<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
___ Exchange Act of 1934
For the quarterly period ended June 30, 1998 or
___ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________to________
COMMISSION FILE NO. 0-13836
SILICON VALLEY RESEARCH, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
California 94-2743735
---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6360 San Ignacio Avenue San Jose, CA 95119-1231
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 361-0333
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___
---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Common Shares Outstanding at June 30, 1998: 26,190,113
This report, containing all exhibits, contains 21 pages.
The exhibit index is on page 19.
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
INDEX
Pages
-----
Part I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and June 30, 1998 (unaudited) 3
Consolidated Statements of Operations -
Three Months Ended June 30, 1997 and 1998 (unaudited) 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 1997 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
Part II. OTHER INFORMATION 18-19
-----------------
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of
Securities Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures 20
Exhibit 27. Financial Data Schedule 21
Page 2 of 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Assets March 31, 1998 June 30, 1998
- ------ -------------- -------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 1,926 $ 2,383
Accounts receivable, net of allowances of
$150 in each period 484 558
Prepaid expenses and other current assets 257 151
-------- --------
2,667 3,092
Fixed assets, net 667 601
Other assets, net 1,931 1,918
-------- --------
$ 5,265 $ 5,611
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term borrowing $ 285 $ 285
Current portion of long-term debt 263 245
Notes payable 200 150
Accounts payable 352 244
Accrued expenses 968 923
Deferred revenue 539 492
-------- --------
2,607 2,339
Long-term debt, less current portion 77 61
-------- --------
Deferred tax liability 17 -
-------- --------
Contingencies (Note 8)
Shareholders' Equity:
Preferred stock, no par value:
Authorized: 1,000 shares
Issued and outstanding: none - -
Common stock, no par value:
Authorized: 40,000 shares
Issued and outstanding:
23,759 shares at March 31, 1998
and 26,190 shares at June 30, 1998 41,834 43,922
Accumulated deficit (39,346) (40,909)
Cumulative translation adjustment 76 198
-------- --------
2,564 3,211
-------- --------
$ 5,265 $ 5,611
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 21
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
June 30,
1997 1998
--------- ---------
Revenue:
Products $ 242 $ 225
Services 471 368
------- -------
Total revenue 713 593
------- -------
Cost of revenue:
Products 1,318 70
Services 106 229
------- -------
Total cost of revenue 1,424 299
------- -------
Gross margin (711) 294
------- -------
Operating expenses:
Engineering, research and development 625 636
Selling and marketing 1,341 668
General and administrative 303 412
Impairment loss on prepaid royalty 1,217 -
------- -------
Total operating expenses 3,486 1,716
------- -------
Operating loss (4,197) (1,422)
------- -------
Other income (expense):
Interest income 71 13
Interest expense (4) (15)
Other, net 136 (139)
------- -------
Total other income 203 (141)
------- -------
Loss before provision for
income taxes (3,994) (1,563)
Provision for income taxes - -
------- -------
Net loss $(3,994) $(1,563)
======= =======
Net loss per basic share and diluted
share $ (0.25) $ (0.06)
======= =======
Weighted-average common shares
outstanding (basic and diluted) 15,964 24,371
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 21
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
June 30,
1997 1998
---------- ---------
Cash Flows from Operating Activities:
Net loss $(3,994) $(1,563)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for impairment of prepaid marketing royalty 1,217 -
Amortization of software development costs 1,204 29
Depreciation and amortization 11 204
Changes in assets and liabilities, net:
Accounts receivable (57) (74)
Prepaid expenses and other current assets 154 106
Accounts payable 66 (107)
Accrued expenses (414) (45)
Deferred revenue (27) (47)
Other, net 204 21
------- -------
Net cash used in operating activities (1,636) (1,476)
------- -------
Cash Flows from Investing Activities:
Acquisition of fixed assets (3) (13)
Capitalization of software development costs and
purchase of software licenses (567) (162)
------- -------
Net cash used in investing activities (570) (175)
------- -------
Cash Flows from Financing Activities:
Principal payments of long-term debt (45) (52)
Principal payments on notes payable - (50)
Proceeds from issuance of common stock 3,878 2,088
------- -------
Net cash provided by financing activities 3,833 1,986
------- -------
Effect of exchange rate changes on cash (68) 122
------- -------
Net increase (decrease) in cash and
cash equivalents 1,559 457
Cash and cash equivalents at beginning
of period 2,064 1,926
------- -------
Cash and cash equivalents at end
of period $ 3,623 $ 2,383
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 21
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998- UNAUDITED
(IN THOUSANDS)
NOTE 1: BASIS OF PRESENTATION AND FINANCIAL STATEMENT INFORMATION
The accompanying consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial statements. Therefore, they do not include all
the disclosures which were presented in the Company's annual report on Form 10-
K. These financial statements do not include all disclosures required by
generally accepted accounting principles and accordingly, should be read in
conjunction with the consolidated financial statements and notes included as
part of the Company's latest annual report on Form 10-K.
In the opinion of management, the consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the consolidated financial position, results of
operations and cash flows for the interim period. The results of operations
presented are not necessarily indicative of the results to be expected for the
full year or for any other period.
The report of PricewaterhouseCoopers LLP on the Company's fiscal 1998
consolidated financial statements dated June 12, 1998 included an explanatory
paragraph regarding the Company's ability to continue as a going concern. There
can be no assurance that the Company will not continue to incur significant
operating losses or that required additional financing will be available to meet
the Company's business plans in fiscal 1999 and beyond.
NOTE 2: EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" (FAS 128). As required by the statement, all prior period
earnings per share (EPS) amounts presented have been restated to conform with
the provisions of FAS 128. Under FAS 128, the Company presents two EPS amounts.
Basic EPS is calculated based on income or loss to common shareholders and the
weighted-average number of shares outstanding during the reported period.
Diluted EPS includes additional dilution from common stock equivalents, such as
stock issuable pursuant to the exercise of stock options and warrants. Common
stock equivalents were not included in the computation of diluted earnings per
share when the Company reported a loss because to do so would have been
antidilutive for the periods presented.
The following is a reconciliation of the computation for basic and diluted
EPS:
Three Months Ended
June 30,
1997 1998
------- -------
Net loss $(3,994) $(1,563)
======= =======
Weighted-average common shares
outstanding (basic) 15,964 24,371
Weighted-average common stock equivalents:
Stock options - -
Warrants - -
------- -------
Weighted-average common shares
outstanding (diluted) 15,964 24,371
======= =======
Page 6 of 21
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 1998- UNAUDITED
(IN THOUSANDS)
NOTE 3: COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This Statement requires that all items
recognized under accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. This Statement also requires
that an entity classify items of other comprehensive earnings by their nature in
an annual financial statement. For example, other comprehensive earnings may
include foreign currency translation adjustments and unrealized gains and losses
on marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. The Company's
total comprehensive earnings were as follows:
Three Months Ended
June 30,
1997 1998
------- -------
Net loss $(3,994) $(1,563)
Other comprehensive loss (gain) (68) 122
------- -------
Total comprehensive loss $(4,062) $(1,441)
======= =======
NOTE 4: STATEMENT OF CASH FLOWS INFORMATION
Three Months Ended
June 30,
1997 1998
------- -------
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 4 $ 15
Income Taxes - -
NOTE 5: BALANCE SHEET COMPONENTS
March 31, June 30,
1998 1998
------- -------
Other Assets:
Software development costs $ 2,098 $ 799
Software licenses 3,134 1,380
------- -------
5,232 2,179
Less accumulated amortization (3,898) (724)
------- -------
1,334 1,455
Prepaid royalties, net 67 -
Goodwill 245 232
Other 285 231
------- -------
$ 1,931 $ 1,918
======= =======
Accrued Expenses:
Payroll and related costs $ 477 $ 420
Taxes payable 147 145
Accrued professional fees 229 251
Other 115 107
------- -------
$ 968 $ 923
======= =======
Page 7 of 21
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 1998- UNAUDITED
(IN THOUSANDS)
NOTE 6: BANK LINE OF CREDIT
The Company has a $300 equipment line of credit with its bank. The line
bears interest at prime plus two percent, 10.5% at June 30, 1998. The line of
credit is collateralized by substantially all of the assets of the Company. The
terms of the credit agreement require minimum amounts of net worth, maximum
ratios of indebtedness to net worth and minimum quarterly after tax profits.
The Company is currently not in compliance with certain of these covenants.
In June 1997, the Company entered into an additional line of credit with
its bank. The revolving line of credit had provided for borrowings limited to
certain percentages of eligible accounts receivable. As of June 30, 1998, $285
has been borrowed under the line of credit. The revolving line of credit
expired by its terms in early June 1998. The parties are currently in the
process of negotiating a continuation of the line. There can be no assurance
that the Company will be able to successfully re-negotiate the line of credit or
that a waiver will be obtained for its noncompliance with certain covenants
under its equipment line of credit. The amounts outstanding under its line of
credit and equipment line of credit are classified as current in the June 30,
1998 balance sheet.
NOTE 7: CAPITAL STOCK
On June 8, 1998, the Company completed a private placement of units
comprising 2,378 shares of Common Stock and warrants to purchase an additional
2,378 shares of Common Stock at an exercise price of $0.37 per share, with
proceeds to the Company of approximately $2,000. The shares of Common Stock are
unregistered. The Company will file a registration statement with the
Securities and Exchange Commission to become effective on or before December 8,
1998 pursuant to the terms of the unit purchase agreement. One director and one
officer/director participated in the private placement.
NOTE 8: CONTINGENCIES
The Company is subject to various types of litigation during its normal
course of business. In January 1997, Gambit Automated Design, Inc. ("Gambit"),
a competitor of the Company, filed a complaint alleging misappropriation of
trade secrets, breach of contract, inducing breach of contract, breach of
fiduciary duty, unfair competition and unjust enrichment against the Company and
a former employee of Gambit who is a current employee of the Company. Gambit
sought injunctive relief, compensatory and punitive damages, restitution and
attorneys" fees and costs. The parties have agreed to resolve the asserted
claims on terms that do not involve the payment of any money by the Company.
Accordingly, the Company does not believe that the ultimate settlement of this
litigation will have a material adverse effect on its financial position or
results of operations. The parties are in the process of documenting the
settlement.
NOTE 9: RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997 and March 1998, the American Institute of Certified
Public Accountants issued Statements of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2") and 98-4 "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"), which the
Company is required to adopt for transactions entered into in the fiscal year
beginning April 1, 1998. SOP 97-2 and SOP 98-4 provide guidance on recognizing
revenue on software transactions and supersede SOP 91-1. The Company believes
that the adoption of SOP 97-2 and SOP 98-4 will not have a significant impact
on its current licensing or revenue recognition practices. However, should the
Company adopt new or change its existing licensing practices, the Company's
revenue recognition practices may be subject to change to comply with the
accounting guidance provided in SOP 97-2 and SOP 98-4.
Page 8 of 21
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 1998- UNAUDITED
(IN THOUSANDS)
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("FAS 131"), "Disclosures About Segments of an Enterprise and Related
Information." This statement establishes standards for the way companies
report information about operating segments in annual financial statements. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company has not yet
determined the impact, if any, of adopting this new standard. The disclosures
prescribed by FAS 131 will be effective for the Company's consolidated
financial statements for the year ending March 31, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for determining whether computer software is internal-use
software and on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the
public. It also provides guidance on capitalization of the costs incurred for
computer software developed or obtained for internal use. The Company has not
yet determined the impact, if any, of adopting this statement. The disclosures
prescribed by SOP 98-1 will be effective for the year ending March 31, 2000
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 establishes accounting and reporting
standards for derivative instruments, embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and
the resulting designation. The Company currently does not invest in derivative
instruments.
NOTE 10: YEAR 2000 ISSUES
The "Year 2000 Issue" arises because most computer systems and programs
were designed to handle only a two-digit year, as opposed to a four digit year.
When the year 2000 begins, these computers may interpret "00" as the year 1900
and could either stop processing date-related computations or could process them
incorrectly. As customers and potential customers of the Company begin to devote
incremental resources to this issue, resources previously allocated to other
information systems requirements may be redirected to address the Year 2000
issue. To the extent that the Company's products are not selected as part of
customers' overall Year 2000 solution, redirection of these customer resources
could have a material adverse effect on the Company's results of operations and
financial condition. In addition, the Year 2000 Issue creates risk for the
Company from unforeseen problems in its internal computer systems and from third
parties with which the Company interacts. Such failures of the Company's and/or
third parties' computer systems could have a material impact on the Company's
ability to conduct its business and to process and account for the transfer of
funds electronically.
Page 9 of 21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS)
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes a number of forward-looking statements which reflect
the Company's current view with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in the Other Factors section of this
Item 2, elsewhere in this Form 10-Q and as set forth in the Company's form 10-
K on file with the SEC that could cause actual results to differ materially
from historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof.
RESULTS OF OPERATIONS
REVENUE
Revenue for the first quarter of fiscal year 1999, which ended June 30, 1998,
was $593, a decrease from $713 in the first quarter a year ago. The 17%
decrease in revenues was due to lower license and maintenance revenue during the
quarter ended June 30, 1998, primarily resulting from a reduction in capital
investment by customers and increased competition. Revenue from services
includes the activity of Quality I.C. Corporation, which was acquired by the
Company on March 31, 1998. International sales, primarily Japan and the Far
East accounted for 39% of total revenue in the first quarter of fiscal 1999
compared to 28% in the first quarter a year ago.
The Company's expense levels are based, in part, on its expectations as to
future revenue levels, which are difficult to predict. A substantial portion of
the Company's revenues in each quarter results from shipments during the last
month of that quarter, and for that reason among others, the Company's revenues
are subject to significant quarterly fluctuations. If revenue levels are below
expectations, as in the quarter ended June 30, 1998, operating results may be
materially and adversely affected. In addition, the Company's quarterly and
annual results may fluctuate as a result of many factors, including the size and
timing of software license fees, timing of co-development projects with
customers, timing of operating expenditures, increased competition, new product
announcements and releases by the Company and its competitors, gain or loss of
significant customers or distributors, expense levels, renewal of maintenance
contracts, pricing changes by the Company or its competitors, personnel changes,
foreign currency exchange rates, and economic conditions generally and in the
electronics industry specifically.
COST OF REVENUE
Cost of products for the first quarter of fiscal year 1999 was $70, compared
to $1,318 in the first quarter of fiscal 1998. Cost of sales of products is
primarily the amortization of software development costs and amortization of
prepaid royalty payments to third parties. Based on the Company's plans for the
future, the Company wrote-off $1,036 of unamortized software development costs
in the three months ended June 30, 1997.
Cost of services for the first quarter of fiscal year 1999 was $229 compared
to $106 in the first quarter of fiscal 1998. Cost of services is primarily the
cost of providing design services, technical support and technical
documentation. Cost of services includes the design services costs of Quality
I.C. Corporation, which was acquired by the Company on March 31, 1998.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
Engineering, research and development expenses for the first quarter of
fiscal year 1999 were $636 compared to $625 in the first quarter a year ago.
Comparing the first quarter of fiscal 1999 and the first quarter of fiscal 1998,
engineering, research and development expenses were 107% and 88% of total
revenue, respectively. The consistency in engineering, research and development
expenses is due to the Company's continuing emphasis on its technology and
product development.
Page 10 of 21
<PAGE>
SELLING AND MARKETING EXPENSES
Selling and marketing expenses for the first quarter of fiscal year 1999
decreased to $668 from $1,341 in the first quarter a year ago. In the first
quarter of fiscal 1999 and the first quarter of fiscal 1998, selling and
marketing expenses were 113% and 188% of total revenue, respectively. The
decrease is due to the effects of the Company's cost-cutting measures including
a reduction in salaries and occupancy costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $412 for the first quarter
of fiscal year 1999 from $303 in the first quarter a year ago. In the first
quarter of fiscal 1999 and the first quarter of fiscal 1998, general and
administrative expenses were 70% and 42% of total revenue, respectively. The
increase is due to the activity of Quality I.C. Corporation, which was acquired
by the Company on March 31, 1998.
IMPAIRMENT LOSS ON PREPAID ROYALTY
In June 1996, the Company entered into an agreement whereby the Company was
granted the exclusive marketing rights to Bell Labs' CLOVER line of deep
submicron verification products worldwide, with the exception of Japan and
Taiwan. Pursuant to the four year agreement, the Company had made prepaid
royalty payments of $1,750. Despite active marketing efforts, the product had
limited success due to product issues and to strong competitive factors.
Accordingly, the Company ceased sales of the product line in July 1997.
Provision was made in the June 30, 1997 financial statements to expense the full
amount of unamortized prepaid royalty of $1,217, the future value of which was
considered impaired.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities and to a lesser extent, cash generated from
operations. To date in fiscal 1999, the Company has received net cash of $2,088
from the private placement of equity securities and the exercise of warrants and
options to purchase Common Stock ("financing activities"). During the three
months ended June 30, 1998, cash and cash equivalents increased $457 from $1,926
to $2,383. This increase resulted from cash provided by the financing
activities of $1,986 less cash used by operations of $1,476 and $175 of cash
used for investing activities.
The Company incurred a loss in the first quarter of fiscal 1999 and expects
operating losses to continue, at least in the near term, as it expands its
product development and marketing capabilities. The achievement of
profitability is primarily dependent upon the continued development and
commercial acceptance of the Company's products and services, the successful
management of the business and management's ability to strategically focus the
Company. There can be no assurance as to whether or when achievement of
profitable operations will occur. In addition, the Company is experiencing
negative cash flow from operations and it is expected that it will continue to
experience negative cash flow at least through fiscal 1999 and potentially
thereafter.
The Company's primary unused sources of funds at June 30, 1998 consisted of
cash and cash equivalents of $2,383. On June 8, 1998, the Company's $2,000 line
of credit with its bank expired by its terms. The Company is currently in the
process of negotiating a continuation with its bank. The Company believes its
cash and cash generated from operations and available borrowings may not be
sufficient to finance its operations through 1999. Management is exploring
financing alternatives to supplement the Company's cash position. Potential
sources of additional financing include private equity financings, mergers,
strategic investments, strategic partnerships or various forms of debt
financings. The Company 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 is seeking 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. The
Company may issue a series of Preferred Stock with rights, preferences or
privileges senior to those of the Company's Common Stock. The
Page 11 of 21
<PAGE>
Company has no commitments or arrangements to obtain any additional funding and
there can be no assurance that the required financing of the Company will be
available on acceptable terms, if at all. The unavailability or timing of any
financing could prevent or delay the continued development and marketing of the
products of the Company and could require substantial curtailment of operations
of the Company.
OTHER FACTORS AFFECTING FUTURE RESULTS
RECENT AND EXPECTED LOSSES; ACCUMULATED DEFICIT. The Company incurred a net
loss of $1,563 for the quarter ended June 30, 1998 and had an accumulated
deficit of $40,909 as of June 30, 1998. The Company expects to incur losses for
most of its current fiscal year. There can be no assurance that the Company
will not incur additional losses for a longer period, will generate positive
cash flow from its operations, or that the Company will attain or thereafter
sustain profitability in any future period. To the extent the Company continues
to incur losses or grows in the future, its operating and investing activities
may use cash and, consequently, such losses or growth will require the Company
to obtain additional sources of financing in the future or to reduce operating
expenses.
GOING CONCERN ASSUMPTIONS; FUTURE CAPITAL NEEDS; NO ASSURANCE OF FUTURE
FINANCING. The Company's independent accountants' report on its financial
statements as of and for the years ended March 31, 1997 and 1998 contained an
explanatory paragraph indicating that the Company's historical operating losses
and limited capital resources raise substantial doubt about its ability to
continue as a going concern. The Company may require substantial additional
funds in the future, and there can be no assurance that any independent
accountant's report on the Company's future financial statements will not
include a similar explanatory paragraph if the Company is unable to raise
sufficient funds or generate sufficient cash from operations to cover the cost
of its operations.
DEPENDENCE ON SINGLE PRODUCT LINE. Revenues from sales of the SVR GARDS family
of products have historically represented a substantial majority of the
Company's revenues. The life cycles of the Company's products are difficult to
predict due to the effect of new product introductions or product enhancements
by the Company or its competitors, market acceptance of new and enhanced
versions of the Company's products and competition in the Company's marketplace.
Declines in the demand for the SVR GARDS family of products, whether as a result
of competition, technological change, price reductions or otherwise, could have
a material adverse effect on the Company's business, operating results and
financial condition.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS. The EDA
industry is characterized by extremely rapid technological change, frequent new
product introductions and enhancements, evolving industry standards and rapidly
changing customer requirements. The development of more complex ICs embodying
new technologies will require increasingly sophisticated design tools. The
Company's future results of operations will depend, in part, upon its ability to
enhance its current products and to develop and introduce new products on a
timely and cost-effective basis that will keep pace with technological
developments and evolving industry standards and methodologies, as well as
address the increasingly sophisticated needs of the Company's customers. The
Company has in the past, and may in the future, experience delays in new product
development and product enhancements.
The Company has recently released significant upgrades to GARDS and SC.
Improvements were made to the Company's placement technology providing greater
completion utilization rates. Enhancements to the Company's ECO flow will
minimize the number of "design turns" needed to complete a design. Additional
engineering effort was invested in the refinement of the Company's delay
modeling and analysis capabilities. This includes the integration of 3D modeling
and extraction software, which the Company is offering through an OEM agreement
with OEA International, Inc. 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.
Page 12 of 21
<PAGE>
In addition, all of the Company's current products operate in, and planned
future products will operate in, the Unix operating system. In the event that
another operating system, such as Windows NT, were to achieve broad acceptance
in the EDA industry, the Company would be required to port its products to such
an operating system, which would be costly and time consuming and could have a
material adverse effect on the Company's business, operating results or
financial condition. Failure of the Company, for technological or other reasons,
to develop and introduce new products and product enhancements in a timely and
cost-effective manner would have a material and adverse effect on the Company's
business, operating results and financial condition. In addition, the
introduction, or even announcement of products by the Company or one or more of
its competitors embodying new technologies or changes in industry standards or
customer requirements could render the Company's existing products obsolete or
unmarketable. There can be no assurance that the introduction or announcement of
new product offerings by the Company, or one or more of its competitors, will
not cause customers to defer purchases of existing Company products. Such
deferment of purchases could have a material adverse effect on the Company's
business, operating results or financial condition.
Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has in the past discovered software defects in certain of its products
and may experience delays or lost revenue to correct such defects in the future.
Although the Company has not experienced material adverse effects resulting from
any such defects to date, there can be no assurance that, despite testing by the
Company, errors will not be found in new products or releases after commencement
of commercial shipments, resulting in loss of market share or failure to achieve
market acceptance. Any such occurrence could have a material effect upon the
Company's business, operating results or financial condition.
COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS; DISCLOSURE RELATING TO LOW-PRICED
STOCK. The Company's common stock is quoted on the Nasdaq National Market (the
"National Market"). However, in order to continue to be included in the
National Market, a company must meet certain maintenance criteria. The
maintenance criteria requires a minimum bid price of $1.00 per share (the
"Minimum Bid Price"), $4,000 in net tangible assets (total assets less total
liabilities and goodwill) (the "Required Net Tangible Assets") and $5,000
market value of the public float (excluding shares held directly or indirectly
by any officer or director of the Company and by any person holding
beneficially more than 10% of the Company's outstanding shares).
As of August 7, 1998, the closing bid price of a share of the Company's
common stock was $0.5313 and the Company's common stock had failed to maintain
the Minimum Bid Price. By letter dated June 26, 1998, The Nasdaq Stock Market,
Inc. ("Nasdaq") notified the Company that it will have ninety calendar days in
which to regain compliance with the Minimum Bid Price. The Company's common
stock needs to maintain the Minimum Bid Price for ten consecutive trading days
in order to be considered in compliance. If the Company is unable to
demonstrate compliance on or before the end of the period, Nasdaq may delist the
Company's securities from the National Market.
By letter dated July 24, 1998, Nasdaq notified the Company that it would be
delisted from the National Market because of its failure to maintain the
Required Net Tangible Assets. On July 29, 1998, the Company requested and
subsequently received approval for an oral hearing to appeal Nasdaq's decision.
The hearing date has not been set but is expected to take place in mid-September
1998. Nasdaq is expected to render its decision approximately 30 days after the
hearing.
Failure to meet these maintenance criteria may result in the delisting of
the Company's common stock from the National Market and the quotation of the
Company's common stock on the Nasdaq SmallCap Market (the "SmallCap Market"),
if the requirements for inclusion on the SmallCap Market are met. A company
must have $4,000 in net tangible assets or $50,000 market capitalization or
$750 net income in two of the last three years, a minimum bid price of $4.00
per share and a public float of $5,000 for inclusion in the SmallCap Market,
subject to certain exceptions. 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.
Page 13 of 21
<PAGE>
If the Company's common stock were delisted from trading on the National
Market and the SmallCap Market, an investor may find it more difficult to
dispose of, or to obtain accurate quotation as to the market value of, the
Company's common stock. If the trading price of the common stock was less that
$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 burden imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the common stock, which
could severely limit the market liquidity of the common stock and limit the
ability of the Company's stockholders to sell the common stock in the secondary
market.
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 fluctuation 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. The 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.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Numerous factors may
materially and unpredictably affect operating results of the Company, including
the uncertainties of the size and timing of software license fees, timing of co-
development projects with customers, timing of operating expenditures, increased
competition, new product announcements and releases by the Company and its
competitors, gain or loss of significant customers or distributors, expense
levels, renewal of maintenance contracts, pricing changes by the Company or its
competitors, personnel changes, foreign currency exchange rates, and economic
conditions generally and in the electronics industry specifically. Any
unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. Many of the
Company's customers order on an as-needed basis and often delay delivery of firm
purchase orders until their project commencement dates are determined, and, as a
result, the Company operates with no significant backlog. Quarterly revenue and
operating results will therefore depend on the volume and timing of orders
received during the quarter, which are difficult to forecast accurately.
Historically, the Company has often recognized a substantial portion of its
license revenues in the last month of the quarter, with these revenues
frequently concentrated in the last two weeks of the quarter. Operating results
would be disproportionately affected by a reduction in revenue because only a
small portion of the Company's expenses vary with its revenue. Operating
results in any period should not be considered indicative of the results to be
expected for any future period, and there can be no assurance that the Company's
revenues will increase or that the Company will achieve profitability.
LENGTHY SALES CYCLE. The licensing and sales of the Company's software products
generally involves a significant commitment of capital by prospective customers,
with the attendant delays frequently associated with large capital expenditures
and lengthy acceptance procedures. For these and other reasons, the sales cycle
associated with the licensing of the Company's products is typically lengthy and
subject to a number of significant risks over which the Company has little or no
control. Because the timing of customer orders is hard to predict, the Company
believes that its quarterly operating results are likely to vary significantly
in the future. Actual results of the Company could vary materially as a result
of a variety of factors, including, without limitation,
Page 14 of 21
<PAGE>
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.
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.
INTERNATIONAL SALES. International sales, primarily in Japan and Taiwan,
accounted for approximately 43%, 25%, 32% and 39% of the Company's total revenue
in fiscal 1996, 1997, 1998 and the first quarter of 1999, respectively.
Declining revenues from international sales were a result of the reduction in
capital expenditures by semiconductor manufacturers, particularly in Asia as a
result of the current financial crisis in that region, and increased competition
in the 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 ON CERTAIN CUSTOMERS AND RESELLERS. A small number of customers
account for a significant percentage of the Company's total revenue. In fiscal
1996, HAL Computer Systems, Inc., a subsidiary of Fujitsu Ltd. ("HAL"),
accounted for 16% and Motorola, Inc. and Yamaha Corporation each accounted for
11% of the Company's total revenue. In fiscal 1997, HAL accounted for 14%,
Lucent Technologies accounted for 19% and Motorola, Inc. accounted for 13% of
the Company's total revenue. In fiscal 1998, Motorola, Inc. accounted for 13%
and Aspec Technology accounted for 20% 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 and Taiwan, through a limited number of distributors. The Company
has a limited history of performance by its 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 an adverse effect on the Company's business.
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. James O. Benouis joined the Company in
March 1998 as its President and Chief Operating Officer. On August 4, 1998, Mr.
Benouis was appointed Chief Executive Officer of the Company. The Company's
ability to manage growth successfully will require its new management personnel
to work together effectively and will require the Company to improve its
operations, management and financial systems and controls. If the Company
Page 15 of 21
<PAGE>
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."
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 James O. Benouis, the
Company's President and Chief Executive Officer. The Company does not currently
have "key man" life insurance on Mr. Anderson, Mr. Benouis or any other members
of its senior management. The loss of services of Mr. Anderson, Mr. Benouis or
any other members of its senior management could have a material adverse effect
on the Company. See - "Management Transition." 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 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.
CONCENTRATION OF STOCK OWNERSHIP. The present directors, executive officers and
5% shareholders of the Company and their affiliates beneficially own
approximately 69.5% 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.
EFFECT OF CERTAIN CHARTER PROJECTIONS; BLANK CHECK PREFERRED STOCK. The
Company's Board of Directors has the authority to issue up to 1,000 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.
INFLATION. To date, inflation has not had a significant impact on the results
of the Company's operations.
RECENT ACCOUNTING PRONOUNCEMENTS. In October 1997 and March 1998, the American
Institute of Certified Public Accountants issued Statements of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2") and 98-4 "Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"),
which the Company is required to adopt for transactions entered into in the
fiscal year beginning April 1, 1998. SOP 97-2 and SOP 98-4 provide guidance on
recognizing revenue on software transactions and supersede SOP 91-1. The Company
believes that the adoption of SOP 97-2 and SOP 98-4 will not have a significant
impact on its current licensing or revenue recognition practices. However,
should the Company adopt new or change its existing licensing practices, the
Company's revenue recognition practices may be subject to change to comply with
the accounting guidance provided in SOP 97-2 and SOP 98-4.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("FAS 131"), "Disclosures About Segments of an Enterprise and Related
Information." This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has not yet determined the
impact, if any, of adopting this new standard. The disclosures prescribed by
FAS 131 will be effective for the Company's consolidated financial statements
for the year ending March 31, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for determining whether computer software is internal-use
software and on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The Company has not yet
determined the impact, if any, of adopting this statement. The disclosures
prescribed by SOP 98-1 will be effective for the year ending March 31, 2000
consolidated financial statements.
Page 16 of 21
<PAGE>
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards
for derivative instruments, embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The Company currently does not invest in derivative instruments.
YEAR 2000 ISSUE. The "Year 2000 Issue" arises because most computer systems and
programs were designed to handle only a two-digit year, as opposed to a four
digit year. When the year 2000 begins, these computers may interpret "00" as the
year 1900 and could either stop processing date-related computations or could
process them incorrectly. As customers and potential customers of the Company
begin to devote incremental resources to this issue, resources previously
allocated to other information systems requirements may be redirected to address
the Year 2000 issue. To the extent that the Company's products are not selected
as part of customers' overall Year 2000 solution, redirection of these customer
resources could have a material adverse effect on the Company's results of
operations and financial condition. In addition, the Year 2000 Issue creates
risk for the Company from unforeseen problems in its internal computer systems
and from third parties with which the Company interacts. Such failures of the
Company's and/or third parties' computer systems could have a material impact on
the Company's ability to conduct its business and to process and account for the
transfer of funds electronically.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
Page 17 of 21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
In January 1997, Gambit Automated Design, Inc. ("Gambit"), a competitor
of the Company, filed a complaint alleging misappropriation of trade
secrets, breach of contract, inducing breach of contract, breach of
fiduciary duty, unfair competition and unjust enrichment against the
Company and a former employee of Gambit who is a current employee of the
Company. Gambit sought injunctive relief, compensation and punitive
damages, restitution and attorneys' fees and costs. The parties have
reached an agreement in principle to resolve this litigation. Such
agreement is awaiting final documentation and does not call for the
payment of any monies by the Company.
Item 2. Changes in Securities and Use of Proceeds:
(c) Recent Sales of Unregistered Securities
On June 8, 1998, the Company completed a private placement of units
("Units") comprised of 2,377,909 shares of Common Stock and warrants
("Warrants") to purchase an additional 2,377,909 shares of Common
Stock at $0.37 per share for an aggregate of $2,045,000. The Units
were sold to 14 investors, including certain directors, executive
officers and 5% shareholders of the Company. The Warrants are
exercisable for a term of seven years and 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 issuance of the Units was deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Act")
in reliance on Section 4(2) of the Act and/or Regulation D promulgated
thereunder as a transaction by an issuer not involving a public
offering.
Item 3. Defaults Upon Senior Securities:
Not Applicable
Item 4. Submission of Matters to a Vote of Securities Holders:
Not Applicable
Item 5. Other Information:
Nasdaq letters
--------------
As of August 7, 1998, the closing bid price of a share of the Company's
common stock was $0.5313 and the Company's common stock had failed to
maintain the Minimum Bid Price. By letter dated June 26, 1998, The
Nasdaq Stock Market, Inc. ("Nasdaq") notified the Company that it will
have ninety calendar days in which to regain compliance with the Minimum
Bid Price. The Company's common stock needs to maintain the Minimum Bid
Price for ten consecutive trading days in order to be considered in
compliance. If the Company is unable to demonstrate compliance on or
before the end of the period, Nasdaq may delist the Company's securities
from the National Market.
By letter dated July 24, 1998, Nasdaq notified the Company that it would
be delisted from the National Market because of its failure to maintain
the Required Net Tangible Assets. On July 29, 1998, the Company
requested and subsequently received approval for an oral hearing to
appeal Nasdaq's decision. The hearing date has not been set but is
expected to take place in mid-September 1998. Nasdaq is expected to
render its decision approximately 30 days after the hearing.
Shareholder Proposals
---------------------
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange
Act of 1934, as amended, the Company's proxy for its 1999 Annual
Meeting of Shareholders may confer discretionary authority to vote on
any proposal submitted by a shareholder if written notice of such
proposal is not received at the Company's executive office on or
before June 16, 1999.
Page 18 of 21
<PAGE>
Item 6. Exhibits and Reports on Form 8-K:
(A) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
(a)(1) The financial statements filed as part of this Report at Item 1 are
listed in the Index to Financial Statements and Financial Statement
Schedules on page 2 of this Report.
(a)(2) The following exhibits are filed with this Quarterly Report on Form
10-Q:
3.01 Registrant's Articles of Incorporation as amended to date (incorporated
by reference to Exhibit 3.01 of Registrant's Registration Statement on
Form S-1 ( File No. 2-89943) filed March 14, 1984, as amended (the
"1984 Registration Statement")).
3.02 Registrant's amendment to Amended and Restated Articles of
Incorporation filed September 19, 1997 (incorporated by reference to
Exhibit 3.02 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
3.03 Registrant's bylaws, as amended to date (incorporated by reference to
Exhibit 4.01 of the 1984 Registration Statement).
3.05 Amendment to Bylaws dated November 12, 1996 (incorporated by reference
to Exhibit 3.04 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996).
4.01 Form of Unit Purchase Agreement dated May 29, 1998 among Silicon Valley
Research, Inc. and several investors.
4.02 Form of Warrant to Purchase the Company's Common Stock dated May 29,
1998 among Silicon Valley Research, Inc. and several investors.
27.00 Financial Data Schedule
*Management Contract or Compensatory Plan or Arrangement
(B) REPORTS ON FORM 8-K:
On Form 8-K and one Form 8-K/A were filed during the quarter covered by this
report:
One Current Report on Form 8-K was dated March 31, 1998 and filed on April 10,
1998. This reported the Company's acquisition of Quality I.C. Corporation.
One Current Report on Form 8-K/A was dated March 31, 1998 and filed on June 15,
1998. This report amended the report filed April 10, 1998 to include the
audited financial statements of Quality I.C. Corporation at the date of
acquisition and pro forma financial information required pursuant to Article 11
of Regulation S-X at the date of acquisition.
Page 19 of 21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICON VALLEY RESEARCH, INC.
Date: August 12, 1998 /s/ James O. Benouis
--------------- --------------------
James O. Benouis
President and
Chief Executive Officer
/s/ Laurence G. Colegate, Jr.
-----------------------------
Laurence G. Colegate, Jr.
Senior Vice President,
Finance and Administration
(Chief Financial and Accounting
Officer)
Page 20 of 21
<PAGE>
EXHIBIT 4.01
UNIT PURCHASE AGREEMENT
This Unit Purchase Agreement (the "Agreement") is made and entered
into as of May 29, 1998, by and among Silicon Valley Research, Inc., a
California corporation (the "Company"), and those parties listed on the
signature pages hereof as "Investors" (who are referred to individually as an
"Investor" and collectively as the "Investors").
WHEREAS, the Company requires additional cash to fund its current
operations and for working capital and, therefore, is offering to sell the Units
(as defined below) to investors who qualify as purchasers in a private placement
transaction under federal and state securities laws; and
WHEREAS, each of such investors will have the right to subscribe for
any or all of the Maximum Amount (as defined below) of the Units at the Unit
Purchase Price (as defined below), subject to pro ration as described herein.
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, on the Closing Date (as defined below) the number of
Units subscribed for by such Investor as set forth on such Investor's signature
page hereof (the "Subscription Amount"), subject to reduction as specified in
Section 1(b) hereof. A "Unit" shall be composed of a share of common stock
("Share"), no par value, of the Company ("Common Stock"), and a warrant (the
"Warrant") to purchase a share of Common Stock ("Warrant Share"). The purchase
price per Unit (the "Unit Purchase Price") shall be determined at the close of
business on May 27, 1998 (the "Pricing Date"), and shall be based upon the sum
of (i) a purchase price per Share (the "Share Purchase Price") equal to the
average of the closing bid and ask prices of the Common Stock on the Nasdaq
National Market (the "NNM") for the five consecutive trading days ending on the
Pricing Date and (ii) a purchase price per Warrant of $0.125. The exercise
price per Warrant Share (the "Exercise Price") shall be 50% of the Share
Purchase Price. A form of the Warrant is attached hereto as Exhibit A.
---------
(b) Allocation of Units. The Company shall sell up to a maximum of
-------------------
2,380,000 Units (the "Maximum Amount"). In the event that the aggregate of the
Subscription Amounts of all Investors (the "Aggregate Subscription Amount")
shall exceed the Maximum Amount, Units shall be allocated, pro rata, among the
Investors based on the relation that an
<PAGE>
Investor's Subscription Amount bears to the Aggregate Subscription Amount.
(c) Closing Notice. As soon as practicable following the close of the
--------------
NNM on the Pricing Date, but in no event later than 3:00 p.m. Pacific Time on
such Date, the Company shall give each Investor written notice of the total
payment due from such Investor at the Closing (as defined below) based upon the
number of Units allocated to such Investor hereunder at the Unit Purchase Price
as determined pursuant to Section 1(a). In addition, such notice shall specify
the Exercise Price per Warrant as determined pursuant to Section 1(a). Such
notice shall also contain computations as to the allocation of Units among
Investors based upon the Aggregate Subscription Amount pursuant to Section 1(b)
hereof and as to the Unit Purchase Price.
(d) Closing. The closing of the purchase and sale of the Units (the
-------
"Closing") shall take place on May 29, 1998 (the "Closing Date"); provided,
--------
however, that the Company shall have the option to extend the Closing Date for
- -------
up to fifteen (15) days. The Company shall provide the Investors with written
notice, prior to the close of business on May 27, 1998, of any such extension of
the Closing Date.
(e) Delivery. At the Closing, the Company will deliver to each
--------
Investor (or its agent, as hereinafter described) the Warrants and a stock
certificate representing the Shares included in the Units to be purchased by
such Investor, against payment of the purchase price therefor by check, payable
to the order of the Company, or by wire transfer of immediately available funds
to the bank account of the Company. For purposes of the Closing, the Company
shall deliver the Shares and Warrants included in the Units purchased hereunder
by each of the Investors to Gunderson Dettmer Stough Villeneuve Franklin and
Hachigian, LLP, as agent of the Investors, unless the Company shall receive
other written instructions from an Investor at least two (2) business days prior
to the Closing.
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 individual) is over eighteen (18) years of age, and such
Investor has full legal capacity, power and
<PAGE>
authority to enter into and be bound by this Agreement.
(b) Purchase for Own Account for Investment. Such Investor is
----------------------------------------
purchasing the Units (including, for this purpose, the Shares and the Warrants)
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); and (iv) the tax consequences of an 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) 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 currently registered
with the U.S. Securities and Exchange Commission (the "SEC") under the 1933 Act
or being qualified under the California Corporate Securities Law of 1968, as
amended (the "California Law"), but instead are being issued under an exemption
or exemptions from the registration and qualification requirements of the 1933
Act and the California Law or other applicable state securities laws which
impose
<PAGE>
certain restrictions on such Investor's ability to transfer the Shares and
Warrant Shares.
(g) 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 or 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.
(h) 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 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.
(i) 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 ANY OTHER STATE. 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
<PAGE>
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS UNLESS SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT.
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 (i) 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 that, except as set forth on the
Schedule of Exceptions attached hereto as Exhibit B:
---------
(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
<PAGE>
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(g) of this
Agreement (relating to registration rights) may be limited by law. The Shares
and the Warrant Shares when issued in compliance with the provisions of this
Agreement or the Warrants, as the case may be, will be duly authorized and
validly issued, fully paid, non-assessable and issued in compliance with federal
securities laws and all applicable state securities laws. The Warrants, when
issued in compliance with this Agreement, will be duly authorized and validly
issued. 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, 1997,
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 (the "Exchange Act"), since March
31, 1997 (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.
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
(the "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
-------------
<PAGE>
of the Company consists of 40,000,000 shares of Common Stock, without par value,
and 1,000,000 shares of Preferred Stock, without par value. As of May 1, 1998,
there were 23,812,204 shares of Common Stock issued and outstanding, and there
are no issued and outstanding shares of Preferred Stock. Except as set forth on
Schedule 1, there are no other outstanding rights, plans, options, warrants,
- ----------
conversion rights or agreements for the purchase, exercise or acquisition from
the Company of shares of its capital stock.
(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 material
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, 1997, there has
--------------------------
not been:
(i) any changes in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Company's Form 10Q for
the quarter ended December 31, 1997, 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
<PAGE>
(vi) any other event or condition of any character which has
materially and adversely affected the Company's business, assets,
liabilities, financial condition, 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, 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 any 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 on 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 being 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
<PAGE>
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 investigation 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.
(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 of 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
<PAGE>
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. The Common Stock has been designated for inclusion in the
------
NNM upon prior application. The issuance and sale of the Shares and the
Warrants, when issued and sold in accordance with this Agreement, and the
issuance and sale of the Warrant Shares when issued and sold in accordance with
the Warrants, will not violate any applicable rule of The Nasdaq Stock Market
("Nasdaq"), including, without limitation, Nasdaq Marketplace Rule 4460(i) which
requires shareholder approval prior to the issuance of designated securities.
(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 defined below) 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, or
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
<PAGE>
copies of all documents requested by the Investors.
(r) Anti-dilution Shares. Issuance of the Shares and the Warrants
--------------------
under this Agreement, and the issuance of the Warrant Shares under the Warrants,
will not trigger any anti-dilution, preemptive or similar rights contained in
any options, warrants or other agreements or commitments of the Company or
otherwise result in the issuance of any additional shares of Common Stock.
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 have
been assigned in accordance with this Agreement.
(b) Shelf Registration.
------------------
(i) Within six (6) months following the Closing Date, the Company will
file a registration statement or amend a currently effective registration
statement (in either event, 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 within six (6) months
following the Closing Date.
(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
<PAGE>
the selling Holder or Holders and counsel for the Company.
(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 determines
--------
that it may 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
each 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.
<PAGE>
(c) Piggyback Registrations.
-----------------------
(i) 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 after the
sixth (6th) month following the Closing Date 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 the sixth
(6th) month following the Closing Date 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.
(ii) 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 Agreement,
if the managing underwriter determines
<PAGE>
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 (5) 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,
retired partners and shareholders, 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.
(iii) 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
<PAGE>
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 with such
registration statement as may be necessary to comply with the provisions of
the 1933 Act with respect to the disposition of all Registrable 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 Registrable
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 of Registrable Securities 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
<PAGE>
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 underwriters
in an underwritten public offering and reasonably satisfactory to each of
the Holders requesting registration, addressed to the underwriters 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 and to the Holders requesting registration of Registrable
Securities.
(viii) Use its best efforts promptly to secure the designation and
quotation of all Registrable Securities covered by a registration statement
on the NNM (or such other principal market or exchange on which the Common
Stock is listed, or, if not so listed, to secure trading of the Common
Stock on the Nasdaq OTC Bulletin Board), including, without limitation, the
filing of any notification, application or other information and the
payment of any fees relating thereto.
(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
<PAGE>
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 (each,
an "Indemnified Person") against any losses, claims, damages or liabilities
(joint or several) to which an Indemnified Person 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 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 Indemnified 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
-------- -------
<PAGE>
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 prior written 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 Indemnified Person.
(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 or the Exchange
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners,
shareholders, directors, officers or shareholders or any person who
controls such Holder within the meaning of the 1933 Act or the Exchange Act
(each, an "Indemnified Party"), against any losses, claims, damages or
liabilities (joint or several) to which an Indemnified Party 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 and in conformity with 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
prior written 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 and commissions) 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
<PAGE>
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 under such registration statement by the Company and all
Holders.
(iii) Promptly after receipt by an Indemnified Person or an Indemnified
Party (the "Indemnitee") under this Section 4(g) of notice of the
commencement of any action (including any governmental action), such
Indemnitee 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 given notice, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an Indemnitee will
-------- -------
have the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if the indemnifying party fails to assume
the defense of an action within a reasonable time or if representation of
such Indemnitee by the counsel retained by the indemnifying party, in such
counsel's reasonable opinion, would be inappropriate due to actual or
potential differing interests between such Indemnitee 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 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.
<PAGE>
(v) If the indemnification provided for in Sections 4(g)(i) or
4(g)(ii) hereof shall be unavailable to hold harmless an Indemnitee in
respect of any liability under the 1933 Act, then, and in each such case,
the indemnifying party, in lieu of indemnifying such Indemnitee hereunder,
shall contribute to the amount paid or payable by such Indemnitee 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 Indemnitee 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 Indemnitee 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 Indemnitee and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission; provided that in no event shall any contribution under this
--------
subsection (v) by any Holder exceed the gross proceeds from the offering
received by such Holder. No person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(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, 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
<PAGE>
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 SEC 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 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 eight (8)
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
<PAGE>
obligations under (B) an opinion of counsel, based on factual representations of
the Holder, 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 he 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", 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 Dircetors 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 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 by Sections
<PAGE>
13d-3 and 13d-5 under the Exchange Act), of such person, shall become the
"beneficial owner" or beneficial owners" (as defined by Sections 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) 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 of
Common Stock sufficient to cover the exercise in full of the outstanding
Warrants until the expiration or earlier exercise of all Warrants.
(c) Nasdaq Requirements. The Company shall use its best effort to
-------------------
meet all requirements necessary for the inclusion of the Common Stock in the
NNM, including, without limitation, the quantitative maintenance criteria set
forth in Nasdaq Marketplace Rule 4450 (Quantitative Maintenance Criteria) and
Nasdaq Marketplace Rule 4460 (Quantitative Designation Criteria), as long as the
Company shall have an obligation to maintain the effectiveness of the
registration statement filed pursuant to Section 4(b).
(d) 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.
(e) Agreement Not to Exercise Warrants. The Company will not issue
----------------------------------
shares of Common Stock pursuant to the exercise of a warrant subject to an
Agreement not to Exercise Warrants (the "Lockup Agreement") so long as such
agreement is in effect.
<PAGE>
(f) 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 Warrants.
(g) 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 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.
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
<PAGE>
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 Right 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 LLP, counsel to the Company, an opinion addressed
to the Investors, dated the Closing Date, which shall relate to the valid
issuance of the Shares and the Warrant Shares and to the due authorization,
execution and delivery of the Warrants, in the form attached hereto as Exhibit
-------
C.
- -
7. Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to sell and issue the Units 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 each 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 conditions set forth in subsection (b)
--------------------
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
<PAGE>
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 an 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.
(d) Counterparts. This Agreement may be executed in two (2) 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 other 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
<PAGE>
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 set forth on the
signature page hereof 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 transmission 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) five (5) business
days after deposit in the United States mail by registered or certified mail,
postage prepaid, for United States deliveries. 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. 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.
(h) Amendments and Waivers. Except as otherwise specifically provided
----------------------
in this Agreement, no term of this Agreement may be amended and the observance
of any term of the Agreement may not be waived (either generally or in a
particular instance and either retroactively or prospectively) except (i) if
prior to the Closing, with the written consent of the Company and each Investor
and (ii) if after the Closing, with the consent of the Company and 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
assigns.
(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,
<PAGE>
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 and Hachigian, LLP, counsel to J.F. Shea Co.,
Inc., as agreed upon between the Company and Gunderson Dettmer Stough Villeneuve
Franklin and Hachigian, LLP, with respect to the negotiation, execution,
delivery and performance of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
TO BE COMPLETED INVESTOR
BY INVESTOR
Units Subscribed: _______ ________________________________________________
(Print Name of Individual or
or Entity)
- --
Dollar Amount Social Security or
Subscribed:______________ Tax I.D. Number:________________________________
By _____________________________________________
(Signature)
Name:
Title:
Address:________________________________________
________________________________________________
________________________________________________
________________________________________________
TO BE COMPLETED COMPANY
BY COMPANY
SILICON VALLEY RESEARCH, INC.
Units Issued: ____________
Unit Purchase Price: _____
Aggregate Purchase
Price: __________________ By______________________________________________
(Signature)
Name:
Title:
<PAGE>
EXHIBIT 4.02
FORM OF WARRANT
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 MAY 28, 2005
1. Warrant to Purchase Common Stock.
--------------------------------
(a) Warrant to Purchase Shares. This warrant (the "Warrant")
--------------------------
certifies that for good and valuable consideration duly received,
___________________ (the "Warrant Holder") is entitled, effective as of May 29,
1998, 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, no par value (the "Common Stock"), of the
Company (the "Shares") at the price of $____ per share (the "Exercise Price") at
any time or from time to time during the period commencing on the date hereof
until 5:00 p.m. Pacific Time on May 28, 2005 (the "Expiration Date"). This
Warrant 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.
(b) 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
<PAGE>
2
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.
(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(c); and in each such case, the terms of this Warrant shall be
applicable to the shares of stock or other
<PAGE>
3
securities or property receivable upon the exercise of this Warrant after such
consummation.
2. Manner of Exercise.
------------------
(a) 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: (i) 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 "Warrant Exercise Agreement"); (ii) if
applicable, a spousal consent in the form attached hereto as Exhibit B; and
---------
(iii) 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.
(b) Limitations on Exercise. This Warrant may not be exercised for
-----------------------
fewer than 1,000 Shares unless it is exercised for all Shares as to which this
Warrant is then exercisable.
(c) Payment. The Warrant 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"
<PAGE>
4
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:
1) 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 11 below) for such Shares immediately prior to the
exercise of this Warrant), by
2) the Fair Market Value of one (1) Share immediately prior to
exercise; or
(E) by any combination of the foregoing.
(d) Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Warrant, the Warrant Holder must pay or provide for any
applicable federal or state withholding obligations of the Company.
(e) 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.
<PAGE>
5
3. 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. 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 a 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.
5. Registration Rights. The shares issued 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.
6. 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.
<PAGE>
6
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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
<PAGE>
7
Nasdaq National Market or the Nasdaq SmallCap Market, its last reported
sale price on the Nasdaq National Market or the Nasdaq SmallCap 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 or the Nasdaq SmallCap 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.
<PAGE>
8
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 May 29, 1998.
SILICON VALLEY RESEARCH, WARRANT HOLDER
INC.
______________________________
By:______________________ ______________________________
(Signature)
__________________________ _______________________________
(Please print name and title) (Please print name and title)
Address: Address:
6360 San Ignacio Avenue _____________________________
San Jose, CA 95119 _____________________________
_____________________________
_____________________________
[Signature page to Silicon Valley Research, Inc. Warrant to purchase Common
Stock]
<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:_____________________ Warrant Date:_______________________
Social Security or Date of Exercise:___________________
Federal Tax I.D. No.:_______________ Exercise Price Per Share:___________
Address:____________________________ Number of Shares Purchased:_________
____________________________________ Total Exercise Price:_______________
____________________________________
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
or 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;
------------
or
[ ] by "Net Exercise".
Broker Name: _______________________ Brokerage Firm: _________________________
<PAGE>
A-2
The Warrant Holder hereby confirms, represents and warrants the
following:
(a) Purchase for Own Account for Investment. Such Warrant Holder is
----------------------------------------
purchasing the Shares for investment purposes only and not with a view to, or
for sale in connection with, a distribution of the Shares within the meaning of
the Securities Act of 1933, as amended (the "1933 Act"). Such Warrant Holder
has no present intention of selling or otherwise disposing of all or any portion
of the Shares.
(b) Access to Information. Such Warrant Holder 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 Warrant Holder reasonably considers important in making the decision
to purchase the Shares. 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 Warrant Holder to rely thereon.
(c) Understanding of Risks. Such Warrant Holder is fully aware of:
----------------------
(i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on the transferability of the Shares (e.g., that such Warrant
----
Holder may not be able to sell or dispose of the Shares); and (iv) the tax
consequences of an investment in the Shares. 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 Warrant Holder to rely thereon.
(d) Warrant Holder's Qualifications. Such Warrant Holder is an
-------------------------------
"accredited" investor as defined under Regulation D under the 1933 Act. Such
Warrant Holder is aware of the general business and financial circumstances of
the Company and, by reason of such Warrant Holder's business or financial
experience, such Warrant Holder is capable of evaluating the merits and risks of
this investment and is financially capable of bearing a total loss of this
investment.
(e) Compliance with Securities Laws. Such Warrant Holder understands
-------------------------------
and acknowledges that, in reliance upon the representations and warranties made
by such Warrant Holder herein, the Shares are not currently registered with the
U.S. Securities and Exchange Commission (the "SEC") under the 1933 Act or being
qualified under the California
<PAGE>
A-3
Corporate Securities Law of 1968, as amended (the "California Law"), but instead
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the California Law or other
applicable state securities laws which impose certain restrictions on such
Warrant Holder's ability to transfer the Shares and Warrant Shares.
(f) Restrictions on Transfer. Such Warrant Holder understands that
------------------------
such Warrant Holder may not transfer any of the Shares unless such Shares are
registered under the 1933 Act or unless, in the opinion of counsel to the
Company, exemptions from such registration and qualification requirements are
available. Such Warrant Holder understands that only the Company may file a
registration statement with the SEC. Such Warrant Holder has also been advised
that exemptions from registration and qualification may not be available or may
not permit such Warrant Holder to transfer all or any of the Shares in the
amounts or at the times proposed by such Warrant Holder.
(g) Rule 144. In addition, such Warrant Holder 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 solely due to the holding periods required thereunder and,
in any event, requires that the Shares be held for a minimum of one year after
they have been purchased and paid for (within the meaning of Rule 144), before
they may be resold under Rule 144. Such Warrant Holder understands that Rule
144 may indefinitely restrict transfer of the Shares if such Warrant Holder is
an "affiliate" of the Company and "current public information" about the Company
(as defined in Rule 144) is not publicly available.
(h) Legends and Stop-Transfer Orders. Such Warrant Holder understands
--------------------------------
that certificates or other instruments representing any of the Shares acquired
by such Warrant Holder 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 ANY OTHER STATE. 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
<PAGE>
A-4
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.
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 (i) 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.
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. THE 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
<PAGE>
ATTACHMENT 1
------------
SAME-DAY-SALE COMMITMENT
Date:_____________
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 and Title) (Signature)
_____________________________
(Printed Name)
______________________________
(Title)
<PAGE>
ATTACHMENT 2
------------
MARGIN COMMITMENT
Date:_____________
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 Margin 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 and Title) (Signature)
______________________________
(Printed Name)
______________________________
(Title)
<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:______________________
______________________________
______________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,383
<SECURITIES> 0
<RECEIVABLES> 708
<ALLOWANCES> 150
<INVENTORY> 0
<CURRENT-ASSETS> 3,092
<PP&E> 3,061
<DEPRECIATION> 2,460
<TOTAL-ASSETS> 5,611
<CURRENT-LIABILITIES> 2,339
<BONDS> 0
0
0
<COMMON> 43,922
<OTHER-SE> (40,909)
<TOTAL-LIABILITY-AND-EQUITY> 5,611
<SALES> 225
<TOTAL-REVENUES> 593
<CGS> 70
<TOTAL-COSTS> 1,716
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> (1,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,563)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
