-2
<PAGE>
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on the 5th day of
May, 1997.
SILICON VALLEY RESEARCH, INC.
By: /s/ ROBERT R. ANDERSON
------------------------------------
Robert R. Anderson
Chairman and Chief
Executive Officer
POWER OF ATTORNEY
Each of the officers and directors of Silicon Valley Research, Inc. whose
signature appears below hereby constitutes and appoints Robert R. Anderson and
Laurence G. Colegate, Jr., and each of them, their true and lawful attorneys and
agents, with full power of substitution, each with power to act alone, to sign
and execute on behalf of the undersigned any amendment or amendments to the
Registration Statement on Form S-3 and to perform any acts necessary in order to
file such amendments, and each of the undersigned does hereby ratify and confirm
all that said attorneys and agents, or their or his substitutes, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on May 5, 1997 by the following
persons in the capacities indicated.
Signature Title
--------- -----
/s/ ROBERT R. ANDERSON
- ---------------------------------- Chairman of the Board and Chief
Robert R. Anderson Executive Officer (Principal Executive
Officer)
/s/ LAURENCE G. COLEGATE, JR.
- ---------------------------------- Chief Financial Officer and Senior Vice
Laurence G. Colegate, Jr. President of Finance and Administration
(Principal Financial and Accounting
Officer)
/s/ BENJAMIN HUBERMAN
- ---------------------------------- Director
Benjamin Huberman
/s/ YOSHIO NISHI
- ---------------------------------- Director
Yoshio Nishi
/s/ ROY L. ROGERS
- ---------------------------------- Director
Roy L. Rogers
/s/ THOMAS SHERBY
- ---------------------------------- Director
Thomas Sherby
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially Numbered
- ------- ---------------------
No. Description of Exhibit Page
--- ---------------------- ----
<S> <C> <C>
4.1 Stock Transfer Terms and Conditions between Mentor and SVR
effective as of February 24, 1997.
4.2 Form of Unit Purchase Agreement among the Company and several
investors dated as of April 16, 1997.
4.3 Form of Warrant to Purchase Common Stock among the Company and
several investors dated as of April 16, 1997.
5.1 Opinion and Consent of Gray Cary Ware & Freidenrich, A
Professional Corporation.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Gray Cary Ware & Freidenrich, A Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Page contained in
Part II of the Registration Statement).
</TABLE>
<PAGE>
STOCK TRANSFER TERMS AND CONDITIONS
1. Initial Transfer: SVR will grant "X" shares of SVR common stock to
Mentor, rounded to the nearest share, (the "Initial Shares") where "X" equals
$800,000 dollars divided by the average of SVR's Nasdaq closing price per
share on the five (5) trading days before the Effective Date (the "Initial
Share Price"). Thus, if the average Nasdaq closing price for the five (5)
days before the Effective Date is $2 per share, SVR will grant Mentor 400,000
shares of common stock. SVR will deliver the stock certificates for the
Initial Shares within ten (10) days of the Effective Date.
2. Registration of Initial Shares: Within thirty (30) days of the
Effective Date, SVR shall, at its expense, file a registration statement with
the Securities and Exchange Commission (the "SEC"), under the Securities Act of
1933, to register the Initial Shares for resale by Mentor. SVR shall use its
best efforts to cause the Registration Statement to be declared effective as
soon as possible thereafter, and SVR shall provide Mentor with a copy of that
registration statement within ten (10) days of it being declared effective. SVR
will maintain an effective registration statement permitting the sale of the
Initial Shares for one year following the Effective Date. The date the
registration statement for the Initial Shares is declared effective by the SEC
is referred to in this Schedule A as the "Effective Registration Date."
3. Price Protection: For purposes of this provision, the "Floor Price"
shall equal 85% of the Initial Share Price.
(a) If, on the Effective Registration Date, the average Nasdaq
closing price of SVR's common stock for the five (5) previous trading days is
below the Floor Price, SVR shall grant Mentor Additional Shares of common stock
such that the market value of the shares held by Mentor after such grant shall
equal the market value of the Initial Shares still held by Mentor on that date
multiplied by the Initial Share Price. Thus, if Mentor initially receives
400,000 shares at a price of $2 per share (determined by the average Nasdaq
closing price the five (5) trading days before the Effective Date) and the
average Nasdaq closing price of SVR's common stock for the five (5) trading days
prior to the Effective Registration Date is $1.60 per share and SVR still holds
all 400,000 shares as of the Effective Registration Date, SVR will grant Mentor
an additional 100,000 shares of common stock leaving Mentor with 500,000 shares
of SVR stock at a market value of $800,000. SVR will deliver the stock
certificates for any Additional Shares of stock granted to Mentor under this
Paragraph, within ten (10) days of the grant of the shares.
(b) If, at the end of 90 days following the Effective Registration
Date, the average Nasdaq closing price of SVR's common stock on the preceding
five (5) trading days is lower than the Floor Price, SVR shall immediately grant
Mentor Additional Shares of common stock such that the market value of the
shares held by Mentor after such grant shall equal the market value of the
Initial Shares and any Additional Shares held by Mentor on that date multiplied
by the Initial Share Price minus the difference between the total sale price of
any Initial Shares or Additional Shares sold or otherwise conveyed by Mentor and
the value of such Initial Shares or Additional Shares at the Initial Share
Price, if such difference is greater than zero. SVR
1
<PAGE>
will deliver the stock certificates for any Additional Shares of stock granted
to Mentor under this Paragraph, within ten (10) days of the grant of the shares.
(c) Notwithstanding anything in this paragraph 3 to the contrary, the
number of Additional Shares shall not be more than two times (2x) the number of
shares originally granted as Initial Shares.
4. Registration of Additional Shares: Within ten (10) days of the
Effective Registration Date or the 90 day period following the Effective
Registration Date, SVR shall, upon request by Mentor, file a post-effective
amendment to the Registration Statement for any Additional Shares. If on the
Effective Registration Date or the end of the 90 day period following the
Effective Registration Date Mentor has not sold or otherwise conveyed all
Initial Shares or Additional Shares previously granted to it, SVR shall, upon
request by Mentor, file a registration statement with the Securities and
Exchange Commission (the "SEC"), under the Securities Act of 1933, to register
any remaining Additional Shares for resale by Mentor. SVR shall use its best
efforts to cause the Registration Statement to be declared effective as soon as
possible thereafter, and SVR shall provide Mentor with a copy of that
registration statement within ten (10) days of it being declared effective. SVR
will maintain an effective registration statement permitting the sale of the
Additional Shares for one year following the Effective Date.
5. REGISTRATION PROCEDURES. In connection with the filing of a
registration statement under Section 2 or 4 relating to Initial Shares or
Additional Shares (together, the "Registrable Securities"), SVR will:
(a) prepare and file with the SEC such amendments and post-effective
amendments to any registration statement, and such supplements to the prospectus
included in the registration statement (the "Prospectus"), as may be necessary
to keep such registration statement continuously effective until all Registrable
Securities included in the registration statement shall have been sold or until
one year after the Effective Date, whichever is sooner;
(b) promptly notify Mentor in writing;
(i) when the registration statement or any post-effective
amendment thereto has become effective,
(ii) of the issuance by the SEC of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, and,
(iii) of the existence of any fact which results in the
Prospectus or any document incorporated therein by reference containing an
untrue statement of a material fact or omitting to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) if any fact contemplated by Section 5(b)(iii) above shall exist,
prepare a supplement or post-effective amendment to the registration statement
or the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as
2
<PAGE>
thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) deliver to Mentor, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as Mentor may reasonably
request; and
(e) use its best efforts to cause all Registrable Securities covered
by the registration statement to be listed on each securities exchange on which
similar securities issued by SVR are then listed.
(f) Notwithstanding the foregoing, SVR shall not be obligated to take
any action pursuant to Sections 2, 4 or this section 5 of Schedule A:
(1) in any particular jurisdiction in which SVR would be
required to execute a general consent to service of process in affecting such
registration, qualification or compliance, unless SVR is already subject to
service in such jurisdiction and except as may be required by the Securities
Act; or
(2) if, at such time, the Initial Shares or Additional Shares
held by Mentor are freely tradable without regard to any volume restrictions
under Rule 144 promulgated under the Securities Act of 1933.
(g) All expenses incurred in connection with registrations pursuant
to this Appendix A incurred prior to the Effective Registration Date or within
the first ninety days following the Effective Registration Date, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel and independent
accountants for SVR, blue sky fees and the expense of any special audits
incident to or required by any such registration shall be borne by SVR. All
expenses incurred in connection with registrations of Initial Shares or
Additional Shares pursuant to this Appendix A (or the percentage of such
expenses that the number of Initial Shares and Additional Shares bears to the
total number of shares being registered) incurred after the first ninety days
following the Effective Registration Date, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel and independent accountants for SVR, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration shall be borne by Mentor. All selling commissions and
stock transfer taxes applicable to the Initial Shares or Additional Shares being
registered by Mentor shall be borne by Mentor.
(h) The obligations of SVR to register the Initial Shares or
Additional Shares shall not be transferable by Mentor.
6. INFORMATION BY MENTOR. Upon written request by SVR, Mentor shall
furnish to SVR such information regarding Mentor and the distribution proposed
by Mentor that is required in connection with SVR's registration of shares
granted to Mentor. Such information shall be furnished to SVR by an instrument
duly executed by Mentor and shall be used solely for use in
3
<PAGE>
SVR's registration. Within two (2) business days of the Effective Registration
Date and again ninety (90) calendar days after the Effective Registration Date,
Mentor shall advise SVR of the number of Initial Shares or Additional Shares it
has sold or otherwise conveyed and the price at which such Initial Shares or
Additional Shares were sold or otherwise conveyed.
7. INDEMNIFICATION.
(a) SVR will indemnify Mentor, and each of its officers and
directors, and each person who controls Mentor within the meaning of the
Securities Act of 1933, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document prepared by SVR incident to any registration of Registrable
Securities, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse Mentor, and each of its officers,
directors and control persons, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, except to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to SVR by
an instrument duly executed by Mentor and stated to be specifically for use in
the registration statement.
(b) Mentor will indemnify SVR and each of its directors and officers,
and each person who controls SVR within the meaning of the Securities Act of
1933, against all expenses, claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document incident
to any registration of Registrable Securities, based on any untrue statement (or
alleged untrue statement) by SVR subsequently corrected by SVR by delivery of an
amended prospectus by SVR to Mentor if Mentor fails to deliver the corrected
prospectus, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse SVR, and each of its directors,
officers, and control persons for any legal and any other expenses reasonably
incurred in connection with investigating, preparing, or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to SVR by an instrument duly
executed by Mentor and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 7
("Indemnified Party") shall give notice to the party required to provide
indemnification ("Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the
4
<PAGE>
Indemnified Party (whose approval shall not unreasonably be withheld). The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall bear the expenses of such
defense of the Indemnified Party (including the fees and disbursements of one
additional counsel to all Indemnified Parties which shall be selected by the
Indemnified Parties) if representation of both parties by the same counsel would
be inappropriate due to actual or potential conflicts of interest. The omission
by any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7 except to the extent
the omission results in a failure of actual notice to the Indemnifying Party and
such Indemnifying Party is damaged solely as a result of the failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
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UNIT PURCHASE AGREEMENT
This Unit Purchase Agreement (the "Agreement") is made and entered into as
of April 16, 1997 by and among Silicon Valley Research, a California
corporation (the "Company"), and those parties listed on the signature page
hereof as "Investors" (who are referred to individually as an "Investor" and
collectively as the "Investors").
In consideration of the above recitals and the mutual covenants made
herein, the parties hereby agree as follows:
1. SALE OF UNITS; CLOSING; DELIVERY
(a) PURCHASE AND SALE OF UNITS. Subject to the terms and conditions
hereof, the Company will issue and sell to each Investor, and each Investor will
purchase from the Company, at the Closing (as defined below) the number of Units
set forth opposite each Investor's name on EXHIBIT A. A "Unit" shall be
composed of a share of common stock ("Shares"), no par value, of the Company
("Common Stock"), and a warrant to purchase a share of Common Stock ("Warrant
Share"). The exercise price per Warrant Share shall be $1.31. A form of the
warrant is attached as EXHIBIT B ("Warrant"). The purchase price per Unit
("Unit Purchase Price") shall be equal to $0.87. Each Warrant to purchase one
(1) Warrant Share shall be valued at $0.10.
(b) CLOSING. The closing of the purchase and sale of the Units shall
take place April 16, 1997 (the "Closing"). The date of the Closing is
hereinafter referred to as the "Closing Date."
(c) DELIVERY. Subject to the terms and conditions of this Agreement,
at the Closing, the Company will deliver to each Investor a stock certificate
representing the Shares to be purchased by such Investor against payment of the
purchase price therefor by a check, payable to the order of the Company, or by
wire transfer of immediately available funds to the bank account of the Company.
In addition, the Company will deliver at the Closing a Warrant or Warrants to
each Investor, registered in the name of such Investor, based on the number of
Units purchased by such Investor.
2. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor represents
and warrants, severally, to the Company that:
(a) AUTHORIZATION. This Agreement constitutes the valid and legally
binding obligation of such Investor, enforceable in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency and similar
laws affecting the enforcement of creditors' rights generally and equitable
remedies, and except as indemnity provisions in the enforcement of Section 4 of
this Agreement (relating to registration rights) may be limited by law, and such
Investor (if an
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individual) is over eighteen (18) years of age, and such Investor has full legal
capacity, power and authority to enter into and be bound by this Agreement.
(b) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Such Investor is
purchasing the Units for investment purposes only and not with a view to, or for
sale in connection with, a distribution of the Units within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"). Such Investor has no
present intention of selling or otherwise disposing of all or any portion of the
Units.
(c) ACCESS TO INFORMATION. Such Investor has had an opportunity to
ask questions of the Company's representatives concerning the Company, its
present and prospective business, assets, liabilities and financial condition
that such Investor reasonably considers important in making the decision to
purchase the Units. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 of this Agreement or
the rights of the Investors to rely thereon.
(d) UNDERSTANDING OF RISKS. Such Investor is fully aware of:
(i) the highly speculative nature of the investment in the Units; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and
Warrant Shares and the restrictions on the transferability of the Shares and
Warrant Shares (e.g., that such Investor may not be able to sell or dispose of
the Shares and Warrant Shares or use them as collateral for loans); and (iv) the
tax consequences of investment in the Units. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 3
of this Agreement and the rights of the Investors to rely thereon.
(e) INVESTOR'S QUALIFICATIONS. Such Investor is an "accredited"
investor as defined under Regulation D under the 1933 Act. Such Investor is
aware of the general business and financial circumstances of the Company and, by
reason of such Investor's business or financial experience, such Investor is
capable of evaluating the merits and risks of this investment and is financially
capable of bearing a total loss of this investment.
(f) NO GENERAL SOLICITATION. Such Investor was in discussion with
the Company regarding the general terms of this investment prior to the
Company's Press Release on March 24, 1997 announcing the Company's negotiation
of terms regarding this investment.
(g) COMPLIANCE WITH SECURITIES LAWS. Such Investor understands and
acknowledges that, in reliance upon the representations and warranties made by
such Investor herein, the Shares and Warrant Shares are not being registered
with the U.S. Securities and Exchange Commission ("SEC" or "Commission") under
the 1933 Act or being qualified under the California Corporate Securities Law of
1968, as amended (the "Law"), but instead are being issued under an exemption or
exemptions from the registration and qualification requirements of the 1933 Act
or the Law or other
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applicable state securities laws which impose certain restrictions on such
Investor's ability to transfer the Shares and Warrant Shares.
(h) RESTRICTIONS ON TRANSFER. Such Investor understands that such
Investor may not transfer any of the Shares or Warrant Shares unless such Shares
or Warrant Shares are registered under the 1933 Act unless, in the opinion of
counsel to the Company, exemptions from such registration and qualification
requirements are available. Such Investor understands that only the Company may
file a registration statement with the SEC. Such Investor has also been advised
that exemptions from registration and qualification may not be available or may
not permit such Investor to transfer all or any of the Shares or Warrant Shares
in the amounts or at the times proposed by such Investor.
(i) RULE 144. In addition, such Investor has been advised that SEC
Rule 144 ("Rule 144") promulgated under the 1933 Act, which permits certain
limited sales of unregistered securities, is not presently available with
respect to the Shares and Warrant Shares solely due to the holding periods
required thereunder and, in any event, requires that the Shares and Warrant
Shares be held for a minimum of one year, and in certain cases two years, after
they have been purchased and paid for (within the meaning of Rule 144), before
they may be resold under Rule 144. Such Investor understands that Rule 144 may
indefinitely restrict transfer of the Shares and Warrant Shares if such Investor
is an "affiliate" of the Company and "current public information" about the
Company (as defined in Rule 144) is not publicly available.
(j) LEGENDS AND STOP-TRANSFER ORDERS. Such Investor understands that
certificates or other instruments representing any of the Shares and Warrant
Shares acquired by such Investor may bear legends substantially similar to the
following, in addition to any other legends required by federal or state laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS UNLESS SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT.
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In order to ensure and enforce compliance with the restrictions imposed by
applicable law and those referred to in the foregoing legend, or elsewhere
herein, the Company may issue appropriate "stop transfer" instructions to its
transfer agent, if any, with respect to any certificate or other instrument
representing the Shares and Warrant Shares, or if the Company transfers its own
securities, it may make appropriate notations to the same effect in the
Company's records. Any legend endorsed on a certificate pursuant to this
Subsection (j) and the related stop transfer instructions with respect to such
securities shall be removed, and the Company shall issue a certificate without
such legend to the holder thereof, if such securities are registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of the
Securities Act is available, if such legend may be properly removed under the
terms of Rule 144 promulgated under the Securities Act or if such holder
provides the Company with an opinion of counsel for such holder, reasonably
satisfactory to legal counsel for the Company, to the effect that a sale,
transfer or assignment of such securities may be made without registration.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor, severally, that, except as set forth
in this Section, or on the Schedule of Exceptions attached hereto as EXHIBIT C
(the "Schedule of Exceptions"), with any disclosure thereon being deemed
disclosure for all purposes and all relevant subsections hereof, which
exceptions will be deemed to be representations and warranties as if made
hereunder:
(a) ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has all necessary corporate power and
authority to own its assets and to carry on its business as now being conducted
and presently proposed to be conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which its ownership or leasing of assets, or the conduct of its business,
makes such qualification necessary.
(b) REQUISITE POWER AND AUTHORIZATION. The Company has all necessary
corporate power and authority under the laws of the State of California and all
other applicable provisions of law to execute and deliver this Agreement, to
issue the Shares, the Warrants and the Warrant Shares and to carry out the
provisions of this Agreement and the Warrants. All corporate action on the part
of the Company required for the lawful execution and delivery of this Agreement,
and issuance and delivery of the Shares, the Warrants and the Warrant Shares has
been duly and effectively taken. Upon execution and delivery, this Agreement
and the Warrants constitute valid and binding obligations of the Company
enforceable in accordance with their respective terms, except as enforcement may
be limited by insolvency and similar laws affecting the enforcement of
creditors' rights generally and equitable remedies, and except as the indemnity
provisions of Section 4 of this Agreement (relating to registration rights) may
be limited by law. The Shares and the Warrants (and the Warrant Shares issuable
upon exercise of the Warrants) when issued in compliance with the provisions of
this Agreement or the Warrants, as the
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case may be, will be duly authorized and validly issued, fully paid,
non-assessable, and issued in compliance with federal securities laws and the
securities laws of the State of California. No shareholder of the Company or
other person has any preemptive right of subscription or purchase or contractual
right of first refusal or similar right with respect to the Shares, Warrants or
Warrant Shares. The Company has reserved such number of shares of its Common
Stock necessary for issuance of the Warrant Shares.
(c) SEC DOCUMENTS. The Company has furnished to each Investor: the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996
and all documents that the Company was required to file, which it represents and
warrants it did timely file, with the SEC under Sections 13 or 14(a) of the
Securities Exchange Act of 1934, as amended ("EXCHANGE ACT"), since March 31,
1996 (collectively, the "SEC Documents"). As of their respective filing dates,
or such later date on which such reports were amended, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the 1933 Act, as applicable. The SEC Documents as of their respective dates, or
such later date on which such reports were amended, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements included in the SEC Documents ("Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto. Except as
may be indicated in the notes to the Financial Statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC, the Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the consolidated financial
position of the Company and any subsidiaries at the dates thereof and the
consolidated results of their operations and consolidated cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring adjustments).
(d) CAPITAL STOCK. The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, without par value, and 1,000,000
shares of Preferred Stock, without par value. As of April 1, 1997, there were
12,227,355 shares of Common Stock issued and outstanding and there are no issued
and outstanding Preferred Stock. All outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and non-assessable.
The Company has no outstanding securities convertible into or exchangeable for
Common Stock and no contracts, rights, options or warrants to purchase or
otherwise acquire Common Stock or securities convertible into or exchangeable
for Common Stock. Since April 1, 1997 the Company has not issued any shares of
capital stock or any options, warrants or other rights with respect thereto
except for shares issued upon exercise of options, warrants or rights, all as
set forth on Schedule 1 to the Schedule of Exceptions.
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<PAGE>
(e) NO PRIOR LIENS. There are no persons or entities with a lien
against, or secured interest in, any of the tangible or intangible assets of the
Company.
(f) COMPLIANCE WITH OTHER AGREEMENTS. Neither the execution and
delivery of, nor the consummation of any transaction or execution of any
instrument contemplated by, this Agreement, nor the issuance of the Shares, the
Warrants and the Warrant Shares, has constituted or resulted in, or will
constitute or result in, a default under or breach or violation of any term or
provision of the Company's Bylaws, Articles of Incorporation, or contracts with
third parties, state or federal laws, rules or regulations, writs, orders or
judgments or decrees which are applicable to the Company or its properties.
(g) CONSENTS. All consents necessary for the Company to perform its
respective obligations hereunder have been obtained.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, there has
not been:
(i) any changes in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements
except changes in the ordinary course of business which have not been, either in
any individual case or in the aggregate, materially adverse;
(ii) any material change, except in the ordinary course of
business, in the contingent obligations of the Company whether by way of
guarantee, endorsement, indemnity, warranty or otherwise;
(iii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company;
(iv) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(v) any labor organization activity; or
(vi) any other event or condition of any character which has
materially and adversely affected the Company's business, assets, liabilities,
financial condition or operations or prospects.
(i) INTELLECTUAL PROPERTY. The Company has sufficient title and
ownership of all patents, patent applications, copyrights, trade secrets,
trademarks, proprietary information, proprietary rights, and processes necessary
for its business as now conducted and as now proposed to be conducted by the
Company without any conflict with or infringement of the rights of others. The
research, development,
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manufacture, sale, and use of products presently made, used, or sold by, or
contemplated for future manufacture, sale or use by the Company do not and would
not constitute or involve a significant risk of infringement of any patent or
misappropriation of any trade secret of any third party. There are no
outstanding options, licenses, or agreements of any kind relating to any
material use of the foregoing, nor is the Company bound by or a party to any
options, licenses, encumbrances or liens, or any outstanding orders, judgments,
decrees, stipulations, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity that
are material to the Company's business as currently conducted or proposed to be
conducted. The Company has not received any communications alleging that the
Company, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, or trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware that any of its employees or consultants is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that is violated by or would materially interfere with the current or
prospective services provided to the Company by the employee or consultant or
the use of his best efforts to promote the interests of the Company or that
would materially conflict with the Company's business as currently conducted or
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business as currently conducted
or proposed to be conducted will, to the Company's knowledge, conflict with or
result in a material breach of the terms, conditions or provisions of, or
constitute a material default under, any contract, covenant or instrument under
which any of such employees is now obligated.
(j) LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's best knowledge, currently threatened
against the Company that questions the validity of this Agreement or the
Warrants, or the right of the Company to enter into such agreements, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the business, assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
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(k) REGISTRATION RIGHTS. The Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. None of the registration rights disclosed on the Schedule of Exceptions
are senior to the registration rights provided for in this Agreement.
(l) COMPLIANCE WITH LAWS. The Company is in compliance and has
conducted its business and operations so as to comply with all laws, ordinances,
rules and regulations, judgments, decrees or orders of any court, administrative
agency, commission, regulatory authority or other governmental or administrative
body or instrumentality, whether domestic or foreign ("Governmental Entity"),
except to the extent that failure to comply would not have a material adverse
effect on the Company's financial or other condition, business, prospects,
property, results or operations or assets as presently conducted or proposed to
be conducted. There are no judgments or orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
businesses, and none are pending or threatened. The Company has not during the
past four (4) years received any governmental notice from any Governmental
Entity for any violation of applicable laws or regulations.
(m) TAXES. The Company has filed all tax returns and reports as
required by law, and there are no waivers of applicable statutes of limitations
with respect to taxes for any year. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the Financial Statements is adequate for taxes
due or accrued as of the date hereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a
Subchapter S corporation, nor has it made any other elections pursuant to the
Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material effect on the Company's
present business, assets, liabilities and financial condition. The Company has
not been subject to a federal or state tax audit of any kind.
(n) NASDAQ REQUIREMENTS. The Company has been designated for
inclusion in the Nasdaq National Market upon prior application and substantially
meets the quantitative maintenance criteria set forth in Rule 4450 (Quantitative
Maintenance Criteria) of the Rules of the National Association of Securities
Dealers, Inc. ("NASD") and Rule 4460 (Quantitative Designation Criteria) of the
NASD. The issuance and sale of the Shares, Warrants and Warrant Shares will
not, when issued and sold in accordance with this Agreement and the Warrants,
violate the non-quantitative designation criteria of the Nasdaq National Market
including, without limitation, Rule 4460(i) of the NASD which requires
shareholder approval prior to the issuance of designated securities. The
Company has not been terminated for inclusion in the Nasdaq National Market and
has not received notification that termination is pending or under
consideration.
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(o) NO DEFAULT. The Company is not in default under any provision of
its Articles of Incorporation or Bylaws or in material default under any
material contract, commitment or restriction to which the Company is a party or
by which the Company or any of its properties or assets is bound or affected or
in material default under any term or condition of any judgment, decree, order,
injunction or stipulation applicable to the Company. To the best of the
Company's knowledge, no other party is in material default under or in material
breach or violation of any material contract, commitment, or restriction to
which the Company is a party or by which the Company or any of its properties or
assets is bound or affected.
(p) REGISTRATION STATEMENT. To the best of the Company's knowledge,
there exist no facts or circumstances that would inhibit or delay the
preparation and filing of a registration statement on Form S-3 with respect to
the Registrable Securities (as hereinafter defined) in accordance with Section
4(b) hereof.
(q) NO MISREPRESENTATION. No representation or warranty by the
Company in this Agreement and no statements in the SEC Documents, as amended,
nor any other document, statement, certificate or schedule furnished or to be
furnished by or on behalf of the Company pursuant to this Agreement, when taken
together with the foregoing, contains or shall contain any untrue statement of
material fact or omits or shall omit to state a material fact required to be
stated therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading. The Company has
delivered true and complete copies of all documents requested by the Investors.
(r) EMPLOYEE PLANS. No plans, programs, policies, commitments or
other arrangements (each a "Plan") are covered by Title IV of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 412 of
the United States Internal Revenue Code (the "Code"). Neither the Company nor
any officer or director of the Company, nor any trustee or administrator of any
Company Plan is subject to any liability or penalty under Sections 4975 through
4980 of the Code or Title I of ERISA in connection with any Plan. The Company
has not violated any of the health care continuation coverage requirements
required by applicable law applicable to its employees. Each Plan has been
maintained and administered in compliance with its terms and with the
requirements prescribed by all statutes, orders rules and regulations which are
applicable to such Plan, except to the extent noncompliance would not have a
material adverse effect on the operation of such Plan. No suit, administrative
proceeding, action or other litigation has been brought or is threatened,
against or with respect to any such Plan, including any tax or labor authority
audit or inquiry. All contributions, reserves or premium payments required to
be made or accrued as of the date hereof to the Plans have been made or accrued.
(s) NON-EXERCISE OF OPTIONS AND/OR WARRANTS. The Company has
received, or by the Closing Date will have received, fully executed and
enforceable Agreements Not to Exercise Options and/or Warrants (in the form
annexed hereto as
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EXHIBIT D) from certain directors and officers of the Company and such
agreements cover at least 974,350 shares of Common Stock.
(t) ANTI-DILUTION SHARES. Issuance of the Shares and the Warrants
and the Warrant Shares under this Agreement will not result in the issuance of
any additional shares of Common Stock or other anti-dilution, preemptive or
similar rights contained in any options, warrants or other agreements or
commitments of the Company. All rights of first refusal or other similar
preemptive rights with respect to the issuances of the Shares, the Warrants and
the Warrant Shares, all of which are disclosed on the Schedule of Exceptions,
have been validly waived.
4. REGISTRATION RIGHTS.
(a) DEFINITIONS. For purposes of this Section 4:
(i) "Register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act, and the declaration or ordering of effectiveness
of such registration statement.
(ii) "Registrable Securities" means all shares of Common Stock of
the Company issued under this Agreement, including all shares of Common Stock
issued or issuable pursuant to the exercise of the Warrants, excluding in all
cases, however, all Registrable Securities sold pursuant to Rule 144.
(iii) "Holder" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities to whom rights under this Section 4 (and/or, with
respect to the rights of the Investors set forth in Section 5, under such
Section 5) have been assigned in accordance with this Agreement.
(b) SHELF REGISTRATION.
(i) On or before August 14, 1997, the Company will file a
registration statement under the 1933 Act for and all such qualifications and
compliances as may be so required and as would permit the sale and distribution
of all of the Holders' Registrable Securities and thereafter shall use its best
efforts to secure the effectiveness of such registration statement on or about
October 14, 1997.
(ii) The Company will pay all expenses incurred in connection
with any registration qualification and compliance requested hereunder,
(excluding underwriters' or brokers' discounts and commissions), including
without limitation all filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders and counsel for the Company.
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(iii) The Company will use its best efforts to cause the
registration statement to remain effective until the earlier of (A) the date
ending three years after the effective date of the registration statement filed
pursuant to this Section 4(b), or (B) the date on which each Holder of
Registrable Securities is able to sell all of such Holder's Registrable
Securities in any single three (3) month period without registration under the
1933 Act pursuant to Rule 144, PROVIDED that if the Company elects to terminate
the effectiveness of the registration statement under (B), the Company shall
prior to such termination provide each Holder an opinion of counsel, based on
factual representations of the Holders, that such Holder is able to sell all of
the Registrable Securities held by such Holder and its affiliates in any single
three (3) month period without registration under the 1933 Act pursuant to
Rule 144.
(c) PIGGYBACK REGISTRATIONS. At such time(s) as a registration
statement pursuant to Section 4(b) herein is unavailable to the Holders, the
Company will be required to notify all Holders of Registrable Securities in
writing at least thirty (30) days prior to the Company filing any registration
statement made after October 14, 1997 under the 1933 Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
employee benefit plan or a corporate reorganization, and will afford each such
Holder after October 14, 1997 an opportunity to include in such registration
statement (and any related qualification under or compliance with "blue sky" or
other state securities laws) all or any part of the Registrable Securities then
held by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
will, within thirty (30) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice will inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of such Holder's Registrable Securities in any registration statement thereafter
filed by the Company, such Holder will nevertheless continue to have the right
to include any Registrable Securities in any subsequent registration statement
or registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth herein.
(i) If the registration statement under which the Company gives
notice under this Section 4(c) is for an underwritten offering, the Company will
so advise the Holders of Registrable Securities. In such event, the right of
any such Holder's Registrable Securities to be included in a registration
pursuant to this Section 4(c) will be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting will enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this
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Agreement, if the managing underwriter determines in good faith that marketing
factors require a limitation of the number of shares to be underwritten, the
number of shares that may be included in the underwriting will be allocated
(A) first to the Company, (B) second, to any (1) Holders or (2) other persons
who have piggyback registration rights granted by the Company that are at parity
with the rights of the Holders under this Section 4(c) and, in each case, who
request the inclusion of their securities in the registration statement, and
(C) third, to any persons with piggyback rights subordinate to those of the
Holders who request the inclusion of their securities in the registration
statement; PROVIDED, however, that the number of Registrable Securities proposed
to be registered by the Holders hereunder may not be reduced to less than twenty
percent (20%) of the total value of the securities to be distributed through the
underwriting. If not all securities of Holders or other persons described in
clause (B) above can be included in a registration, the allocation among such
Holders and other persons will be on a pro rata basis according to the relation
that the number of securities which each such Holder or other person owns bears
to the total number of shares outstanding. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered at least five
business days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting will be
excluded and withdrawn from the registration. For any Holder which is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons will be
deemed to be a single "Holder", and any pro rata reduction with respect to such
"Holder" will be based upon the aggregate amount of shares owned by all entities
and individuals included in such "Holder", as defined in this sentence.
(ii) All reasonable expenses incurred in connection with a
piggyback registration pursuant to this Section 4(c) (excluding underwriters'
and brokers' discounts and commissions), including, without limitation, all
federal and "blue sky" or other state securities registration and qualification
fees, printers' and accounting fees, fees and disbursements of one counsel for
the selling Holder or Holders and counsel for the Company will be borne by the
Company.
(d) OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
will, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and deliver such registration
statement, at the time of such filing, to each Holder.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
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with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by them that are included in such registration.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "blue sky"
laws of such jurisdictions as will be reasonably requested by the Holders,
provided that the Company will not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(v) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting will also enter into and perform its
obligations under such an agreement.
(vi) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and upon
such notice the Company shall use its best efforts to promptly correct such
misstatement or omission and deliver to each Holder copies of such corrected
prospectus. The Company shall have the right, upon such notice, to suspend the
delivery of prospectuses included in such registration statement from the date
of notice until the date of such correction. The period during which the
Company is required to keep any registration statement filed pursuant to Section
4(b) or 4(c) effective shall be extended for the amount of time required to
amend such registration statement and deliver such prospectus relating thereto.
(vii) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to
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underwriters in an underwritten public offering and reasonably satisfactory to
each of the Holders requesting registration, addressed to the underwriters, if
any, and to the Holders requesting registration of Registrable Securities and
(ii) a "comfort" letter dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
(e) FURNISH INFORMATION. It will be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 4(b) and 4(c)
hereof that the selling Holders will furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as will be required to effect the
registration of their Registrable Securities.
(f) DELAY OF REGISTRATION. No Holder will have any right to obtain
or seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 4.
(g) INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 4(b) or 4(c) hereof:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, shareholders, officers and
directors of each Holder, any underwriter (as defined in the 1933 Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the 1933 Act or the Exchange Act against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the 1933 Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively, a "VIOLATION"):
(A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
(C) any violation or alleged violation by the Company of
the 1933 Act, the Exchange Act, any federal or state securities law or any rule
or
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regulation promulgated under the 1933 Act, the Exchange Act or any federal or
state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, shareholder, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this Section 4(g)(i) will not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
will not be unreasonably withheld), nor will the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, shareholder, officer, director,
underwriter or controlling person of such Holder.
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter and any
other Holder selling securities under such registration statement or any of such
other Holder's partners, directors or officers or shareholders or any person who
controls such Holder within the meaning of the 1933 Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, partner or director, officer, shareholder or controlling
person of such other Holder may become subject under the 1933 Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation that arises solely as a result of written information furnished by
such Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling person, underwriter or
other Holder, partner, officer, director, shareholder or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action: provided, however, that the indemnity
agreement contained in this Section 4(g)(ii) will not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent will not
be unreasonably withheld; and provided further, that the total amounts payable
in indemnity by a Holder under this Section 4(g)(ii) in respect of any Violation
will not exceed the lesser of (A) the aggregate proceeds (net of discounts)
received by such Holder upon the sale of the Shares or Warrant Shares and
(B) that proportion of aggregate losses, claims, damages, liabilities or
expenses indemnified against which equals the proportion which the number of
Shares and Warrant Shares being sold by such Holder bears to the total number of
Shares and Warrant Shares being sold by the Company and all Holders.
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<PAGE>
(iii) Promptly after receipt by an indemnified party under this
Section 4(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4(g), deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party will have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party will
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if the indemnifying party is materially
prejudiced thereby, will relieve such indemnifying party of liability, but only
to the extent that such indemnifying party is prejudiced with respect to a
specific claim.
(iv) The foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any losses, claims, damages or liabilities purchased shares, if
a copy of the prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) provided by the Company
was not sent or given by or on behalf of such Holder or underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the purchased shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(v) If the indemnification provided for in Sections 4(g)(i) or
4(g)(ii) hereof shall be unavailable to hold harmless an indemnified party in
respect of any liability under the 1933 Act, then, and in each such case, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statement or omissions that resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided that in no
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<PAGE>
event shall any contribution under this subsection (v) by any Holder exceed the
gross proceeds from the offering received by such indemnifying party. No person
or entity guilty of fraudulent misrepresentation (within the meaning of
Section II(f) of the 1933 Act) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
(vi) The obligations of the Company and Holders under this
Section 4(g) will survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
(h) "MARKET STAND-OFF" AGREEMENT. In connection with a public
offering of securities by the Company pursuant to Section 4(c), each Holder who
participates in the registration statement filed under the 1933 Act for such
offering will not, to the extent requested in good faith by an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities included in such registration statement (other than to
donees or partners of the Holder who agree to be similarly bound) for up to that
period of time, not to exceed ninety (90) days (the "Market Stand-Off Period"),
following the effective date of such registration statement of the Company filed
under the 1933 Act as is requested by the managing underwriter(s) of such
offering; provided that the officers and directors of the Company who own stock
of the Company and any shareholder holding more than five percent (5%) of the
outstanding voting securities of the Company also agree to such restrictions.
In order to enforce the foregoing covenant, the Company may impose stop transfer
instructions with respect to the Registrable Securities of each such Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
(i) RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, while
a public market exists for the Common Stock of the Company, the Company will:
(i) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the 1933 Act, at all times while
the Company is reporting under the 1934 Act;
(ii) Use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933 Act and
the 1934 Act (at any time it is subject to such reporting requirements); and
(iii) So long as a Holder owns any Registrable Securities, furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, and of the 1933 Act
and the Exchange Act (at any time it is subject to the reporting requirements of
the Exchange Act), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as a Holder may
reasonably
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<PAGE>
request in availing itself of any rule or regulation of the SEC allowing a
Holder to sell any such securities without registration (at any time the Company
is subject to the reporting requirements of the Exchange Act).
(j) TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company will have
no obligations pursuant to Section 4(c) hereof with respect to: (A) any request
or requests for registration made by any Holder on a date more than six (6)
years after the date of this Agreement; or (B) Registrable Securities held by a
Holder if in the opinion of counsel to the Company at the time of filing a
registration statement such Holder may sell all of such Holder's Registrable
Securities in any single three (3)-month period without registration under the
1933 Act pursuant to Rule 144, PROVIDED that if the Company shall determine that
it may terminate its obligations to any Holder under (B), the Company shall
prior to such termination provide the Holder as to which it shall have
determined to terminate its obligations under (B) an opinion of counsel, based
on factual representations of the Holders that such Holder is able to sell all
of the Registrable Securities held by such Holder and its affiliates in any
single three (3) month period without registration under the 1933 Act pursuant
to Rule 144.
5. COVENANTS.
(a) PROPOSED OR THREATENED CHANGE IN CONTROL: EQUITY PURCHASES. The
Company shall promptly notify the Holders in writing, to the same extent as any
member of the Company's Board of Directors, of any proposed or threatened 20%
Change in Control or 50% Change of Control of which the Company is aware and
which has been communicated to the Company's President or Chief Executive
Officer, or a member of the Company's Board of Directors, verbally or in writing
(or which the Board has, acting as a Board, proposed or authorized), as well as
any purchase of or right to purchase five percent (5%) or more of any class of
capital stock of the Company from the Company, or as reported to the SEC or of
which the Company is aware, by any person, entity, or group. For the Purposes
of this Section 5(a), a "20% Change In Control" means an event in which after
the date hereof any "person" (other than PruTech Research and Development
Limited Partnership II), as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (or persons) becomes the "beneficial owner" or "beneficial owners"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Company representing in the aggregate twenty
percent (20%) or more of either (A) the then outstanding shares of capital stock
of the Company, or (B) the combined voting power of all then outstanding
securities of the Company having the right under ordinary circumstances to vote
in an election of the Board of Directors of the Company. For the purposes of
this Section 5(a), a "50% Change In Control" means an event in which after the
date hereof (A) the shareholders of the Company approve (1) any consolidation or
merger of the Company or any subsidiary of the Company where the shareholders of
the Company, immediately after the consolidation or merger, beneficially own,
directly or indirectly, shares representing in the aggregate less than fifty
percent (50%) of all votes to which all shareholders of the corporation
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issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any,) would be entitled under ordinary circumstances in
the election of directors and where the aggregate value of such transaction is
not less than $1,000,000.00; (2) any sale, lease, exchange or other transfer (in
one transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of the
Company, or (3) any plan or proposal for the liquidation or dissolution of the
Company; or (B) any "person", as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, together with all "affiliates" and "associates" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act) of such person, shall become
the "beneficial owner" or "beneficial owners" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of securities of the
Company representing in the aggregate fifty percent (50%) or more of either
(1) the then outstanding shares of capital stock of the Company or (2) the
combined voting power of all then outstanding securities of the Company having
the right under ordinary circumstances to vote in an election of the Board of
Directors of the Company.
(b) AFFIRMATIVE COVENANTS. The Company covenants and agrees that
unless the Holders of 75% of Registrable Securities shall otherwise give their
prior consent in writing (which consent any such Holder may at its sole
discretion withhold):
(i) FINANCIAL INFORMATION: COMPLIANCE CERTIFICATES. The
Company will furnish to each Holder, for so long as such Holder holds
unregistered Registrable Securities: (a) all regular or periodic reports filed
by the Company with the SEC, including but not limited to the Company's Annual
Report on Form 10-K, the Company's Quarterly reports on Form 10-Q, the Company's
Annual Proxy Statement, and any filings made on Form 8-K; or, if such filings
are no longer required, comparable information which must be filed pursuant to
new SEC reporting requirements; and (b) not more than ninety (90) days after the
end of the Company's fiscal year, audited financial statements as of the end of
each of the Company's fiscal years.
(ii) NOTICE OF ANNUAL MEETING. The Company will provide each of
the Holders with fifteen (15) days prior written notice of the record date of
any annual or special meeting of the shareholders of the Company, and
simultaneously with delivery thereof to the Company's shareholders, a copy of
all materials sent to shareholders with respect to such meeting.
(iii) PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company will
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which failure to so qualify would
have a material adverse effect on the business, properties, prospects, financial
condition, or results of operations of the Company.
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(iv) MAINTENANCE OF INSURANCE. Consistent with the Company's
past practices and reasonably sound business practices, the Company will
maintain insurance with responsible and reputable insurance companies.
(v) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company will
keep accurate and complete records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles.
(vi) MAINTENANCE OF PROPERTIES, ETC. The Company will maintain
and preserve all of its properties necessary or useful in the proper conduct of
its business in accordance with sound business practice.
(vii) AUTHORIZED SHARES. The Company's Board of Directors shall
approve and shall use its best efforts to obtain shareholder approval to
increase the Company's authorized shares of Common Stock in a sufficient number
at its next annual shareholder meeting to cover the issuance of shares of Common
Stock upon exercise of the Warrants, any issuances of shares of Common Stock
upon the exercise, conversion or exchange of any options, warrants, securities
or rights convertible or exchangeable for shares of Common Stock, any issuances
of shares of Common Stock pursuant to any other rights, commitments or
agreements of the Company and any shares reserved for issuance under the
Company's stock plans as set forth in Schedule 1 to the Schedule of Exceptions.
The Company shall, from and at all times after the Closing maintain a reserve of
authorized shares sufficient to cover the exercise in full of the outstanding
Warrants until the expiration or earlier exercise of the Warrants.
(viii) NASDAQ REQUIREMENTS. The Company shall use its best effort
to substantially meet the quantitative maintenance criteria set forth in Rule
4450 (Quantitative Maintenance Criteria) of the Rules of the NASD and Rule 4460
(Quantitative Designation Criteria) of the NASD for inclusion in the Nasdaq
National Market.
(ix) EXCHANGE ACT FILINGS. The Company shall continue to file
with the SEC all reports and other filings required under the rules of the SEC
and such documents shall comply in all material respects with the requirements
of the Exchange Act or the 1933 Act, as applicable, as long as the Company
continues to be subject to reporting requirements under Section 13 or 15(d) of
the Exchange Act.
(c) NEGATIVE COVENANTS. The Company covenants and agrees that unless
the Holders of 75% of the Registrable Securities shall otherwise give their
prior consent in writing (which consent any such Holder may at its sole
discretion withhold), the Company will not:
(i) LIQUIDATION, DISSOLUTION, SALES, ETC. OF ASSETS. Liquidate
or dissolve, or sell, assign, lease, lend, or otherwise dispose of (whether in
one transaction or a series of transactions) all or substantially all of its
assets, whether
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such assets are now owned or hereafter acquired, except sales, leases and other
transactions negotiated at arms' length and in the ordinary course of the
Company's business, as presently conducted.
(ii) AGREEMENT NOT TO EXERCISE OPTIONS AND/OR WARRANTS. The
Company will not issue shares of Common Stock pursuant to the exercise of an
option and/or warrant subject to an Agreement Not to Exercise Options and/or
Warrants (the "Lockup Agreement") so long as such agreement is in effect,
PROVIDED that notwithstanding the foregoing, in the event an exercise of all or
any portion of a warrant or option subject to the Lockup Agreement is proposed,
such exercise shall be permitted, PROVIDED that the number of additional shares
to be issued pursuant to the Settlement Agreement (as defined in the Schedule of
Exceptions) is finally determined pursuant to such Settlement Agreement, and
taking into account the aggregate amount of such additional shares of Common
Stock, and shares of Common Stock reserved for issuance under the Company's
stock plans disclosed in Schedule 1 to the Schedule of Exceptions or subject to
outstanding options, warrants, and other rights to acquire Common Stock, the
Company has sufficient authorized and available shares of Common Stock to permit
the proposed exercise of the option or warrant proposed to be exercised.
(iii) FUTURE ISSUANCES OF COMMON STOCK. The Company shall not
grant or issue any additional shares, options, warrants, securities or rights
exercisable into, convertible or exchangeable for shares of Common Stock or
enter into any other commitments or agreements which call for the issuance of
shares of Common Stock, ("Future Issuances") until the earlier of (i) the
amendment of the Company's Amended and Restated Articles of Incorporation to
increase its authorized shares in sufficient number to cover all existing
Warrant Shares and all outstanding options, warrants or other rights and all
commitments or agreements to issue common stock and all reserves set forth under
any stock option or stock purchase plan, all as set forth in Schedule 1 to the
Schedule of Exceptions, (ii) the expiration of Warrants, or (iii) the exercise
in full of all outstanding Warrants; provided that the Company may make Future
Issuances specifically provided for on Schedule 1 to the Schedule of Exceptions
and Future Issuances out of the reserves set forth on Schedule 1, except for
those shares of Common Stock subject to an Agreement Not to Exercise Options
and/or Warrants.
(iv) TERMINATION OF COVENANTS. The covenants set forth in this
Section 5 will terminate with respect to a Holder upon the earlier of (A) three
years from the effective date of the Registration Statement filed pursuant to
Section 4(b), or (B) the date on which the registration rights under this
Agreement are terminated by the Company because each Holder of Registrable
Securities is able to sell all of such Holder's Registrable Securities in any
single three (3) month period without registration under the 1933 Act pursuant
to Rule 144, PROVIDED that if the Company shall determine it may terminate its
obligations to any Holder for the reasons set forth in (B), the Company shall
provide the Holder as to which it shall have determined to terminate its
obligations prior to such termination an opinion of
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counsel, based on factual representations of the Holders, that such Holder is
able to sell of the Registrable Securities held by such Holder and its
affiliates in any single three (3) month period without registration under the
1933 Act pursuant to Rule 144.
6. CONDITIONS TO OBLIGATIONS OF THE INVESTORS. The obligation of each
Investor to purchase the Units at the Closing is subject to the fulfillment on
or prior to the Closing Date of the following conditions, any of which may be
waived by such Investor:
(a) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of said date, except for representations and warranties made as of a specific
date which shall be true and correct as of such date; the Company's business and
assets shall not have been adversely affected in any material way prior to the
Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it under this
Agreement on or prior to the Closing Date.
(b) CONSENTS AND WAIVERS. The Company shall have obtained any and
all consents (including all governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and delivery of
this Agreement), permits and waivers necessary or appropriate for consummation
of the transactions contemplated by this Agreement. The Company shall have
obtained valid waivers of rights of first refusal or other similar preemptive
rights with respect to the issuance of the Shares, the Warrants and the Warrant
Shares.
(c) COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investors a certificate, executed by the Chairman of the Board and Chief
Executive Officer of the Company, dated the Closing Date, certifying to the
fulfillment of the conditions specified in subsection (a) of this Section 6.
(d) OPINION OF COMPANY'S COUNSEL. Investors shall have received from
Gray Cary Ware & Freidenrich, counsel to the Company, an opinion addressed to
the Investors, dated the Closing Date and in substantially the form attached
hereto as EXHIBIT E.
(e) AGREEMENT NOT TO EXERCISE OPTIONS AND/OR WARRANTS. Certain
directors and officers of the Company shall have executed the Agreement Not to
Exercise Options and/or Warrants, in the form attached hereto as EXHIBIT D, and
such agreements shall cover at least 974,350 shares of Common Stock.
(f) AUTHORIZATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body that are required in
connection
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with the lawful issuance and sale of the Units shall have been duly obtained and
effective on and as of the Closing.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and issue the Shares to each Investor at the Closing is subject
to the fulfillment on or prior to the Closing Date of the following conditions,
any of which may be waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by such Investor in Section 2 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of said date.
(b) CONSENTS AND WAIVERS. The condition set forth in subsections
(b), (e) and (f) of Section 6 hereof shall have been fulfilled.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the internal laws of the State of California
applicable to contracts made among residents of, and wholly to be performed
within, the State of California, without regard to principles of conflict of
laws or choice of laws.
(b) FURTHER INSTRUMENTS. From time to time, each party hereto will
execute and deliver such instruments and documents as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
(c) SUCCESSORS; NO OTHER BENEFICIARIES. This Agreement will be
binding upon and will inure to the benefit of the executors, administrators,
legal representatives, heirs, successors, and assigns of the parties hereto;
PROVIDED, HOWEVER, that (i) rights of Investors hereunder may be transferred
only in connection with (and to the transferee of) Common Stock of the Company
purchased by a Investor hereunder, but the Company may prohibit such transfer of
rights (but not the transfer of stock) if the transfer to a particular
transferee would not, in the good faith judgment of the Company's Board of
Directors, be in the Company's best interests, and (ii) any transferee of any
shares of stock of the Company affected by this Agreement to whom rights are so
transferred (a "PERMITTED TRANSFEREE") will be required, as a condition
precedent to acquiring such shares, to agree in writing to be bound by all the
terms and conditions of this Agreement applicable to such Permitted Transferee's
transferor, and (iii) upon and after such transfer the Permitted Transferee will
be deemed to be an Investor for purposes of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
23
<PAGE>
(d) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. This Agreement will be
effective following the parties signatory hereto upon such counterpart signature
by all initial parties hereto.
(e) ENTIRE AGREEMENT. This Agreement, including and incorporating
the Schedule of Exceptions and all Exhibits attached hereto and referred to
herein, constitutes and contains the entire agreement and understanding of the
parties regarding the subject matter of this Agreement and supersedes in its
entirety any and all prior negotiations, correspondence, understandings and
agreements among the parties respecting the subject matter hereof.
(f) NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be addressed to the Chief
Financial Officer of the Company at its principal corporate offices. Any notice
required to be given or delivered to an Investor shall be addressed to the
Investor at the address indicated below or to such other address as such party
may designate in writing from time to time to the Company. Unless otherwise
provided, notice required or permitted to be given to a party pursuant to the
provisions of this Agreement will be in writing and will be effective and deemed
given under this Agreement on the earliest of (i) the date of personal delivery,
or (ii) the date of delivery by facsimile, or (iii) the business day after
deposit with a nationally-recognized courier or overnight service, including
Federal Express or Express Mail, for United States deliveries or three
(3) business days after such deposit for deliveries outside of the United
States, or (iv) three (3) business days after deposit in the United States mail
by registered or certified mail for United States deliveries. All notices not
delivered personally or by facsimile will be sent with postage and other charges
prepaid and properly addressed to the party to be notified at the address set
forth on Exhibit A hereto, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties hereto. All
notices for delivery outside the United States will be sent by facsimile, or by
nationally recognized courier or overnight service, including Express Mail. Any
notice given hereunder to more than one person will be deemed to have been
given, for purposes of counting time periods hereunder, on the date given to the
last party required to be given such notice.
(g) FINDERS' FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction other than described in this section. Each party agrees to
indemnify and to hold the other parties hereto harmless from any liability for
any commission or compensation in the nature of a finders' fee (and the costs
and expenses of defending against such liability or asserted liability) for
which such party or any of its officers, partners, employees or representatives
is responsible.
24
<PAGE>
(h) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and by Investors
holding at least seventy-five percent (75%) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 8(h) will be
binding upon the Company, each Investor, and their permitted transferees and
assignees.
(i) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provisions will be excluded
from this Agreement to the extent unenforceable and the balance of such
provisions, and of this Agreement, will be interpreted as if such provision or
part and hereof were so excluded and will be enforceable in accordance with its
terms.
(j) AGGREGATION OF STOCK. All shares of Common Stock held or
acquired by affiliated entities or persons will be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
(k) EXPENSES. The Company will pay all of the costs and expenses
that it incurs, and will pay the reasonable fees and expenses, together, of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, counsel to J.F. Shea
Co., Inc., as agreed upon between the Company and Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, with respect to the negotiation, execution,
delivery and performance of this Agreement.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
COMPANY
SILICON VALLEY RESEARCH
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
INVESTOR:
- -------------------------------------
(signature)
Address:
Tax ID:
---------------------------
25
<PAGE>
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION THEREUNDER OR
EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
SILICON VALLEY RESEARCH, INC.
WARRANT TO PURCHASE COMMON STOCK
VOID AFTER APRIL 15, 2000
1. WARRANT TO PURCHASE COMMON STOCK.
1.1 WARRANT TO PURCHASE SHARES. This warrant (this "WARRANT")
certifies that in consideration for $__________, ________________ (the "Warrant
Holder") is entitled, effective as of April 16, 1997, subject to the terms and
conditions of this Warrant to purchase from Silicon Valley Research, Inc., a
California corporation (the "COMPANY") up to a total of __________ shares of
Common Stock of the Company (the "Shares") at the price of $1.31 per share (the
"EXERCISE PRICE") prior to 5:00 p.m. Pacific Time on April 15, 2000 (the
"EXPIRATION DATE"), and must be exercised, if at all, on or before the
Expiration Date. Unless the context otherwise requires, the term "Shares" shall
mean and include the stock and other securities and property at any time
receivable or issuable upon exercise of this Warrant. The term "Warrant" as
used herein, shall include this Warrant and any warrants delivered in
substitution or exchange therefor as provided herein.
1.2 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number
and character of Shares issuable upon exercise of this Warrant (or any shares of
stock or other securities or property at the time receivable or issuable upon
exercise of this Warrant) and the Exercise Price therefor, are subject to
adjustment upon occurrence of the following events:
(a) ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS,
RECAPITALIZATIONS, ETC. The Exercise Price of this Warrant and the number of
Shares issuable upon exercise of this Warrant shall each be proportionally
adjusted to reflect any stock dividend, stock split, reverse stock split,
combination of shares, reclassification, recapitalization or other similar event
altering the number of outstanding shares of the Company's Common Stock.
1
<PAGE>
(b) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In case
the Company shall make or issue, or shall fix a record date for the
determination of eligible holders entitled to receive, a dividend or other
distribution with respect to the Shares payable in securities of the Company
then, and in each such case, the Warrant Holder, on exercise of this Warrant at
any time after the consummation, effective date or record date of such event,
shall receive, in addition to the Shares (or such other stock or securities)
issuable on such exercise prior to such date, the securities of the Company to
which such Warrant Holder would have been entitled upon such date if such
Warrant Holder had exercised this Warrant immediately prior thereto (all subject
to further adjustment as provided in this Warrant).
(c) ADJUSTMENT FOR CAPITAL REORGANIZATION, CONSOLIDATION,
MERGER. If any capital reorganization of the capital stock of the Company, or
any consolidation or merger of the Company with or into another corporation, or
the sale of all or substantially all of the Company's assets to another
corporation shall be effected in such a way that holders of the Company's Common
Stock will be entitled to receive stock, securities or assets with respect to or
in exchange for the Company's Common Stock, and in each such case the Warrant
Holder, upon the exercise of this Warrant, at any time after the consummation of
such capital reorganization, consolidation, merger, or sale, shall be entitled
to receive, in lieu of the stock or other securities and property receivable
upon the exercise of this Warrant prior to such consummation, the stock or other
securities or property to which such Warrant Holder would have been entitled
upon such consummation if such Warrant Holder had exercised this Warrant
immediately prior to the consummation of such capital reorganization,
consolidation, merger, or sale, all subject to further adjustment as provided in
this Section 1.2; and in each such case, the terms of this Warrant shall be
applicable to the shares of stock or other securities or property receivable
upon the exercise of this Warrant after such consummation.
2. MANNER OF EXERCISE.
2.1 EXERCISE AGREEMENT. This Warrant may be exercised, in whole or
in part, on any business day on or prior to the Expiration Date. To exercise
this Warrant, the Warrant Holder must surrender to the Company this Warrant and
deliver to the Company: (a) a duly executed exercise agreement in the form
attached hereto as EXHIBIT A, or in such other form as may be approved by the
Company from time to time (the "EXERCISE AGREEMENT"); (b) if applicable, a
spousal consent in the form attached hereto as EXHIBIT B; and (c) payment in
full of the Exercise Price for the number of Shares to be purchased upon
exercise hereof. If someone other than the Warrant Holder exercises this
Warrant, then such person must submit documentation reasonably acceptable to the
Company that such person has the right to exercise this Warrant. Upon a partial
exercise, this Warrant shall be surrendered, and a new Warrant of the same tenor
for purchase of the number of remaining Shares not previously purchased shall be
issued by the Company to the Warrant Holder. This Warrant shall be deemed to
have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided above, and the person entitled to receive
the Shares issuable upon such exercise shall be treated for all purposes as the
holder of record of such Shares as of the close of business on such date.
2
<PAGE>
2.2 LIMITATIONS ON EXERCISE. This Warrant may not be exercised as to
fewer than 1000 Shares unless it is exercised as to all Shares as to which this
Warrant is then exercisable.
2.3 PAYMENT. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Warrant Holder;
(b) by surrender of shares of the Company's Common Stock that
are clear of all liens, claims, encumbrances or security interests or were
obtained by the Warrant Holder in the public market;
(c) provided that a public market for the Company's stock
exists, (1) through a "same day sale" commitment from the Warrant Holder and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD DEALER") whereby the Warrant Holder irrevocably elects to exercise
this Warrant 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, OR (2)
through a "margin" commitment from the Warrant Holder and an NASD Dealer whereby
the Warrant Holder irrevocably elects to exercise this Warrant and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company;
(d) by "Net Exercise," in which case the Company shall deliver
to the Warrant Holder (without payment of any additional Exercise Price) that
number of shares equal to the quotient obtained by dividing:
(i) the value of the Shares purchased upon exercise at the
time of exercise (such value to be determined by subtracting (i) the aggregate
Exercise Price for such Shares as in effect immediately prior to exercise from
(ii) the aggregate Fair Market Value (as defined in Section 13 below) for such
Shares immediately prior to the exercise of this Warrant), by
(ii) the Fair Market Value of one (1) Share immediately
prior to exercise; or
(e) by any combination of the foregoing.
2.4 TAX WITHHOLDING. Prior to the issuance of the Shares upon
exercise of
3
<PAGE>
this Warrant, the Warrant Holder must pay or provide for any applicable federal
or state withholding obligations of the Company.
2.5 ISSUANCE OF SHARES. Provided that the Exercise Agreement and
payment have been received by the Company as provided above, the Company shall
issue the Shares (adjusted as provided herein) registered in the name of the
Warrant Holder, the Warrant Holder's authorized assignee, or the Warrant
Holder's legal representative, and shall deliver certificates representing the
Shares with the appropriate legends affixed thereto.
3. REGISTRATION RIGHTS. The shares issued or issuable upon the exercise
of the Warrants will have the registration rights as provided for in Section 4
of the Unit Purchase Agreement entered into between the Company and the Warrant
Holder as of the date of this Warrant.
4. REDEMPTION. The Company at its sole discretion may, commencing 18
months after April 16, 1997, redeem all or any part of the outstanding Warrants
by paying therefor in cash an amount equal to $0.01 per Share for which the
Warrant is then exercisable; PROVIDED, HOWEVER, that such redemption may be made
by the Company only upon 30 days' prior written notice (the "Redemption Date"
being the close of business on the 30th day following the date the notice is
deemed to be given to Warrant Holders pursuant to Section 9 hereof) and only if
the closing sales prices for a share of the Company's Common Stock as reported
on the Nasdaq National Market have exceeded $1.74 for 20 consecutive trading
days ending not more than one business day prior to the date the notice of
redemption is mailed to Warrant Holders, and PROVIDED FURTHER that the holder of
any Warrant subject to such redemption may exercise such Warrant at any time
prior to the expiration of the 30-day notice period; and PROVIDED FURTHER that
the Company's right to redeem shall be suspended in the event the shelf
registration statement required under Section 4 of the Unit Purchase Agreement
is subject to a stop order or is otherwise not in effect or if a Holder is
advised under Section 4(d) of the Unit Purchase Agreement that the prospectus
thereto contains a material misstatement or omission during any portion of the
30-day notice period, with such suspension to terminate and the Company's right
to redeem to be reinstated on the date following such time as (i) a registration
statement covering the Warrant Shares is effective and not subject to any stop
orders and (ii) the Company has delivered to the Holder a prospectus covering
the Registrable Securities of such Holders under Section 4(d) of the Unit
Purchase Agreement. The notice period shall then be extended for a period equal
to the number of days during the notice period during which registration was not
effective or the prospectus was not available or contained a material
misstatement or omission. If less than all of the outstanding Warrants are
redeemed, Warrants shall be redeemed on a pro rata basis.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Warrant
and the issuance and transfer of Shares shall be subject to compliance by the
Company and the Warrant Holder with all applicable requirements of federal and
state securities laws and with all applicable requirements of any stock exchange
and/or over-the-counter market on which the Company's Common Stock may be listed
at the time of such issuance or transfer.
4
<PAGE>
6. TRANSFER AND EXCHANGE. This Warrant and the rights hereunder may not
be transferred in whole or in part without the Company's prior written consent,
which consent shall not be unreasonably withheld, and may not be transferred
unless such transfer complies with all applicable securities laws. If a
transfer of all or part of this Warrant is permitted as provided in the
preceding sentence, then this Warrant and all rights hereunder may be
transferred, in whole or in part, on the books of the Company maintained for
such purpose at the principal office of the Company, by the Warrant Holder
hereof in person, or by duly authorized attorney, upon surrender of this Warrant
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any permitted partial
transfer, the Company will issue and deliver to the Warrant Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees to be
bound by the terms, conditions, representations and warranties hereof (and as a
condition to any transfer of this Warrant the transferee shall execute an
agreement confirming the same), and, when this Warrant shall have been so
endorsed, the person in possession of this Warrant may be treated by the
Company, and all other persons dealing with this Warrant, as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding; PROVIDED,
HOWEVER that until a transfer of this Warrant is duly registered on the books of
the Company, the Company may treat the Warrant Holder hereof as the owner of
this Warrant for all purposes.
7. PRIVILEGES OF STOCK OWNERSHIP. The Warrant Holder shall not have any
of the rights of a shareholder with respect to any Shares until the Warrant
Holder exercises this Warrant and pays the Exercise Price.
8. ENTIRE AGREEMENT. The Warrant Exercise Agreement is incorporated
herein by reference. This Warrant and the Warrant Exercise Agreement constitute
the entire agreement of the parties and supersede all prior undertakings and
agreements with respect to the subject matter hereof.
9. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Warrant shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to the Warrant Holder shall be in
writing and addressed to the Warrant Holder at the address indicated below or to
such other address as such party may designate in writing from time to time to
the Company. All notices shall be deemed to have been given or delivered upon:
personal delivery; five (5) days after deposit in the United States mail by
certified or registered mail (return receipt requested); one (1) business day
after deposit with any return receipt express courier (prepaid); or one (1)
business day after transmission by fax or telecopier.
10. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Warrant shall be binding upon
the Warrant Holder and the Warrant Holder's heirs, executors, administrators,
legal representatives, successors and assigns.
5
<PAGE>
11. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
12. ACCEPTANCE. The Warrant Holder has read and understands the terms and
provisions of this Warrant, and accepts this Warrant subject to all the terms
and conditions hereof. The Warrant Holder acknowledges that there may be
adverse tax consequences upon exercise of this Warrant or disposition of the
Shares and that the Warrant Holder should consult a tax adviser prior to such
exercise or disposition.
13. DEFINITION OF FAIR MARKET VALUE. As used herein, "FAIR MARKET VALUE"
means, as of any date, the value of a share of the Company's Common Stock
determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its last reported sale price on the Nasdaq National Market or, if no
such reported sale takes place on such date, the average of the closing bid and
asked prices;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, the last reported sale price or, if no such
reported sale takes place on such date, the average of the closing bid and asked
prices on the principal national securities exchange on which the Common Stock
is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on such
date, as reported by The Wall Street journal, for the over-the-counter market;
or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
duplicate by its duly authorized representative and the Warrant Holder has
executed this Warrant in duplicate as of April , 1997.
---
SILICON VALLEY RESEARCH, INC. WARRANT HOLDER
By:
-------------------------------- ---------------------------------
(Signature)
- ----------------------------------- ---------------------------------
(Please print name) (Please print name)
Address: 6360 San Ignacio Avenue Address:
-------------------------
San Jose, CA 95119 ---------------------------------
---------------------------------
[Signature page to Silicon Valley Research, Inc. Warrant to Purchase Common
Stock]
7
<PAGE>
EXHIBIT A
---------
SILICON VALLEY RESEARCH, INC.
WARRANT EXERCISE AGREEMENT
SILICON VALLEY RESEARCH, INC.
6360 San Ignacio Avenue
San Jose, California 95119-1231
The Warrant Holder hereby elects to purchase the number of shares (the
"SHARES") of the Common Stock of Silicon Valley Research, Inc. (the "COMPANY")
as set forth below, pursuant to that certain Warrant dated as of the date set
forth below (the "WARRANT"), the terms and conditions of which are hereby
incorporated by reference (please print):
Warrant Holder: Date of Exercise:
-------------------- ---------------------
Social Securities Number: Exercise Price Per Share:
---------- -------------
Address: Number of Shares Purchased:
--------------------------- -----------
Total Exercise Price
- ----------------------------------- ------------------
Warrant Date: Exact Name of Title to Shares:
---------------------- --------
--------------------------------------
--------------------------------------
The Warrant Holder hereby delivers to the Company the Total Exercise Price
as follows (check and complete as appropriate):
/ / in cash in the amount of $_________, receipt of which is acknowledged
by the Company;
/ / by cancellation of indebtedness of the Company to the Warrant Holder
in the amount of $__________;
/ / by delivery of __________ fully paid, nonassessable and vested shares
of the Common Stock of the Company either owned by the Warrant Holder
obtained by the Warrant Holder in the open public market valued at the
current fair market value of __________ per share;
/ / through a "same-day-sale" commitment from the Warrant Holder and the
broker named below in the amount of $_________ and substantially in
the form attached hereto as ATTACHMENT 1;
/ / through a "margin" commitment from the Warrant Holder and the broker
named below in the amount of $_________ and substantially in the form
attached hereto as ATTACHMENT 2;
8
<PAGE>
Broker Name: Brokerage Firm:
------------------ ------------------
------
/ / by "Net Exercise"
TAX CONSEQUENCES. THE COMPANY IS UNDER NO OBLIGATION TO REPORT THE
EXERCISE OF YOUR WARRANT TO THE INTERNAL REVENUE SERVICE OR ANY STATE OR LOCAL
INCOME TAX AUTHORITY. WARRANT HOLDER UNDERSTANDS THAT THE WARRANT HOLDER MAY
SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF THE WARRANT HOLDER'S PURCHASE OR
DISPOSITION OF THE SHARES. THE WARRANT HOLDER REPRESENTS THAT THE WARRANT
HOLDER HAS CONSULTED WITH ANY TAX CONSULTANT(S) THE WARRANT HOLDER DEEMS
ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT
THE WARRANT HOLDER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
-------------------------------------------
Signature of Warrant Holder
9
<PAGE>
EXHIBIT B
SPOUSE CONSENT
The undersigned spouse of the Warrant Holder has read, understands, and
hereby approves the Warrant Exercise Agreement between the Warrant Holder and
the Company (the "AGREEMENT"). In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, the
undersigned hereby agrees to be irrevocably bound by the Agreement and further
agrees that any community property interest shall similarly be bound by the
Agreement. The undersigned hereby appoints the Warrant Holder as my
attorney-in-fact with respect to any amendment or exercise of any rights under
the Agreement.
Date:
-------------------------------- --------------------------------
Purchaser's Spouse
Address:
------------------------
------------------------
10
<PAGE>
ATTACHMENT 1
SAME DAY SALE COMMITMENT
, 19
-------------- ----
SILICON VALLEY RESEARCH, INC.
6360 San Ignacio Avenue
San Jose, California 95119-1231
The undersigned Warrant Holder ("WARRANT HOLDER") desires to exercise that
certain warrant described in the attached Warrant Exercise Agreement (the
"WARRANT") with respect to ________ shares of your Common Stock (the "NUMBER OF
SHARES"), and to sell immediately ________ of the Number of Shares (the
"SAME-DAY SALE SHARES") through the undersigned broker (the "BROKER") and for
the Broker to pay directly to you from the proceeds from such sale $_________
(the "EXERCISE PRICE").
Accordingly, the Warrant Holder hereby represents as follows: (i) Warrant
Holder hereby irrevocably exercises the Warrant with respect to the Number of
Shares; and (ii) Warrant Holder hereby irrevocably elects to sell through Broker
the Same-Day-Sale Shares and unconditionally authorizes you or your transfer
agent to deliver certificates representing the Same-Day-Sale Shares to the
Broker.
The Broker hereby represents as follows: (i) the Broker is a member in good
standing of the National Association of Securities Dealers; and (ii) the Broker
irrevocably commits to pay to you, no more than one (1) business day after
receiving certificates representing the Same-Day-Sale Shares, the Exercise Price
by check or wire transfer to an account specified by you.
WARRANT HOLDER: BROKER:
- ---------------------------------------- ---------------------------------
(Signature) (Name of Firm)
- ---------------------------------------- ---------------------------------
(Printed Name) (Signature)
---------------------------------
(Printed Name)
---------------------------------
(Title)
11
<PAGE>
ATTACHMENT 2
-------------
MARGIN COMMITMENT
, 19
-------------- ----
SILICON VALLEY RESEARCH, INC.
6360 San Ignacio Avenue
San Jose, California 95119-1231
The undersigned Warrant Holder ("WARRANT HOLDER") desires to exercise that
certain warrant described in the attached Warrant Exercise Agreement (the
"WARRANT") with respect to ________ shares of your Common Stock (the "NUMBER OF
SHARES"), and to sell immediately ________ of the Number of Shares (the "MARGIN
SHARES") through the undersigned broker (the "BROKER") and for the Broker to pay
directly to you from the proceeds from such sale $_________ (the "EXERCISE
PRICE").
Accordingly, the Warrant Holder hereby represents as follows: (i) Warrant
Holder hereby irrevocably exercises the Warrant with respect to the Number of
Shares; and (ii) Warrant Holder hereby irrevocably elects to sell through Broker
the Same-Day-Sale Shares and unconditionally authorizes you or your transfer
agent to deliver certificates representing the Margin Shares to the Broker.
The Broker hereby represents as follows: (i) the Broker is a member in good
standing of the National Association of Securities Dealers; and (ii) the Broker
irrevocably commits to pay to you, no more than one (1) business day after
receiving certificates representing the Margin Shares, the Exercise Price by
check or wire transfer to an account specified by you.
WARRANT HOLDER: BROKER:
- ---------------------------------------- ---------------------------------
(Signature) (Name of Firm)
- ---------------------------------------- ---------------------------------
(Printed Name) (Signature)
---------------------------------
(Printed Name)
---------------------------------
(Title)
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EXHIBIT 5.1
[LETTERHEAD OF GRAY CARY WARE FREIDENRICH]
May 5, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: SILICON VALLEY RESEARCH, INC. REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
As counsel to Silicon Valley Research, Inc. (the "Company"), we are
rendering this opinion in connection with a proposed sale of 811,877 shares
of the Company's Common Stock (the "Shares") held by certain shareholders as
set forth in the Registration Statement on Form S-3 to which this opinion is
being filed as Exhibit 5.1. We have examined all instruments, documents and
records which we deemed relevant and necessary for the basis of our opinion
hereinafter expressed. In such examination, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to
us as copies.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement are duly
authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever
it appears in said Registration Statement, including the Prospectus
constituting a part thereof, as originally filed or as subsequently amended.
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Securities and Exchange Commission
May 5, 1997
Page Two
This opinion is to be used only in connection with the sale of the
Shares while the Registration Statement is in effect.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated May 14, 1996 appearing on page 15 of Silicon Valley Research, Inc.'s
Annual Report on Form 10-K for the year ended March 31, 1996. We also consent
to the references to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
San Jose, California
May 5, 1997
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement to
register 811,877 shares of common stock of Silicon Valley Research, Inc. on
Form S-3 of our report dated May 23, 1995, on our audits of the consolidated
financial statements and financial statement schedule of Silicon Valley
Research, Inc. as of March 31, 1995 and for the years ended March 31, 1994
and 1995 appearing in the Annual Report on Form 10-K (SEC File No. 0-13836)
of Silicon Valley Research, Inc. filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1934. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
May 5, 1997
