Document:

<PAGE>

                                                                    Exhibit 4.01
                       WARRANT REDUCTION OFFER STATEMENT
                         SILICON VALLEY RESEARCH, INC.

                         NOTICE OF TEMPORARY REDUCTION
                           OF WARRANT EXERCISE PRICE

          Silicon Valley Research, Inc., a California corporation (the
"Company"), hereby offers to reduce temporarily the exercise price of its
warrants to purchase shares of its common stock, no par value (the "Common
Stock") dated May 29, 1998 (the "Warrants"), upon the terms and subject to the
conditions set forth in this Warrant Reduction Offer Statement (the
"Statement").  The Warrants are currently exercisable at $0.37 per share.
During the period (the "Reduction Period") starting on the date hereof and
ending at 5:00 p.m., Pacific Daylight Time, on October 20, 2000 (the "Expiration
Date"), holders of the Warrants ("Warrant Holders") are entitled to purchase
upon payment in cash of a reduced exercise price of $0.175 per one share of
Common Stock (the "$0.175 Reduced Exercise Price") or $0.155 (the "$0.155
Reduced Exercise Price") per one share of Common Stock.  A holder of Warrants
may exercise all or any portion of his or her Warrants in accordance with the
terms of this Statement.  In order to be entitled to the $0.155 Reduced Exercise
Price, the Warrant Holder must agree not to sell the shares of Common Stock
acquired upon exercise (the "Shares") for a period of 60 days.  Those Warrant
Holders wishing to sell the Shares within 60 days of the exercise must exercise
the Warrants at the "$0.175 Reduced Exercise Price".

          After the Expiration Date, the exercise price of the Warrants will
revert to $0.37 per share through their expiration on May 28, 2005, and holders
of the Warrants will no longer be entitled to the Reduced Exercise Price.  The
Company is temporarily reducing the exercise price of the Warrants in order to
provide holders with an incentive to exercise the Warrants and to provide the
Company with financing for its current and future operations.

          The Company originally issued the Warrants in a private placement of
2,377,909 Units ("Units") pursuant to a Unit Purchase Agreement dated as of May
29, 1998, among the Company and the investors named therein (the "Unit Purchase
Agreement").  Each Unit was composed of one share of Common Stock and one
Warrant.  The Company filed, on December 2 1999, a registration statement on
Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") to register shares of Common Stock issuable upon
exercise of the Warrants.  The Registration Statement was declared effective by
the Commission on December 7, 1999.  The Common Stock issuable upon exercise of
the Warrants will be freely tradable pursuant to the Registration Statement.

                             ____________________

       INVESTMENT IN THE COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH
       DEGREE OF RISK. INVESTORS MUST BE CAPABLE OF SUSTAINING A LOSS OF
         THEIR ENTIRE INVESTMENT. SEE "CERTAIN RECENT CONSIDERATIONS."

       THE WARRANT REDUCTION OFFER HAS NOT BEEN APPROVED OR DISAPPROVED
       BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
       COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
       STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
       OF THE INFORMATION CONTAINED IN THIS WARRANT REDUCTION OFFER. ANY
             REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                             ____________________

         The date of this Warrant Reduction Offer is October 13, 2000.

                                       1
<PAGE>

          This Warrant Reduction Offer is being sent to all registered holders
of the Warrants at the close of business on the date immediately preceding the
date hereof.  The original exercise price of the Warrants was determined by
negotiations between the Company and the purchasers of the Warrants.  The Common
Stock is listed on the OTC Bulletin Board (the "Bulletin Board") under the
symbol "SVRI".  See "Price Range for the Common Stock".

          This Warrant Reduction Offer is subject to a number of conditions.
The Company reserves the right to extend the Reduction Period up to 30 calendar
days and to amend or terminate the Warrant Reduction Offer.  The exercise price
of the Warrants must be paid in cash, by check made payable to the order of
"Silicon Valley Research, Inc." or by wire transfer, in an amount equal to
$0.155 or $0.175 per share.  See "Offering Summary" and "The Warrant Reduction
Offer".

          This Warrant Reduction Offer is being made by the Company in reliance
on the exemptions from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") afforded by Section 4(2) and/or Section
4(6) thereof.  This Warrant Reduction Offer does not constitute an offer or
solicitation in any jurisdiction in which such offer or solicitation would be
unlawful.  The Warrant Reduction Offer is not being made to, nor will the
Company accept the exercise from, any holder of the Warrants in any jurisdiction
in which the Warrant Reduction Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.

          If you require assistance in connection with the Warrant Reduction
Offer, please contact Lisa A. Evans, Finance Administrator, at the Company, at
(408) 361-0333.

                             ____________________

           NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY
           RECOMMENDATION TO HOLDERS TO EXERCISE OR TO REFRAIN FROM
             EXERCISING THE WARRANTS.  HOLDERS MUST MAKE THEIR OWN
                   DECISIONS ON WHETHER OR NOT TO EXERCISE.

                              ____________________

                                       2
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                            Page
                                                            ----
<S>                                                         <C>
Available Information                                          4

Offering Summary                                               5

The Warrant Reduction Offer                                    7

Use of Proceeds                                               11

Certain Recent Considerations                                 12

Description of Securities                                     12

Price Range for the Common Stock                              13

Legal Matters                                                 13

EXHIBITS

Warrant Exercise Agreement

Form 10-KSB for the year ended March 31, 2000

Form 10-QSB for the quarter ended June 30, 2000
</TABLE>

                                       3
<PAGE>

                             AVAILABLE INFORMATION

          The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission.  Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the Securities and Exchange Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.  20549.
Holders may also call the Commission at 1-800-SEC-0330 for further information
on the Public Reference Room.  The Company's Securities and Exchange Commission
filings are also available to the public at the Commission's Web site at
http://www.sec.gov.
------------------

                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

          The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (i) Annual
Report on Form 10-KSB for the year ended March 31, 2000 and (ii) Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000.  These documents are
included as exhibits to this Statement.

          Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Statement to the extent that a
statement contained herein or in any other subsequently filed document which is
deemed to be incorporated by reference herein modifies or supersedes such
statement.  Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Statement.

                                       4
<PAGE>

                               OFFERING SUMMARY

          This summary highlights information contained in other parts of this
Statement.  Because it is a summary, it may not contain all of the information
deemed necessary for a decision to invest in the Company's common stock.
Therefore, investors are urged to read the entire Statement carefully, including
"Certain Recent Considerations", the Form 10-KSB for the year ended March 31,
2000 and the Form 10-QSB for the quarter ended June 30, 2000, before making an
investment decision.

                                  The Company

          The Company, incorporated in 1979, develops and markets physical
design software for use by integrated circuit ("IC") designers, including those
of its subsidiary, Quality I.C. Corporation.  The Company's software products
are used to automatically and efficiently arrange and connect the individual
components that comprise an integrated circuit.  While this process, commonly
referred to as "place and route", is a crucial element of most chip designs,
some critical areas require a more manual approach.  Designers at Quality I.C.
Corporation are skilled in the production of custom chip components to satisfy
demanding performance and area requirements.  By combining both strengths, the
Company's design project support and consulting services encompass nearly all
aspects of the physical integrated circuit design process.  The Company's end-
user customers include Hyundai, Innovision Labs, Micron, Motorola, N.E.C., OKI
Semiconductor, Samsung Electronics, SigmaTel, Sony, Texas Instruments and
Yamaha.

                                 The Offering

--------------------------------------------------------------------------------
Warrants subject to Warrant Reduction Offer   The Warrant Reduction Offer
                                              includes Warrants to purchase an
                                              aggregate of 1,859,948 shares of
                                              Common Stock.
--------------------------------------------------------------------------------
Reduced Exercise Price                        $0.155 per one share of Common
                                              Stock for those Warrant Holders
                                              who agree not to sell the shares
                                              of Common Stock acquired upon
                                              exercise (the "Shares") for a
                                              period of 60 days commencing on
                                              the date of exercise or
                                              $0.175 per one share of Common
                                              Stock

--------------------------------------------------------------------------------
Reduction Period                              Commencing on the date hereof and
                                              ending at 5:00 p.m. Pacific
                                              Daylight Time on October 20, 2000.
--------------------------------------------------------------------------------
Purpose of Warrant Reduction Offer            To provide holders with an
                                              incentive to exercise the warrants
                                              and to provide the Company with
                                              financing for its current and
                                              future operations. See "The
                                              Warrant Reduction Offer -
                                              Purpose".
--------------------------------------------------------------------------------
Use of Proceeds                               The Company intends to use the net
                                              proceeds from the exercise of the
                                              Warrants primarily for working
                                              capital. See "Use of Proceeds".
--------------------------------------------------------------------------------

                                       5
<PAGE>

--------------------------------------------------------------------------------
Expiration                                    5:00 p.m. Pacific Daylight Time,
                                              on October 20, 2000, subject to
                                              extension. See "The Warrant
                                              Reduction Offer - Expiration Date;
                                              Extensions and Amendments".
--------------------------------------------------------------------------------
Securities Outstanding
  Prior to the Warrant Reduction              35,805,503 shares of Common Stock
  Offer (1)
--------------------------------------------------------------------------------
  After the Warrant Reduction
  Offer (1)                                   37,665,451 shares of Common Stock
                                              (assuming exercise of all
                                              Warrants)
--------------------------------------------------------------------------------
Risk Factors                                  Investment in the Common Stock is
                                              speculative and involves a high
                                              degree of risk. See "Certain
                                              Considerations".
--------------------------------------------------------------------------------
How to Exercise Warrants                      Any holder of Warrants wishing to
                                              exercise under the Warrant
                                              Reduction Offer should (i)
                                              complete and sign the Warrant
                                              Exercise Agreement in the form
                                              attached hereto as Exhibit A, (ii)
                                              make a check payable to "Silicon
                                              Valley Research, Inc." in an
                                              amount equal to $0.155 per share
                                              or $0.175 per share(or see wire
                                              transfer instructions below), and
                                              (iii) forward the original
                                              Warrant, the Warrant Exercise
                                              Agreement and your check (or wire
                                              transfer) to Silicon Valley
                                              Research, Inc. at 6360 San Ignacio
                                              Avenue, San Jose, California
                                              95119, Attention: Lisa Evans.
                                              Payment of the exercise price may
                                              only be in cash (same-day sale is
                                              acceptable) under the Warrant
                                              Reduction Offer. See "The Warrant
                                              Reduction Offer - How to
                                              Exercise".
--------------------------------------------------------------------------------
Acceptance of all Warrants                    The Company will accept any and
                                              all Warrants properly exercised on
                                              or prior to the Expiration Date,
                                              subject to certain conditions. See
                                              "The Warrant Reduction Offer-
                                              Conditions of the Warrant
                                              Reduction Offer".
--------------------------------------------------------------------------------
Delivery of Securities                        The Company will deliver
                                              certificates for shares of Common
                                              stock issuable upon exercise of
                                              the Warrants as soon as
                                              practicable after the Company is
                                              in receipt of the required funds
                                              and paperwork. See "The Warrant
                                              Reduction Offer - Delivery of
                                              Securities".
--------------------------------------------------------------------------------

_______________

(1)  As of September 30, 2000, does not include outstanding options to purchase
     an aggregate of 4,137,748 shares of Common Stock and outstanding warrants
     to purchase an aggregate of 5,429,683 shares of Common Stock.

                                       6
<PAGE>

                          THE WARRANT REDUCTION OFFER

Terms of the Offer

          Upon the terms and subject to the conditions herein set forth, holders
of the Warrants are entitled to exercise such Warrants during the Reduction
Period at a reduced exercise price of price of $0.175 per one share of Common
Stock (the "$0.175 Reduced Exercise Price") or $0.155 (the "$0.155 Reduced
Exercise Price") per one share of Common Stock. A holder of Warrants (the
"Warrant Holder") may exercise all or any portion of his or her Warrants in
accordance with the terms of this Statement. In order to be entitled to the
$0.155 Reduced Exercise Price, the Warrant Holder must agree not to sell the
shares of Common Stock acquired upon exercise (the "Shares") for a period of 60
days commencing on the date of exercise. Those Warrant Holders wishing to sell
the Shares within 60 days of the exercise must exercise the Warrants at the
$0.175 Reduced Exercise Price. The Reduced Exercise Price is payable only in
cash (same-day-sale is acceptable) under the Warrant Reduction Offer and the
payment methods in Section 2(c)(A), (B), and (D) of the Warrants are not
permitted under the Warrant Reduction Offer. The shares of Common Stock issuable
upon exercise of the Warrants will be separately transferable upon their
issuance. After the Expiration Date, the exercise price of the Warrants will
revert to $0.37 per share through their expiration on May 28, 2005.

          The Company will accept any and all of the Warrants that are properly
exercised, subject to the conditions set forth herein. As of the date of this
Statement, Warrants exercisable for a total of 1,859,948 shares of Common Stock
were outstanding. As soon as practicable after the Company is in receipt of the
required funds and paperwork, the Company will deliver registered certificates
evidencing the shares of Common Stock issuable upon exercise of the Warrants
properly exercised on or prior to the Expiration Date, subject to the conditions
set forth herein. See " - Conditions of the Warrant Reduction Offer".

          No officer or director of the Company who beneficially own Warrants
has advised the Company as to whether or not he or she intends to exercise the
Warrants pursuant to the Warrant Reduction Offer.

Purpose

          The purpose of the Warrant Reduction Offer is to provide holders of
the Warrants with an incentive to exercise the Warrants and to provide the
Company with financing for its current and future operations. The Warrant
Reduction Offer provides holders of outstanding Warrants an opportunity to
exercise the Warrants at a reduced exercise price. If all of the outstanding
Warrants are exercised at the Reduced Exercise Price, the Company would realize
gross proceeds of $300,000, before expenses, for use in the Company's
operations. See "Use of Proceeds".

                                       7
<PAGE>

Expiration Date; Extensions and Amendments

          The Reduction Period expires at 5:00 p.m., Pacific Daylight Time, on
October 20, 2000. Such Period may be extended for up to 30 calendar days in the
sole discretion of the Company, in which event the term "Expiration Date" will
mean the time and date as extended. The Company will notify each holder of a
Warrant of any extension as soon as practicable.

          The Company also reserves the right to amend, at any time and from
time to time, the terms of the Warrant Reduction Offer, or terminate the Warrant
Reduction Offer, subject to compliance with all applicable requirements of law.
Any announcement relating to a change in the Warrant Reduction Offer will be
disseminated in a manner reasonably designed to inform each holder of a Warrant
of such change.

How to Exercise

          The exercise of the Warrants pursuant to the Warrant Reduction Offer
in accordance with the procedures set forth below will, subject to acceptance by
the Company, constitute an agreement between the holder and the Company subject
to the terms and upon the conditions set forth herein.

          To properly exercise a Warrant, a holder must: (i) complete and sign
the Warrant Exercise Agreement in the form attached hereto as Exhibit A, (ii)
make a check or wire transfer payable to "Silicon Valley Research, Inc." in the
amount of the aggregate exercise price equal to $0.175 or $0.155 per share, and
(iii) forward the original Warrant, the Warrant Exercise Agreement and your
check (or wire transfer) to Silicon Valley Research, Inc. at 6360 San Ignacio
Avenue, San Jose, California 95119, Attention: Lisa Evans, for receipt at or
prior to 5:00 p.m., Pacific Daylight Time, on the Expiration Date, except as
otherwise provided below. A holder may not use the Warrant Exercise Agreement
attached to the Warrant in connection with this Warrant Reduction Offer. In
signing the Warrant Exercise Agreement attached as Exhibit A, a holder will be
required to reaffirm the representations and warranties made by such holder in
the Unit Purchase Agreement with respect to the acquisition of the Common Stock
issuable upon exercise of the Warrants.

          The method of delivery of the Warrant certificates and other documents
to the Company is at the election and risk of the holder. If such delivery is by
mail, the Company suggests that you use registered mail, return receipt
requested, and that your mailing is completed sufficiently in advance of the
Expiration Date to permit timely delivery to the Company. Please call Lisa A.
Evans, Finance Administrator, at the Company (408) 361-0333 if you have lost
your Warrant to arrange for replacement.

                                       8
<PAGE>

          To wire funds directly to the Company, please deliver the following
wire transfer instructions to your bank and mail the Warrant Exercise Agreement
and the original Warrant to the Company, as explained above.

Determination of Validity

          All questions as to the validity, form, eligibility and acceptance of
the Warrants, and the terms and conditions of the Warrant Reduction Offer, will
be resolved by the Company in its sole discretion. Its determination will be
final and binding. The Company reserves the absolute right to reject any or all
exercises that are not in proper form or the acceptance of which would, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any irregularities or conditions of exercise of the
Warrants. Unless waived, any irregularities must be cured within such time as
determined by the Company in its sole discretion. Neither the Company nor the
Escrow Agent will be under any duty to give notification of defects in such
exercises or will incur any liabilities for failure to give such notification.
Exercise of the Warrants will not be deemed to have been made until all
irregularities have been cured or waived. Any Warrants received by the Escrow
Agent that are not properly exercised and as to which the irregularities have
not been cured or waived will be returned to the holder thereof, together with
the exercise price (without interest thereon), as soon as practicable after the
Expiration Date.

Tax Consequences

          Each holder of the Warrants should consult with his or her tax adviser
with respect to the tax consequences of exercising the Warrants.

Delivery of Securities

          Upon the terms and subject to the conditions of the Warrant Reduction
Offer, the Company will deliver shares of Common Stock upon exercise of Warrants
as soon as practicable after the Company is in receipt of the required funds and
paperwork. For purposes of the Warrant Reduction Offer, the Company will be
deemed to have accepted for exercise properly exercised Warrants when the
Company has given oral or written notice thereof to its transfer agent to
deliver the shares of Common Stock underlying such Warrants. Stock certificates
representing Shares exercised at the $0.155 Reduced Exercise Price will bear the
following legend:

                                       9
<PAGE>

THE TRANSFER, ASSIGNMENT OR OTHER HYPOTHECATION OF THESE SHARES IS SUBJECT TO AN
AGREEMENT BETWEEN THE SHAREHOLDER AND THE CORPORATION. THE SHARES MAY NOT BE
TRANSFERRED WITHOUT THE WRITTEN CONSENT OF THE CORPORATION.

Warrants not accepted for exercise by the Company will be returned to the holder
thereof, together with the exercise price (without interest thereon), as soon as
practicable following the Expiration Date.  Any holder of Warrants who elects
only to exercise a portion of his or her Warrants will receive, in addition to
the shares of Common Stock issuable for the portion of the Warrants so
exercised, a new Warrant certificate for the balance of the Warrants not
exercised.

          If a holder of the Warrants wishes to have the shares of Common Stock
issuable upon exercise of the Warrants registered in a name other than the
holder's own name, then the holder in executing the Warrant Exercise Agreement
must have his or her signature guaranteed by a member firm of a national
securities exchange.

Conditions of the Warrant Reduction Offer

          Notwithstanding any other provisions of the Warrant Reduction Offer,
the Company may amend or terminate the Warrant Reduction Offer and is not
required to accept for exercise any Warrants if, prior to the Expiration Date:

          (i)   there shall be pending, instituted or threatened any legal
action or administrative proceeding before any court or governmental agency, by
any person, challenging the Warrant Reduction Offer or, in the sole judgment of
the Board of Directors of the Company, otherwise adversely affecting the
transactions contemplated by the Warrant Reduction Offer;

          (ii)  there exists, in the sole judgment of the Board of Directors of
the Company, any actual or threatened legal impediment to the acceptance of the
Warrants or the issuance of the underlying Common Stock;

          (iii) there shall have occurred (a) a declaration of a banking
moratorium by United States or California authorities; or (b) a commencement of
a war, armed hostilities or other international or national calamity directly
involving the United States; or

          (iv)  there shall have occurred any change or development affecting
the business or financial affairs of the Company which, in the sole judgment of
the Board of Directors of the Company, would or might prohibit, restrict or
delay consummation of the Warrant Reduction Offer or materially impair the
contemplated benefits of the Warrant Reduction Offer to the Company.

                                       10
<PAGE>

          In the event that the Company terminates the Warrant Reduction Offer
pursuant to any of the conditions set forth above, the Company will ensure the
prompt return of the Warrants to the holders who exercised them and the refund
of the exercise price paid, without interest thereon.

Expenses

          The Company will pay all transfer taxes applicable to the Warrant
Reduction Offer. The Company has not retained a dealer-manager or similar agent
in connection with the Warrant Exercise Offer and will not make any payments to
brokers, dealers or other persons for soliciting acceptances of the Warrant
Reduction Offer.

Questions

          Please call Lisa A. Evans, Finance Administrator, at the Company (408)
361-0333 if you have questions about the exercise of your Warrants.

                                USE OF PROCEEDS

          In the event that all Warrants are exercised at the Reduced Exercise
Price, the Company estimates that the net proceeds therefrom will be
approximately $300,000 after payment of approximately $2,000 in fees and other
expenses of the Warrant Reduction Offer. However, the number of Warrants
exercised depends on several factors beyond the control of the Company, and the
Company is therefore unable to predict the amount of net proceeds. Holders of
the Warrants are not obligated to exercise their Warrants, and there can be no
assurance of what percentage, if any, will be exercised.

          The Company expects to use the net proceeds from the Warrant Reduction
Offer for working capital. A portion of the net proceeds may also be used to
obtain the right to use complementary technologies. However, the Company has no
present understandings, commitments, agreements or intentions with respect to
any such acquisitions.

          The expected expenditures described above are management's best
estimates, based on currently available information. Actual expenditures could
vary depending on numerous factors, including the progress of the Company's
research and development efforts, and competitive and technological advances. If
the number of Warrants exercised pursuant to the Warrant Reduction Offer is
insufficient to fund the Company, it will require additional financing to
continue operations or could be forced to cease operations altogether. As of the
date hereof, the Company has no commitments or plans to obtain additional debt
or equity financing, and there is no assurance that such financing could be
obtained on terms acceptable to the Company.

                                       11
<PAGE>

                         CERTAIN RECENT CONSIDERATIONS

     Investment in the shares of Common Stock is speculative and involves a high
degree of risk.  Holders of the Warrants should carefully review with their
financial, legal, tax and other advisers the information contained in the
reports and statements filed by the Company with the Commission and those
attached as Exhibits to this Statement.  Prospective investors should also give
special consideration to the matters discussed in the Form 10-QSB for the
quarter ended June 30, 2000 attached as Exhibit C hereto, under the heading
"Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other Factors Affecting Future Results".

                           DESCRIPTION OF SECURITIES

     The authorized capital stock of the Company consists of 60,000,000 shares
of Common Stock and 1,000,000 shares of preferred stock, no par value.

Warrants

     In connection with a private placement of 2,377,909 Units on June 8, 1998,
the Company issued the Warrants entitling the holders thereof to purchase an
aggregate of 2,377,909 shares of Common Stock at an exercise price of $0.37 per
share.  The outstanding Warrants are temporarily exercisable at the Reduced
Exercise Price of $0.175 or $0.155 per share during the Reduction Period and
thereafter are exercisable for $0.37 per share until May 28, 2005.

     The Warrants do not confer on the Warrant holders any voting or any other
rights of a stockholder of the Company.  They are not redeemable by the Company.

     The number of shares of Common Stock issuable upon the exercise of each
Warrant is subject to adjustment upon the occurrence of certain events,
including a stock dividend, stock split, reverse stock split or other similar
event altering the number of outstanding shares of the Company's Common Stock.
In the case of a capital reorganization, consolidation, merger or sale of the
assets of the Company effected in such a way as to grant holders of Common Stock
shares of stock, securities or assets of another entity, each Warrant will
become exercisable to purchase the number of shares of stock or other securities
or property to which such holder would have been entitled had such holder
exercised his Warrant immediately prior to the consummation of such event.

                                       12
<PAGE>

                       PRICE RANGE FOR THE COMMON STOCK

     The Common Stock is currently traded on the OTC Bulletin Board under the
symbol SVRI.  From April 1992 to September 1995, the Common Stock was traded on
the Bulletin Board, from September 1995 until February 1996 on the Nasdaq
SmallCap Market, and from February 1996 until November 1998 was traded on the
Nasdaq National Market.  The following table sets forth, for the fiscal periods
indicated, the low and high closing sales prices for the Common Stock as
reported by Nasdaq and the OTC Bulletin Board.  The Company had approximately
300 shareholders of record and approximately 5,200 beneficial holders as of
March 31, 2000.

<TABLE>
<CAPTION>

Fiscal 1999 quarter ended    June 30  Sept. 30  Dec. 31  Mar. 31
                             -------  --------  -------  -------
<S>                          <C>      <C>       <C>      <C>

     High                    $1.38    $0.66     $0.41    $0.34
     Low                     $0.59    $0.19     $0.16    $0.13

Fiscal 2000 quarter ended    June 30  Sept. 30  Dec. 31  Mar. 31
                             -------  --------  -------  -------

     High                    $0.19    $0.15     $1.28    $1.19
     Low                     $0.10    $0.13     $0.12    $0.48

Fiscal 2000 quarter ended    June 30  Sept. 30
                             -------  --------

     High                    $0.72    $0.70
     Low                     $0.19    $0.16

</TABLE>

     The prices set forth above reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.

     The Company has not declared or paid dividends on its Common Stock in
fiscal 1999, 2000 or 2001.  Certain covenants in the Company's loan agreements
restrict the payment of dividends.  The Company currently anticipates that it
will retain all future earnings for use in the operation and expansion of its
business and does not anticipate paying any cash dividends in the foreseeable
future.

LEGAL MATTERS

     The legality of the shares of Common Stock is being passed upon by Silicon
Valley Law Group, a law corporation, San Jose, California.

                                       13
<PAGE>

                                   EXHIBIT A
                         SILICON VALLEY RESEARCH, INC.
                          WARRANT EXERCISE AGREEMENT
        (For use solely in connection with the Warrant Reduction Offer)

Silicon Valley Research, Inc.
6360 San Ignacio Avenue
San Jose, CA  95119
Attn:  Lisa A. Evans

Ladies and Gentlemen:

     I hold a warrant to purchase common stock (the "Warrant") issued by Silicon
Valley Research, Inc., a California corporation (the "Company") pursuant to a
Unit Purchase Agreement dated as of May 29, 1998, among the Company and the
investors named therein (the "Unit Purchase Agreement").  I understand that I
may exercise the Warrant for all or a portion of the number of shares of common
stock, no par value, of the Company (the "Common Stock") stated in the Warrant
for a reduced cash exercise price of $0.__ per share (the "Reduced Exercise
Price"), as more fully described in the Warrant Reduction Offer Statement of the
Company dated October 13, 2000 (the "Warrant Reduction Offer").  I understand
that the Warrant Reduction Offer expires on October 20, 2000, unless extended or
terminated earlier by the Company.

     I desire to exercise my Warrant to purchase the number of shares indicated
below upon the terms and subject to the conditions set forth in the Warrant
Reduction Offer.  If I do not exercise the full amount of my Warrant, I
understand that I will receive a new warrant certificate representing the
balance of my Warrant not exercised.

     I understand that if I choose to exercise my Warrant at the $0.155 Reduced
Exercise Price that I may not sell the shares acquired by the exercise for 60
days commencing on the Date of Exercise.  I also understand that the certificate
representing such shares will bear the following legend:

     THE TRANSFER, ASSIGNMENT OR OTHER HYPOTHECATION OF THESE SHARES IS SUBJECT
     TO AN AGREEMENT BETWEEN THE SHAREHOLDER AND THE CORPORATION. THE SHARES MAY
     NOT BE TRANSFERRED WITHOUT THE WRITTEN CONSENT OF THE CORPORATION.

     I acknowledge that: (i) my purchase of the Common Stock is speculative and
involves a high degree of risk; (ii) the Warrant Reduction offer has not been
approved by the Securities and Exchange Commission (the "Commission") or any
state securities commission, and neither the Commission nor any state securities
commission has passed upon the accuracy or adequacy of the information contained
in the Warrant Reduction Offer; (iii) I have carefully reviewed the Warrant
Reduction Offer Statement with my financial, legal, tax and other advisers as I
have deemed necessary; and (iv) I have determined that the Common Stock is a
suitable investment for me.

                                       14
<PAGE>

     By signing this Warrant Exercise Agreement, I hereby confirm that my
representations and warranties contained in Section 2 of the Unit Purchase
Agreement are true and correct as of the date hereof as if such representations
and warranties applied to the Common Stock to be issued upon the exercise of my
Warrant.

     I understand that the Reduced Exercise Price is payable only in cash or via
same-day-sale and that the payment methods set forth in Section 2(c)(A), (B),
and (D) of the Warrant are not permitted under the Warrant Reduction Offer.  I
am enclosing my original Warrant and a check or immediately available funds in
accordance with the directions set forth below to acquire the Common Stock in
accordance with the instructions below:

Warrant Holder:________________________   Date of Exercise:________________
Social Security Number:________________   Exercise Price Per Share:________
Address:_______________________________   Total Exercise Price:____________
_______________________________________   Exact Name of Title for Shares:
                                          _________________________________

     If I am a natural person, I have also enclosed the signed Spouse Consent
form attached to this Warrant Exercise Agreement.

     Name(s) and address(es) to whom the Common Stock shall be issued and
delivered if different than above:

                      ____________________________________
                      ____________________________________
                      ____________________________________
                      ____________________________________

     THE COMPANY IS UNDER NO OBLIGATION TO REPORT THE EXERCISE OF THE WARRANT TO
THE INTERNAL REVENUE SERVICE OR ANY STATE OR LOCAL INCOME TAX AUTHORITY.  THE
WARRANT HOLDER UNDERSTANDS THAT HE OR SHE MAY SUFFER ADVERSE TAX CONSEQUENCES AS
A RESULT OF HIS OR HER PURCHASE OR DISPOSITION OF THE SHARES.  THE WARRANT
HOLDER REPRESENTS THAT HE OR SHE 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.

                                     Sincerely yours,

                                     ___________________________
                                     Name of Warrant Holder

                                     By:________________________
                                     Print Name:
                                     Title:

                                       15
<PAGE>

     Exercise by Mail:  To properly exercise the Warrant by mail, please: (i)
complete and sign the Warrant Exercise Agreement in the form attached hereto as
Exhibit A, (ii) make a check or wire transfer payable to "Silicon Valley
Research, Inc." in the amount of the aggregate exercise price equal to $0.155 or
$0.175 per share, and (iii) forward the original Warrant, the Warrant Exercise
Agreement and your check (or wire transfer) to Silicon Valley Research, Inc. at
6360 San Ignacio Avenue, San Jose, California  95119, Attention: Lisa Evans, for
receipt at or prior to 5:00 p.m., Pacific Daylight Time, on the Expiration Date,
except as otherwise provided above.  Please call Lisa A. Evans, Finance
Administrator, at the Company (408) 361-0333 if you have lost your Warrant to
arrange for replacement.

     Wire Transfer Instructions:  To wire funds directly to the Company, please
deliver the following wire transfer instructions to your bank and mail this
Warrant Exercise Agreement and your original Warrant to the Company, as
explained above:

                                SPOUSAL 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: ____________________              _________________________________
                                             Spouse

                                        Address: _________________________
                                                 _________________________

                                       16<PAGE>

                                                                    EXHIBIT 10.3

                       ASPECT COMMUNICATIONS CORPORATION

                       1998 DIRECTORS' STOCK OPTION PLAN
                       ---------------------------------

                  Amended and Restated as of August 31, 2000

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

     All options granted hereunder shall be nonstatutory stock options.

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

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

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

          (c)  "Common Stock" shall mean the Common Stock of the Company.
                ------------

          (d)  "Company" shall mean Aspect Communications Corporation, a
                -------
California corporation.

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

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

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

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

          (i)  "Option" shall mean a stock option granted pursuant to the Plan.
                ------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).

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

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

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

                                      -1-
<PAGE>

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

          (n)  "Plan" shall mean this 1998 Directors' Stock Option Plan.
                ----

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

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

     3.   Stock Subject to the Plan.  Subject to the provisions of Section 11 of
          -------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares (the "Pool") of Common Stock.  The Shares may
                                       ----
be authorized, but unissued, or reacquired Common Stock.

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

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

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

          (b)  Procedure for Grants.  All grants of Options hereunder shall be
               --------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:

               (i)    No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.

               (ii)   Each person who becomes an Outside Director after the
effective date of this Plan, as determined in accordance with Section 6 hereof,
shall be automatically granted an Option to purchase 24,000 Shares (the "First
Option"), on the date on which such person first becomes an Outside Director,
whether through election by the shareholders of the Company or appointment by
the Board of Directors to fill a vacancy.

               (iii)  Each Outside Director shall be automatically granted an
Option to purchase 6,000 Shares (a "Subsequent Option") on August 31 of each
                                    -----------------
year (if August 31 falls on a Saturday, Sunday or holiday, then the Option shall
be automatically granted on the immediately preceding business day), provided
that, on such date, he or she shall have served on the Board for at least six
(6) months.

               (iv)   Notwithstanding the provisions of subsections (ii) and
(iii) hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options plus the

                                      -2-
<PAGE>

number of Shares previously purchased upon exercise of Options to exceed the
Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors receiving an Option on such date on the
automatic grant date. Any further grants shall then be deferred until such time,
if any, as additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.

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

               (vi)   The terms of each First Option granted hereunder shall be
as follows:

                      (1)   the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 4(e) and 9 hereof;

                      (2)   the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the First Option, determined
in accordance with Section 8 hereof; and

                      (3)   the First Option shall become vested and exercisable
in installments cumulatively as to 25% of the Shares subject to the First Option
on each of the first, second, third and fourth anniversaries of the date of
grant of the Option.

               (vii)  The terms of each Subsequent Option granted hereunder
shall be as follows:

                      (1)   the Subsequent Option shall be vested and
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 4(e) and 9 hereof;

                      (2)   the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the Subsequent Option,
determined in accordance with Section 8 hereof; and

                      (3)   the Subsequent Option shall become vested and
exercisable in installments cumulatively as to 25% of the Shares subject to the
Subsequent Option on each of the first, second, third and fourth anniversaries
of the date of grant of the Option..

          (c)  Powers of the Board.  Subject to the provisions and restrictions
               -------------------
of the Plan, the Board shall have the authority, in its discretion:  (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person

                                      -3-
<PAGE>

to execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted hereunder; and (vi) to make all other
determinations deemed necessary or advisable for the administration of the Plan.

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

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

     5.   Eligibility.  Options may be granted only to Outside Directors.  All
          -----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.  An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.

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

     6.   Term of Plan; Effective Date.  The Plan shall become effective upon
          ----------------------------
its approval by the shareholders of the Company as described in Section 17 of
the Plan. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 13 of the Plan.

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

     8.   Exercise Price and Consideration.
          --------------------------------

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

                                      -4-
<PAGE>

          (b)  Fair Market Value.  The fair market value shall be determined by
               -----------------
the Board; provided, however, that in the event the Common Stock is traded on
           --------  -------
the Nasdaq National Market or listed on a stock exchange, the fair market value
per Share shall be the closing sale price on such system or exchange on the date
of grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported by Nasdaq or
the stock exchange.

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

     9.   Exercise of Option.
          ------------------

          (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option
               -----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.

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

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

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

          (b)  Termination of Status as a Director.  If an Outside Director
               -----------------------------------
ceases to serve as a Director, he or she may, but only within thirty (30) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was

                                      -5-
<PAGE>

entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set forth in
Section 7 has expired. To the extent that such Outside Director was not entitled
to exercise an Option at the date of such termination, or does not exercise such
Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.

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

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

               (i)    During the term of the Option, if the Optionee is, at the
time of his or her death, a Director of the Company and has been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person or entity who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and remained
in Continuous Status as Director for six (6) months after the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired.

               (ii)   Within thirty (30) days after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
six (6) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its term set forth in Section 7 has expired.

     10.  Limited Transferability of Options.  Except as set forth below, the
          ----------------------------------
Option may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution or pursuant to a qualified domestic relations order (as defined by
the Code or the rules thereunder).  An Option shall be transferable by an
Optionee to a living trust or a family trust established by the Optionee, under
such terms and conditions as are established by the Administrator.  Any such
transfer shall also be subject to the Applicable Laws.  The designation of a
beneficiary by an Optionee does not constitute a transfer.  An Option may be
exercised during the lifetime of an Optionee only by the Optionee or a
transferee permitted by this Section.

     11.  Adjustments Upon Changes in Capitalization; Corporate Transactions.
          ------------------------------------------------------------------

          (a)  Adjustment.  Subject to any required action by the shareholders
               ----------
of the Company, the number of shares of Common Stock covered by each outstanding
Option, and the

                                      -6-
<PAGE>

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

          (b)  Corporate Transactions.  In the event of (i) a dissolution or
               ----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the Option would not be otherwise
vested and exercisable, prior to the effectiveness of such liquidation,
dissolution, sale, merger, consolidation or reorganization, at the end of which
time the Option shall terminate, or the right to exercise the Option, including
Shares as to which the Option would not be otherwise exercisable (or receive a
substitute option with comparable terms), as to an equivalent number of shares
of stock of the corporation succeeding the Company or acquiring its business by
reason of such liquidation, dissolution, sale, merger, consolidation or
reorganization.

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

     13.  Amendment and Termination of the Plan.
          -------------------------------------

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

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

                                      -7-
<PAGE>

     14.  Conditions Upon Issuance of Shares.  Shares shall not be issued
          ----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

     15.  Reservation of Shares.  The Company, during the term of this Plan,
          ---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.  Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

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

     17.  Shareholder Approval.  The effectiveness of the Plan shall be
          --------------------
contingent upon approval by the shareholders of the Company at or prior to the
first annual meeting of shareholders held subsequent to the date on which the
Plan is adopted by the Board.  If such shareholder approval is obtained at a
duly held shareholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon.  If such shareholder approval is
obtained by written consent, it may be obtained by the written consent of the
holders of a majority of the outstanding shares of the Company.

                                      -8-

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