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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 December 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________to________
COMMISSION FILE NO. 0-13836
SILICON VALLEY RESEARCH, INC.
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(Exact name of registrant as specified in its charter)
California 94-2743735
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6360 San Ignacio Avenue San Jose, CA 95119-1231
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(Address of principal executive offices) (Zip Code)
(408) 361-0333
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Registrant's telephone number, including area code
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(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 December 31, 1997: 20,601,673
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
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Part I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1997 (unaudited) 3
Consolidated Statements of Operations -
Three and Nine Months Ended December 31, 1996 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 1996 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-13
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
Part II. OTHER INFORMATION 14
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 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1997
-------------- -----------------
<S> <C> <C>
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 2,064 $ 3,159
Accounts receivable, net of allowances of
$150 in each period 1,129 549
Prepaid expenses and other current assets 453 249
-------- --------
3,646 3,957
Fixed assets, net 879 641
Other assets, net 3,952 2,136
-------- --------
$ 8,477 $ 6,734
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ -- $ 285
Current portion of long-term debt 189 211
Accounts payable 515 234
Accrued expenses 1,443 988
Deferred revenue 1,018 698
-------- --------
3,165 2,416
Long-term debt, less current portion 254 179
-------- --------
3,419 2,595
-------- --------
Contingencies (Note 6)
Shareholders' Equity:
Preferred stock, no par value:
Authorized: 1,000 shares
Issued and outstanding: none -- --
Common stock, no par value:
Authorized: 40,000 shares
Issued and outstanding:
12,227 shares at March 31, 1997
and 20,602 shares at December 31, 1997 32,375 39,093
Accumulated deficit (27,308) (35,001)
Cumulative translation adjustment (9) 47
-------- --------
5,058 4,139
-------- --------
$ 8,477 $ 6,734
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------- -----------------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
License fees and other $ 616 $ 131 $ 2,380 $ 860
Maintenance fees 649 421 2,050 1,389
-------- -------- -------- --------
Total revenue 1,265 552 4,430 2,249
-------- -------- -------- --------
Cost of revenue:
License fees and other 522 255 819 1,785
Maintenance fees 144 151 380 412
-------- -------- -------- --------
Total cost of revenue 666 406 1,199 2,197
-------- -------- -------- --------
Gross profit 599 146 3,231 52
-------- -------- -------- --------
Operating expenses:
Engineering, research and development 1,193 934 2,705 2,711
Selling and marketing 1,498 728 4,714 3,001
General and administrative 2,845 253 3,948 833
Impairment loss on prepaid royalty (Note 6) -- -- -- 1,217
-------- -------- -------- --------
Total operating expenses 5,536 1,915 11,367 7,762
-------- -------- -------- --------
Operating loss (4,937) (1,769) (8,136) (7,710)
-------- -------- -------- --------
Other income (expense):
Interest income 52 16 251 121
Interest expense (8) (13) (24) (25)
Other, net -- (119) 2 (79)
-------- -------- -------- --------
Total other income (expense) 44 (116) 229 17
-------- -------- -------- --------
Loss before provision for
income taxes (4,893) (1,885) (7,907) (7,693)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss $ (4,893) $ (1,885) $ (7,907) $ (7,693)
======== ======== ======== ========
Net loss per basic share and diluted share $ (0.42) $ (0.11) $ (0.69) $ (0.47)
======== ======== ======== ========
Shares used in per share calculation 11,520 16,868 11,473 16,537
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
-----------------------------
1996 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (7,907) $ (7,693)
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 433 1,358
Depreciation and amortization 636 732
Provision for doubtful accounts 546 --
Changes in assets and liabilities, net:
Accounts receivable 2,357 580
Prepaid expenses and other current assets (252) 204
Accounts payable (95) (281)
Accrued expenses 1,477 (455)
Deferred revenue (583) (320)
Other, net (1,463) 213
-------- --------
Net cash used in operating activities (4,851) (4,445)
-------- --------
Cash Flows from Investing Activities:
Acquisition of fixed assets (577) (45)
Capitalization of software development costs and
purchase of software licenses (1,787) (1,421)
-------- --------
Net cash used in investing activities (2,364) (1,466)
-------- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt (35) (108)
Advances on credit lines -- 340
Proceeds from issuance of common stock 369 6,718
-------- --------
Net cash provided by financing activities 334 6,950
-------- --------
Effect of exchange rate changes on cash 22 56
-------- --------
Net increase (decrease) in cash and
cash equivalents (6,859) 1,095
Cash and cash equivalents at beginning
of period 10,238 2,064
-------- --------
Cash and cash equivalents at end
of period $ 3,379 $ 3,159
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997- UNAUDITED
(IN THOUSANDS, EXCEPT FOR SHARE PRICE)
NOTE 1: BASIS OF PRESENTATION AND FINANCIAL STATEMENT INFORMATION
The accompanying consolidated financial statements have been prepared by
the Company, pursuant to the rules and regulations of the Securities and
Exchange Commission for interim financial statements. Therefore, they do not
include all the disclosures which were presented in the Company's Annual Report
on Form 10-K. These financial statements do not include all disclosures required
by generally accepted accounting principles and accordingly, should be read in
conjunction with the consolidated financial statements and notes included as
part of the Company's latest Annual Report on Form 10-K.
In the opinion of management, the consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the consolidated financial position, results of
operations and cash flows for the interim period. The results of operations
presented are not necessarily indicative of the results to be expected for the
full year or for any other period.
The report of Price Waterhouse LLP on the Company's fiscal 1997
consolidated financial statements was amended on September 17, 1997 to add an
explanatory paragraph regarding the Company's ability to continue as a going
concern. There can be no assurance that the Company will not continue to incur
significant operating losses or that required additional financing will be
available to meet the Company's business plans in fiscal 1998 and beyond.
In February 1997, the Company restated its unaudited consolidated
financial statements for the quarters ended June 30, 1996 and September 30, 1996
to reverse certain transactions and related expenses which were recognized other
than in accordance with the Company's accounting policies. The financial
statements for the three and nine months ended December 31, 1996 include the
effect of the restatement referred to above.
NOTE 2: EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
128), which the Company adopted for the third quarter of fiscal 1998. As
required by the statement, all prior period earnings per share (EPS) amounts
presented have been restated to conform with the provisions of SFAS 128. Under
SFAS 128, the Company presents two EPS amounts. Basic EPS is calculated based on
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 because to do so would have been
antidilutive for the periods presented.
NOTE 3: STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
December 31
-------------------
1996 1997
---- ----
<S> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $24 $25
Income taxes 13 --
</TABLE>
6
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1997- UNAUDITED
(IN THOUSANDS, EXCEPT FOR SHARE PRICE)
NOTE 4: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1997
------------ ------------
<S> <C> <C>
Other Assets:
Software development costs $ 2,163 $ 1,799
Software licenses 2,388 3,138
------------ ------------
4,551 4,937
Less accumulated amortization (2,425) (3,198)
------------ ------------
2,126 1,739
Prepaid royalties, net 1,592 192
Other 234 205
------------ ------------
$ 3,952 $ 2,136
============ ============
Accrued Expenses:
Payroll and related costs $ 434 $ 432
Taxes payable 108 106
Other 901 450
------------ ------------
$ 1,443 $ 988
============ ============
</TABLE>
NOTE 5: BANK LINE OF CREDIT
In June 1997, the Company entered into an additional line of credit
with its bank. The revolving line of credit will provide for borrowings up to
$2,000 with available borrowings limited to certain percentages of eligible
accounts receivable. Interest at prime plus one percent will be due monthly with
principal due in one year. As of December 31, 1997, $285 has been borrowed under
the line of credit.
NOTE 6: 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, 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.
In June 1996, the Company entered into an agreement whereby the Company
was granted the exclusive marketing rights to Bell Labs' CLOVER line of deep
submicron verification products worldwide, with the exception of Japan and
Taiwan, where the Company would co-market with Bell Labs' existing distributors.
Pursuant to the four year agreement, the Company made prepaid royalty payments
of $1,750. The agreement also provided for future prepaid royalty payments of:
$1,250 in fiscal 1998 and $1,000 in fiscal 1999. Despite active marketing
efforts, the product had limited success due to product issues and to strong
competitive factors. The Company recognized an impairment loss on the balance of
unamortized prepaid royalties totaling $1,217 during the nine months ended
December 31, 1997. In July and August 1997, both parties sent notices of
termination, alleging breach of the agreement by the other party. In December
1997, the dispute was resolved when the parties entered into a Settlement
Agreement and Mutual Release.
NOTE 7: CAPITAL STOCK-PRIVATE PLACEMENT
On December 30, 1997, the Company completed a private placement of
Units comprising 3,812 shares of Common Stock and warrants to purchase an
additional 3,812 shares of Common Stock at $0.53 per share, with proceeds to the
Company of $2,820. The shares of Common Stock are unregistered. The Company will
file a registration statement with the Securities and Exchange Commission on or
before February 28, 1998 to register these shares pursuant to the terms of the
private placement agreement. One director and one officer/director participated
in the private placement.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current view with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed in the Other Factors Affecting Future Results section
of this Item 2, elsewhere in this Form 10-Q and as set forth in the Company's
form 10-K on file with the SEC that could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words "anticipates," "believes," "expects," "intends," "future," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
RESULTS OF OPERATIONS
REVENUE
Total revenue for the third quarter of fiscal year 1998, which ended
December 31, 1997, was $552, a decrease from $1,265 in the third quarter a year
ago. The 56% decrease in revenues was due to lower license and maintenance
revenue during the third quarter, primarily resulting from a reduction in
capital investment by semiconductor manufacturers and increased competition.
Total revenue for the nine month period ended December 31, 1997 decreased to
$2,249 from $4,430 over the nine month period ended December 31, 1996. The 49%
decrease is primarily due to weakened demand based on a delay in capital
investment by semiconductor manufacturers caused, in part, by the current
financial crisis in Asia, increased competition and the timing of renewals of
maintenance contracts. International sales, primarily in Japan and the Far East,
accounted for 31% of total revenue for the nine month period ended December 31,
1997 compared to 22% in the same period 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 nine months ended December 31, 1997, operating results
may be materially and adversely affected. In addition, the Company's quarterly
and annual results may fluctuate as a result of many factors, including the size
and timing of software license fees, timing of co-development projects with
customers, timing of operating expenditures, increased competition, new product
announcements and releases by the Company and its competitors, gain or loss of
significant customers or distributors, expense levels, renewal of maintenance
contracts, pricing changes by the Company or its competitors, personnel changes,
foreign currency exchange rates, and economic conditions generally and in the
electronics industry specifically.
COST OF REVENUE
Cost of license fees and other revenue for the third quarter of fiscal
year 1998 was $255, compared to $522 in the third quarter of fiscal 1997. Cost
of license fees for the nine months ended December 31, 1997 was $1,785, compared
to $819 in the nine months ended December 31, 1996. Cost of license fees is
primarily the amortization of software development costs and amortization of
prepaid royalty payments to third parties. As a result of the significant
reduction in revenue and due to the Company's expanded product development
program, the Company wrote-off $1,036 of unamortized software development costs
in the nine months ended December 31, 1997.
Cost of maintenance fees for the third quarter of fiscal year 1998 was
$151 compared to $144 in the third quarter of fiscal 1997. Cost of maintenance
fees for the nine months ended December 31, 1997 was $412 compared to $380 in
the nine months ended December 31, 1996. Cost of maintenance fees is primarily
the cost of providing technical support and technical documentation.
8
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ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
Engineering, research and development expenses for the third quarter of
fiscal year 1998 were $934 compared to $1,193 in the third quarter a year ago.
Comparing the third quarter of fiscal 1998 and the third quarter of fiscal 1997,
engineering, research and development expenses were 169% and 94% of total
revenue, respectively. Engineering, research and development expenses for the
nine months ended December 31, 1997 were $2,711 compared to $2,705 for the nine
months ended December 31, 1996. Comparing these periods, engineering, research
and development expenses were 121% and 61% of total revenue, respectively.
Engineering, research and development expenses were lower in the third quarter
of fiscal 1998 due to the capitalization of software development costs per the
Company's policy of capitalizing costs relating to significant enhancements of
the Company's products which occured during the quarter ended December 31, 1997.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses for the third quarter of fiscal year
1998 decreased to $728 from $1,498 in the third quarter a year ago. In the third
quarter of fiscal 1998 and the third quarter of fiscal 1997, selling and
marketing expenses were 132% and 118% of total revenue, respectively. Selling
and marketing expenses for the nine months ended December 31, 1997 decreased to
$3,001 from $4,714 in the nine months ended December 31, 1996. Comparing the
nine month periods, selling and marketing expenses were 133% and 106% of total
revenue, respectively. The dollar decrease is due to the effects of the
Company's cost-cutting measures and lower commissions resulting from reduced
revenue during the nine months ended December 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased to $253 for the third
quarter of fiscal year 1998 from $2,845 in the third quarter a year ago. In the
third quarter of fiscal 1998 and the third quarter of fiscal 1997, general and
administrative expenses were 46% and 225% of total revenue, respectively.
General and administrative expenses for the nine months ended December 31, 1997
decreased to $833 from $3,948 in the nine months ended December 31, 1996.
Comparing the nine month periods, general and administrative expenses were 37%
and 89% of total revenue, respectively. The third fiscal quarter of the prior
year included approximately $2,400 of significant nonrecurring charges
associated with severance arrangements, litigation accruals, legal fees and
accounting fees. In addition, general and administrative expenses have decreased
due to streamlining the organization, lower relocation expenses, lower
consulting and legal expenses and cost-cutting measures instituted by
management.
IMPAIRMENT LOSS ON PREPAID ROYALTY
In June 1996, the Company entered into an agreement whereby the Company
was granted the exclusive marketing rights to Bell Labs' CLOVER line of deep
submicron verification products worldwide, with the exception of Japan and
Taiwan. Pursuant to the four year agreement, the Company has made prepaid
royalty payments of $1,750. Despite active marketing efforts, the product had
limited success due to product issues and to strong competitive factors.
Accordingly, the Company ceased sales of the product line in July 1997.
Provision was made in the accompanying financial statements for the nine months
ended December 31, 1997 to expense the full amount of unamortized prepaid
royalty of $1,217, the future value of which was considered impaired.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through sales of equity securities and to a lesser extent, cash generated from
operations. To date in fiscal 1998, the Company has received net cash of $6,718
from the private placement of equity securities ("financing activities"). During
the nine months ended December 31, 1997, cash and cash equivalents increased
$1,095 from $2,064 to $3,159. This increase resulted from cash provided by
financing activities of $6,950 less cash used by operations of $4,445 and $1,466
of cash used for investing activities.
9
<PAGE> 10
The Company incurred a significant loss in the first nine months of
fiscal 1998 and expects operating losses to continue, at least in the near term,
as it expands its product development and marketing capabilities. The
achievement of profitability is primarily dependent upon the continued
development and commercial acceptance of the Company's products, the successful
management of the business and management's ability to strategically focus the
Company. There can be no assurance as to whether or when achievement of
profitable operations will occur. In addition, the Company is experiencing
negative cash flow from operations and it is expected that it will continue to
experience negative cash flow at least through 1998.
The Company's primary unused sources of funds at December 31, 1997
consisted of cash and cash equivalents of $3,159 and an available line of credit
of $1,715 from its bank, limited to certain percentages of eligible accounts
receivable. The Company believes its cash and cash generated from operations and
available borrowings may not be sufficient to finance its operations through
1998. Management is exploring financing alternatives to supplement the Company's
cash position. Potential sources of additional financing include private equity
financings, mergers, strategic investments, strategic partnerships or various
forms of debt financings. The Company has no commitments or arrangements to
obtain any additional funding and there can be no assurance that the required
financing of the Company will be available on acceptable terms, if at all. The
unavailability or timing of any financing could prevent or delay the continued
development and marketing of the products of the Company and could require
substantial curtailment of operations of the Company.
The report of Price Waterhouse LLP on the Company's fiscal 1997
consolidated financial statements was amended on September 17, 1997 to add an
explanatory paragraph regarding the Company's ability to continue as a going
concern. There can be no assurance that the Company will not continue to incur
significant operating losses or that required additional financing will be
available to meet the Company's business plans in fiscal 1998 and beyond.
OTHER FACTORS AFFECTING FUTURE RESULTS
DEPENDENCE ON SINGLE PRODUCT LINE. Revenues from sales of the SVR GARDS family
of products have historically represented a substantial majority of the
Company's revenues. Although the Company has introduced its SVR SonIC family of
products, the Company expects that revenues from the sale of SVR GARDS products
will continue to account for at least a significant portion of the Company's
revenues for the foreseeable future. The life cycles of the Company's products
are difficult to predict due to the effect of new product introductions or
product enhancements by the Company or its competitors, market acceptance of new
and enhanced versions of the Company's products and competition in the Company's
marketplace. Declines in the demand for the SVR GARDS family of products,
whether as a result of competition, technological change, price reductions or
otherwise, could have a material adverse effect on the Company's business,
operating results and financial condition.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS. The EDA
industry is characterized by extremely rapid technological change, frequent new
product introductions and enhancements, evolving industry standards and rapidly
changing customer requirements. The development of more complex ICs embodying
new technologies will require increasingly sophisticated design tools. The
Company's future results of operations will depend, in part, upon its ability to
enhance its current products and to develop and introduce new products on a
timely and cost-effective basis that will keep pace with technological
developments and evolving industry standards and methodologies, as well as
address the increasingly sophisticated needs of the Company's customers. The
Company has in the past, and may in the future, experience delays in new product
development and product enhancements.
The Company has recently released significant upgrades to GARDS to
provide a new Power Router, to SonIC to provide a new placer and new routing
capabilities, and to SC to provide a rewritten Global Router and fast new
placement. There can be no assurance that these new products will gain market
acceptance or that the Company will be successful in developing and marketing
product enhancements or other new products that respond to technological change,
evolving industry standards and changing customer requirements, that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products or product
enhancements, or that its new products and product enhancements will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance.
10
<PAGE> 11
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. Continued inclusion
requires, among other things, a minimum bid price of $1.00 per share or, in the
alternative, a public market float of a least $3,000 and net tangible assets of
at least $4,000. Effective February 23, 1998, the maintenance criteria will be
increased, requiring a minimum bid price of $1.00 per share, and $4,000 in net
tangible assets (total assets less total liabilities and goodwill) and $5,000
market value of the public float (excluding shares held directly or indirectly
by any officer or director of the Company and by any person holding beneficially
more than 10% of the Company's outstanding shares).
As of December 31, 1997, the closing sales price of a share of the
Company's Common Stock was $0.6563. By letter dated November 17, 1997, The
Nasdaq Stock Market, Inc. ("Nasdaq") informed the Company that the Company's
Common Stock had failed to maintain a closing bid price greater than or equal to
$1.00 during the last ten consecutive trading dates. The letter stated that the
Company will be provided ninety calendar days in which to regain compliance with
the minimum bid price or an alternative requirement (Market value of a public
float of at least $3,000 and net tangible assets of at least $4,000). If at any
time during the ninety day period, the Common Stock reports a closing bid price
of $1.00 or greater for ten consecutive trading days, the Company will have
complied with the minimum bid price requirement. If the Company is unable to
demonstrate compliance on or before the end of the period, it must submit
proposals for achieving compliance. Should the Company fail to submit the
necessary information in such time frame, or if the submission is deemed not to
warrant continued listing, Nasdaq will immediately issue a formal notice of
deficiency which will specify the delisting date of the Company's securities. On
the basis of all information available, Nasdaq staff will determine whether or
not the Company may continue to be listed on the Nasdaq National Market.
Failure to meet these maintenance criteria in the past and future may
result in the delisting of the Company's Common Stock from the National Market
and the quotation of the Company's Common Stock on the Nasdaq SmallCap Market
(the "SmallCap Market"), if the requirements for inclusion on the SmallCap
Market are met. As a result of quotation on the SmallCap Market, an investor may
find it more difficult to dispose of the Company's Common Stock. Effective
February 1998, a company must have $4,000 in net tangible assets or $50,000
market capitalization or $750 net income in two of the last three years, a
minimum bid price of $4.00 per share and a public float of $5,000 for inclusion
in the SmallCap Market, subject to certain exception. Failure to meet the
SmallCap Market inclusion criteria, or the failure to meet the SmallCap Market
maintenance criteria if the initial SmallCap Market inclusion criteria are met,
may result in the delisting of the Company's Common Stock from Nasdaq. Trading,
if any, in the Company's Common Stock would thereafter be conducted in the
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<PAGE> 12
non-Nasdaq over-the-counter market. As a result of such delisting, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Company's Common Stock.
In addition, if the Company's Common Stock were delisted from trading
on Nasdaq and the trading price of the Common Stock was less than $5.00 per
share, trading in the Common Stock would also be subject to certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stock to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burden imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Common Stock, which could
severely limit the market liquidity of the Common Stock and limit the ability of
sellers to sell the Common Stock in the secondary market.
By letter dated December 2, 1997, Nasdaq informed the Company that
based upon a review of the Company's most recently filed financial statements
and market data, the Company may not meet the new requirements with respect to
net tangible assets and minimum bid price for continued listing on The National
Market, which will become effective on February 23, 1998.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Numerous factors may
materially and unpredictably affect operating results of the Company, including
the uncertainties of the size and timing of software license fees, timing of
co-development projects with customers, timing of operating expenditures,
increased competition, new product announcements and releases by the Company and
its competitors, gain or loss of significant customers or distributors, expense
levels, renewal of maintenance contracts, pricing changes by the Company or its
competitors, personnel changes, foreign currency exchange rates, and economic
conditions generally and in the electronics industry specifically. Any
unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. Many of the
Company's customers order on an as-needed basis and often delay delivery of firm
purchase orders until their project commencement dates are determined, and, as a
result, the Company operates with no significant backlog. Quarterly revenue and
operating results will therefore depend on the volume and timing of orders
received during the quarter, which are difficult to forecast accurately.
Historically, the Company has often recognized a substantial portion of its
license revenues in the last month of the quarter, with these revenues
frequently concentrated in the last two weeks of the quarter. Operating results
would be disproportionately affected by a reduction in revenue because only a
small portion of the Company's expenses vary with its revenue. Operating results
in any period should not be considered indicative of the results to be expected
for any future period, and there can be no assurance that the Company's revenues
will increase or that the Company will achieve profitability.
LENGTHY SALES CYCLE. The licensing and sales of the Company's software products
generally involves a significant commitment of capital by prospective customers,
with the attendant delays frequently associated with large capital expenditures
and lengthy acceptance procedures. For these and other reasons, the sales cycle
associated with the licensing of the Company's products is typically lengthy and
subject to a number of significant risks over which the Company has little or no
control. Because the timing of customer orders is hard to predict, the Company
believes that its quarterly operating results are likely to vary significantly
in the future. Actual results of the Company could vary materially as a result
of a variety of factors, including, without limitation, the high average selling
price and long sales cycle for the Company's products, the relatively small
number of orders per quarter, dependence on sales to a limited number of large
customers, timing of receipt of orders, successful product introduction and
acceptance of the Company's products and increased competition.
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
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<PAGE> 13
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, Korea and Taiwan,
accounted for approximately 52%, 43%, 25% and 31% of the Company's total revenue
in fiscal 1995, 1996, 1997 and the first nine months of fiscal 1998,
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 electronic design automation (EDA) software market.
The Company expects that international sales will continue to account for a
significant portion of its revenue and plans to continue to expand its
international sales and distribution channels. This revenue involves a number of
inherent risks, including economic downturn in the electronics industry in Asia,
traditionally slower adoption of the Company's products internationally, general
strikes or other disruptions in working conditions, generally longer receivables
collection periods, unexpected changes in or impositions of legislative or
regulatory requirements, reduced protection for intellectual property rights in
some countries, potentially adverse taxes, delays resulting from difficulty in
obtaining export licenses for certain technology and other trade barriers. There
can be no assurance that such factors will not have a material adverse effect on
the Company's future international sales and, consequently, on the Company's
results of operations. Sales orders received by foreign sales subsidiaries are
primarily denominated in currencies other than the U.S. dollar. In order to
reduce the risk of loss between the time the Company's products are purchased by
subsidiaries and the time payment is made, the subsidiaries enter into foreign
exchange contracts when economically feasible.
COMPETITION. The EDA software market in which the Company competes is intensely
competitive and subject to rapid technological change. The Company currently
faces competition from EDA vendors, including Cadence Design Systems, Inc.
("Cadence"), which currently holds the dominant share of the market for IC
physical design software, Avant! Corporation and Mentor Graphics. These EDA
vendors have significantly greater financial, technical and marketing resources,
greater name recognition and, in some cases, a larger installed customer base
than the Company. These companies also have established relationships with
current and potential customers of the Company and can devote substantial
resources aimed at preventing the Company from enhancing relationships with
existing customers or establishing relationships with potential customers. The
Company believes that competitive factors in the EDA software market include
product performance, price, support of industry standards, ease of use, delivery
schedule, product enhancements, and customer technical support and service. The
Company believes that, with respect to ease of use, the Company's products may
not be perceived as competing favorably.
Competition from EDA companies that choose to enter the IC physical
design market could present particularly formidable competition due to their
large installed customer base and their ability to offer a complete integrated
IC design solution, which the Company does not offer. The Company expects
additional competition from other established and emerging companies. In
addition, the EDA industry has become increasingly concentrated in recent years
as a result of consolidations, acquisitions and strategic alliances.
Accordingly, it is possible that new competitors or alliances among competitors
could emerge and rapidly acquire significant market share. There can be no
assurance the Company will be able to compete successfully against current and
future competitors or that competitive pressures faced by the Company will not
have a material adverse effect on its business, operating results and financial
condition.
MANAGEMENT TRANSITION. The Company is experiencing a period of management
transition that has placed, and may continue to place, a significant strain on
its resources, including its personnel. Robert R. Anderson resumed the role of
Chief Executive Officer in December 1996 and has assembled a new senior
management team. The Company's ability to manage growth successfully will
require its new management personnel to work together effectively and will
require the Company to improve its operations, management and financial systems
and controls. If the Company management is unable to manage this transition
effectively, the Company's business, competitive position, results of operations
and financial condition will be materially and adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
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<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (in thousands):
In June 1996, the Company entered into an agreement whereby
the Company was granted the exclusive marketing rights to Bell
Labs' CLOVER line of deep submicron verification products
worldwide, with the exception of Japan and Taiwan, where the
Company would co-market with Bell Labs' existing distributors.
Pursuant to the four year agreement, the Company made prepaid
royalty payments of $1,750. The agreement also provided for
future prepaid royalty payments of: $1,250 in fiscal 1998 and
$1,000 in fiscal 1999. In July and August 1997, both parties
sent notices of termination, alleging breach of the agreement
by the other party. In December 1997, the dispute was resolved
when the parties entered into a Settlement Agreement and
Mutual Release.
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: Not Applicable
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: Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ---------------------
3.1 Registrant's Amended and Restated Articles of Incorporation as amended
to date (incorporated by reference to Exhibit 3.01 of Registrant's
Registration Statement on Form S-1 ( File No. 2-89943) filed March 14,
1984, as amended (the "1984 Registration Statement")).
3.2 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).
3.3 Registrant's bylaws, as amended to date (incorporated by reference to
Exhibit 4.01 of the 1984 Registration Statement).
3.5 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).
4.1 Form of Unit Purchase Agreement among the Company and several investors
dated as of December 19, 1997, as amended.
4.2 Form of Warrant to Purchase Common Stock dated as of December 30, 1997.
27. Financial Data Schedule
REPORTS ON FORM 8-K:
No Form 8-K's were filed during the quarter covered by this report.
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<PAGE> 15
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: February 11, 1998 /s/ Robert R. Anderson
----------------- -------------------------------------
Robert R. Anderson
Chief Executive Officer and
Chairman of the Board
/s/ Laurence G. Colegate, Jr.
Laurence G. Colegate, Jr.
Senior Vice President,
Finance and Administration
(Chief Financial and Accounting
Officer)
15
<PAGE> 16
EXHIBIT INDEX
3.1 Registrant's Amended and Restated Articles of Incorporation as amended
to date (incorporated by reference to Exhibit 3.01 of Registrant's
Registration Statement on Form S-1 ( File No. 2-89943) filed March 14,
1984, as amended (the "1984 Registration Statement")).
3.2 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).
3.3 Registrant's bylaws, as amended to date (incorporated by reference to
Exhibit 4.01 of the 1984 Registration Statement).
3.5 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).
4.1 Form of Unit Purchase Agreement among the Company and several investors
dated as of December 19, 1997, as amended.
4.2 Form of Warrant to Purchase Common Stock dated as of December 30, 1997.
27. Financial Data Schedule
<PAGE> 1
EXHIBIT 4.1
UNIT PURCHASE AGREEMENT
This Unit Purchase Agreement (the "Agreement") is made and
entered into as of December 19, 1997, 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 December 17, 1997 (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 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 85% of the
Share Purchase Price; provided, however, that if the difference between the
Share Purchase Price and the Exercise Price is greater than $0.125, then the
Exercise Price shall be the sum of the Share Purchase Price less $0.125. A form
of the Warrant is attached as Exhibit A.
(b) Pro Ration of Units. The Company shall sell
<PAGE> 2
up to a maximum of 3,811,974 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 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 December 23, 1997 (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 December 19, 1997, 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 Hertzog, Calamari & Gleason, 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
2
<PAGE> 3
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 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
3
<PAGE> 4
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 "Law"), but instead
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law or other applicable state
securities laws which impose 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, and in certain cases two years, after
they have been purchased and paid for (within the meaning of Rule 144), before
they may be resold under Rule 144. Such Investor understands that Rule 144 may
indefinitely restrict transfer of the Shares and Warrant Shares if such Investor
is an "affiliate" of the Company and "current public information" about the
Company (as defined in Rule 144) is not publicly available.
(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 CERTAIN STATES. THESE
4
<PAGE> 5
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
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
5
<PAGE> 6
corporation and is in good standing in each jurisdiction in which its ownership
or leasing of assets, or the conduct of its business, makes such qualification
necessary.
(b) Requisite Power and Authorization. The Company has all
necessary corporate power and authority under the laws of the State of
California and all other applicable provisions of law to execute and deliver
this Agreement, to issue the Shares, the Warrants and the Warrant Shares and to
carry out the provisions of this Agreement and the Warrants. All corporate
action on the part of the Company required for the lawful execution and delivery
of this Agreement, and issuance and delivery of the Shares, the Warrants and the
Warrant Shares has been duly and effectively taken. Upon execution and delivery,
this Agreement and the Warrants constitute valid and binding obligations of the
Company enforceable in accordance with their respective terms, except as
enforcement may be limited by insolvency and similar laws affecting the
enforcement of creditors' rights generally and equitable remedies and except as
the indemnity provisions of Section 4 of this Agreement (relating to
registration rights) may be limited by law. The Shares and the 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. 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
6
<PAGE> 7
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto. Except as
may be indicated in the notes to the Financial Statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC, the Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the consolidated financial
position of the Company and any subsidiaries at the dates thereof and the
consolidated results of their operations and consolidated cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring adjustments).
(d) Capital Stock. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, without par value, and 1,000,000
shares of Preferred Stock, without par value. As of December 1, 1997, there were
16,789,699 shares of Common Stock issued and outstanding, and there are no
issued and outstanding shares of Preferred Stock.
(e) 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.
(f) No Material Adverse Change. Since September 30, 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 September 30, 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
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affecting the properties or business of the Company;
(iv) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(v) any labor organization activity; or
(vi) any other event or condition of any character which has
materially and adversely affected the Company's business, assets,
liabilities, financial condition, operations or prospects.
(g) 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.
(h) 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.
(i) 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 copies of all documents requested by the Investors.
(j) 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.
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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 sixty (60) days 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 ninety (90) days 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 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
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<PAGE> 10
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 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.
(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 ninetieth (90th) day 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 ninetieth (90th) day 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.
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(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 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
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<PAGE> 12
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 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
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<PAGE> 13
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 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, 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
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<PAGE> 14
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 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
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<PAGE> 15
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 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
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<PAGE> 16
(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 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
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<PAGE> 17
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.
(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
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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 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
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(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 six
(6) years after the date of this Agreement or (B) Registrable Securities held by
a Holder if in the opinion of counsel to the Company at the time of filing a
registration statement such Holder may sell all of such Holder's Registrable
Securities in any single three (3) month period without registration under the
1933 Act pursuant to Rule 144, provided that if the Company shall determine that
it may terminate its obligations to any Holder under (B), the Company shall
prior to such termination provide the Holder as to which it shall have
determined to terminate its obligations under (B) an opinion of counsel, based
on factual representations of the 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) Reserved Shares. 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.
(b) 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
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statement filed pursuant to Section 4(b).
(c) 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.
6. Conditions to Obligations of the Investors. The obligation
of each Investor to purchase the Units at the Closing is subject to the
fulfillment on or prior to the Closing Date of the following conditions, any of
which may be waived by such Investor:
(a) Representations and Warranties Correct; Performance of
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of said date, except for representations and warranties made as of a specific
date which shall be true and correct as of such date; the Company's business and
assets shall not have been adversely affected in any material way prior to the
Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it under this
Agreement on or prior to the Closing Date.
(b) Consents and Waivers. The Company shall have obtained any
and all consents (including all governmental or regulatory consents, approvals
or authorizations required in connection with the valid execution and delivery
of this Agreement), permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement.
(c) Compliance Certificate. The Company shall have delivered
to the Investors a certificate, executed by the Chairman of the Board and Chief
Executive Officer of the Company, dated the Closing Date, certifying to the
fulfillment of the conditions specified in subsection (a) of this Section 6.
(d) Opinion of Company's Counsel. Investors shall have
received from Gray Cary Ware & Freidenrich, counsel to the Company, an opinion
addressed to the Investors, dated the Closing Date, 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.
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(e) Aggregate Subscription Amount. The purchase price of all
Units purchased under this Agreement shall not be less than $1,500,000.
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 such Investor in Section 2 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of said date.
(b) Consents and Waivers. The conditions set forth in
subsections (b) and (e) of Section 6 hereof shall have been fulfilled.
8. Miscellaneous.
(a) Governing Law. This Agreement will be governed by and
construed in accordance with the internal laws of the State of California
applicable to contracts made among residents of, and wholly to be performed
within, the State of California, without regard to principles of conflict of
laws or choice of laws.
(b) Further Instruments. From time to time, each party hereto
will execute and deliver such instruments and documents as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
(c) Successors; No Other Beneficiaries. This Agreement will be
binding upon and will inure to the benefit of the executors, administrators,
legal representatives, heirs, successors and assigns of the parties hereto;
provided, however, that (i) rights of Investors hereunder may be transferred
only in connection with (and to the transferee of) Common Stock of the Company
purchased by 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
21
<PAGE> 22
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 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
22
<PAGE> 23
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, 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.
<PAGE> 24
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 Entity)
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> 1
EXHIBIT 4.2
EXHIBIT A
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 DECEMBER 29, 2002
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, 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 $0.53 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
December 29, 2002 (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
<PAGE> 2
securities or property at the time receivable or issuable upon exercise of this
Warrant) and the Exercise Price therefor are subject to adjustment upon
occurrence of the following events:
(A) Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Exercise Price of this Warrant and the
number of Shares issuable upon exercise of this Warrant shall each be
proportionally adjusted to reflect any stock dividend, stock split,
reverse stock split, combination of shares, reclassification,
recapitalization or other similar event altering the number of
outstanding shares of the Company's Common Stock.
(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
2
<PAGE> 3
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 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
as to fewer than 1,000 Shares unless it is exercised as to 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;
3
<PAGE> 4
(C) provided that a public market for the Company's stock
exists, (1) through a "same-day-sale" commitment from the Warrant
Holder and a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby the Warrant Holder
irrevocably elects to exercise this Warrant and to sell a portion of
the Shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company, or (2) through a "margin"
commitment from the Warrant Holder and an NASD Dealer whereby the
Warrant Holder irrevocably elects to exercise this Warrant and to
pledge the Shares so purchased to the NASD Dealer in a margin account
as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price directly to the
Company;
(D) by "Net Exercise," in which case the Company shall deliver
to the Warrant Holder (without payment of any additional Exercise
Price) that number of shares equal to the quotient obtained by
dividing:
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
4
<PAGE> 5
certificates representing the Shares with the appropriate legends affixed
thereto.
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. 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.
6. Entire Agreement. The Warrant Exercise Agreement is
incorporated herein by reference. This Warrant
5
<PAGE> 6
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.
7. 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.
8. 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.
9. 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.
10. 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.
11. Definition of Fair Market Value. As used herein, "Fair
Market Value" means, as of any date, the value of a share of the Company's
Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market or the Nasdaq SmallCap Market, its last reported sale price on
the Nasdaq National Market or the Nasdaq SmallCap Market or, if no such
6
<PAGE> 7
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.
7
<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 December 30, 1997.
SILICON VALLEY RESEARCH, WARRANT HOLDER
INC.
By:
--------------------------- ---------------------------------------
(Signature)
- ------------------------------ ---------------------------------------
(Please print name and title) (Please print name and title)
Address:
6360 San Ignacio Avenue Address:_______________________________
San Jose, CA 95119 _______________________________________
_______________________________________
_______________________________________
[Signature page to Silicon Valley Research, Inc. Warrant to purchase Common
Stock]
<PAGE> 9
EXHIBIT A
SILICON VALLEY RESEARCH, INC.
WARRANT EXERCISE AGREEMENT
SILICON VALLEY RESEARCH, INC.
6360 San Ignacio Avenue
San Jose, California 95119-1231
The Warrant Holder hereby elects to purchase the number of
shares (the "Shares") of the Common Stock of Silicon Valley Research, Inc. (the
"Company") as set forth below, pursuant to that certain Warrant dated as of the
date set forth below (the "Warrant"), the terms and conditions of which are
hereby incorporated by reference (please print):
Warrant Holder:____________________ Date of Exercise:_____________________
Social Security or Exercise Price Per Share:_____________
Federal Tax I.D. No.: _____________ Number of Shares Purchased:___________
Address:___________________________ Total Exercise Price:_________________
___________________________________
___________________________________
Warrant Date:______________________
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;
<PAGE> 10
Broker Name:_________________________ Brokerage Firm:________________________
or
[ ] by "Net Exercise."
Tax Consequences. THE COMPANY IS UNDER NO OBLIGATION TO REPORT
THE EXERCISE OF YOUR WARRANT TO THE INTERNAL REVENUE SERVICE OR ANY STATE OR
LOCAL INCOME TAX AUTHORITY. 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
A-2
<PAGE> 11
ATTACHMENT 1
SAME-DAY-SALE COMMITMENT
_____________, 19 __
SILICON VALLEY RESEARCH, INC.
6360 San Ignacio Avenue
San Jose, California 95119-1231
The undersigned Warrant Holder ("Warrant Holder") desires to
exercise that certain warrant described in the attached Warrant Exercise
Agreement (the "Warrant") with respect to ________ shares of your Common Stock
(the "Number of Shares"), and to sell immediately ________ of the Number of
Shares (the "Same-Day-Sale Shares") through the undersigned broker (the
"Broker") and for the Broker to pay directly to you from the proceeds from such
sale $___________ (the "Exercise Price").
Accordingly, the Warrant Holder hereby represents as follows:
(i) Warrant Holder hereby irrevocably exercises the Warrant with respect to the
Number of Shares; and (ii) Warrant Holder hereby irrevocably elects to sell
through Broker the Same-Day-Sale Shares and unconditionally authorizes you or
your transfer agent to deliver certificates representing the Same-Day-Sale
Shares to the Broker.
The Broker hereby represents as follows: (i) the Broker is a
member in good standing of the National Association of Securities Dealers; and
(ii) the Broker irrevocably commits to pay to you, no more than one (1) business
day after receiving certificates representing the Same-Day-Sale Shares, the
Exercise Price by check or wire transfer to an account specified by you.
WARRANT HOLDER: BROKER:
- ----------------------------------- ---------------------------------------
(Signature) (Name of Firm)
- ----------------------------------- ---------------------------------------
(Printed Name and Title) (Signature)
---------------------------------------
(Printed Name)
---------------------------------------
(Title)
<PAGE> 12
ATTACHMENT 2
MARGIN COMMITMENT
____________, 19__
SILICON VALLEY RESEARCH, INC.
6360 San Ignacio Avenue
San Jose, California 95119-1231
The undersigned Warrant Holder ("Warrant Holder") desires to
exercise that certain warrant described in the attached Warrant Exercise
Agreement (the "Warrant") with respect to _________ shares of your Common Stock
(the "Number of Shares"), and to sell immediately ________ of the Number of
Shares (the "Margin Shares") through the undersigned broker (the "Broker") and
for the Broker to pay directly to you from the proceeds from such sale
$___________ (the "Exercise Price").
Accordingly, the Warrant Holder hereby represents as follows:
(i) Warrant Holder hereby irrevocably exercises the Warrant with respect to the
Number of Shares; and (ii) Warrant Holder hereby irrevocably elects to sell
through Broker the 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> 13
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>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 3,159
<SECURITIES> 0
<RECEIVABLES> 699
<ALLOWANCES> 150
<INVENTORY> 0
<CURRENT-ASSETS> 3,957
<PP&E> 2,939
<DEPRECIATION> 2,298
<TOTAL-ASSETS> 6,734
<CURRENT-LIABILITIES> 2,416
<BONDS> 0
0
0
<COMMON> 39,093
<OTHER-SE> (35,001)
<TOTAL-LIABILITY-AND-EQUITY> 6,734
<SALES> 860
<TOTAL-REVENUES> 2,249
<CGS> 2,197
<TOTAL-COSTS> 7,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> (7,693)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,693)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
