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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
VALENCE TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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VALENCE TECHNOLOGY, INC.
301 CONESTOGA WAY
HENDERSON, NEVADA 89015
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 31, 1997
TO THE STOCKHOLDERS OF VALENCE TECHNOLOGY, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Valence
Technology, Inc., a Delaware corporation (the "Company"), will be held on
Friday, January 31, 1997, at 4:00 p.m. local time at 301 Conestoga Way,
Henderson, Nevada 89015, for the following purpose:
1. To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
2. To approve an amendment to the Company's 1990 Stock Option Plan to
increase the aggregate number of shares of common stock authorized for
issuance under such plan by 750,000 shares and to add provisions with
respect to Section 162(m) of the Internal Revenue Code of 1986, as
amended.
3. To approve the Company's 1996 Non-Employee Directors' Stock Option Plan
and to authorize 250,000 shares of common stock for issuance under such
plan.
4. To ratify the selection of Coopers & Lybrand LLP as the Company's
independent public accountants for its fiscal year ending March 30, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 9, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Bradley A. Perkins
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
Henderson, Nevada
December 20, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
VALENCE TECHNOLOGY, INC.
301 CONESTOGA WAY
HENDERSON, NEVADA 89015
---------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Valence Technology, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Friday, January 31, 1997, at 4:00
p.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at 301 Conestoga Way, Henderson,
Nevada. The Company intends to mail this proxy statement and accompanying proxy
card on or about December 20, 1996 to all stockholders entitled to vote at the
Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of common stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of common stock at the close of business on December
9, 1996 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on December 9, 1996, the Company had outstanding and entitled
to vote 21,671,993 shares of common stock, held of record by 779 persons.
Each holder of record of common stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 301
Conestoga Way, Henderson, Nevada 89015, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1997 Annual Meeting of Stockholders, which is expected to be held on or about
August 28, 1997, must be received by the Company not later than May 1, 1997 in
order to be included in the proxy statement and proxy relating to that Annual
Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
A Board of three (3) directors will be elected at the Annual Meeting. Each
director to be elected will hold office until the next annual meeting of
stockholders and until his successor is elected and has qualified, or until such
director's earlier death, resignation or removal. Each nominee listed below is
currently a director of the Company having previously been elected by the
stockholders.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the three (3) nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE COMPANY
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Calvin L. Reed 54 Chairman of the Board, President, Chief Executive Officer
and Director
Carl E. Berg(1)(2) 58 Director
Alan F. Shugart(1)(2) 66 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Reed joined the Company as President and Chief Operating Officer in July
1991 and became a director of the Company in September 1991. In October 1993,
Mr. Reed was also appointed Chairman of the Board and Chief Executive Officer.
From April 1987 to June 1991, Mr. Reed was Vice President of Operations at
Seagate Technology, Inc. ("Seagate"), a disk drive manufacturer, where he was
responsible for Singapore and Scotts Valley, California operations. From
February 1982 to April 1987, Mr. Reed was Corporate Vice President and General
Manager of IMI/Corvus Systems, a disk drive and computer peripheral
manufacturer, where he was responsible for manufacturing, engineering,
management information systems and corporate facilities operations. Mr. Reed
also serves as a director of O.R. Technology, Inc.
Mr. Berg helped found the Company and has served on the Board of Directors
since September 1991. For more than the past five years, Mr. Berg has been a
major Silicon Valley industrial real estate developer and a private venture
capital investor. Mr. Berg also serves as a director of Integrated Device
Technology, Inc., Videonics, Inc. and Systems Integrated Research.
Mr. Shugart joined the Company as a director in March 1992. Mr. Shugart has
been the Chief Executive Officer and a director of Seagate since its inception
in 1979. Mr. Shugart also served as Seagate's
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President from 1979 to 1983 and from September 1991 to the present.
Additionally, Mr. Shugart served as Chairman of the Board of Seagate from 1979
until September 1991, and from October 1992 to the present.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 31, 1996, the Board of Directors held
three meetings. The Board has an Audit Committee, a Compensation Committee and a
Non-Officer Stock Option Administration Committee. The Board at large serves as
the Nominating Committee.
The Audit Committee meets with the Company's independent accountants at
least annually to review the results of the annual audit and discuss the
financial statements. It recommends the independent public accountants to the
Board and receives and considers the accountants' comments concerning controls,
the adequacy of the Company's staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee met once
during the 1996 fiscal year. It currently is composed of Messrs. Berg and
Shugart, the Company's two non-employee directors.
The Compensation Committee's responsibilities include making recommendations
concerning salaries and incentive compensation, awarding stock options to
employees and consultants under the Company's stock option plans and otherwise
determining compensation levels. The Compensation Committee also performs other
functions regarding compensation that the Board delegates to it. The
Compensation Committee is composed of Messrs. Berg and Shugart, the Company's
two non-employee directors. It met once during the 1996 fiscal year.
The Non-Officer Stock Option Administration Committee administers the
Company's 1990 Stock Option Plan only with respect to non-officer employees and
makes grants to such employees that will not individually exceed 14,500 shares.
All option grants in excess of this limit and all grants to officers must be
approved by either the Compensation Committee or the Board. The Non-Officer
Stock Option Administration Committee is composed of Mr. Reed.
During the fiscal year ended March 31, 1996, each Board member attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.
PROPOSAL 2
AMENDMENT OF 1990 STOCK OPTION PLAN
In July 1990, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1990 Stock Option Plan (the "1990 Plan").
As a result of a series of amendments, at October 31, 1996 there were 2,750,000
shares of the Company's Common Stock authorized for issuance under the 1990
Plan, including all options which have been granted under the 1990 Plan prior to
such date.
At October 31, 1996, options (net of canceled or expired options) covering
an aggregate of 2,557,968 shares of the Company's Common Stock had been granted
under the 1990 Plan, and no shares (other than any shares that might in the
future be returned to the 1990 Plan as a result of cancellation or expiration of
options) remained available for future grant under the 1990 Plan. In
anticipation of receiving stockholder approval for this amendment, the Board has
granted options covering an aggregate of 317,869 shares of the Company's Common
Stock in excess of the authorized number, leaving 432,131 shares (not including
any shares that might in the future be returned to the plan as a result of
cancellation or expiration of options) available for future grant if the
stockholders approve the amendment. Options granted in anticipation of
stockholder approval may not be exercised until stockholder approval is obtained
and such options shall automatically be cancelled if stockholder approval is not
obtained. During the last fiscal year, under the 1990 Plan, the Company has
granted to all current executive officers as a group options to purchase 255,000
shares at exercise prices of $2.69 to $4.50 per share, and to all employees
(excluding executive officers) as a group options to purchase 248,100 shares at
exercise prices of $1.88 to $5.00 per share.
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In May 1996, the Board approved an amendment to the 1990 Plan, subject to
stockholder approval, to enhance the flexibility of the Board, the Compensation
Committee and the Non-Officer Stock Option Administration Committee in granting
stock options to the Company's employees. The amendment increases the number of
shares authorized for issuance under the 1990 Plan from a total of 2,750,000
shares to 3,500,000 shares. The Board adopted this amendment to ensure that the
Company can continue to grant stock options to employees at levels determined
appropriate by the Board.
In December 1996, the Board amended the 1990 Plan, subject to stockholder
approval, generally to permit the Company, under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), to continue to be able to deduct
as a business expense certain compensation attributable to the exercise of stock
options granted under the 1986 Plan. Section 162(m) denies a deduction to any
publicly held corporation for certain compensation paid to specified employees
in a taxable year to the extent that the compensation exceeds $1,000,000 for any
covered employee. See "Federal Income Tax Information" below for a discussion of
the application of Section 162(m). In light of the Section 162(m) requirements,
the Board has amended the 1990 Plan, subject to stockholder approval, to include
a limitation providing that no employee may be granted options under the 1990
Plan during a fiscal year to purchase in excess of 700,000 shares of Common
Stock. Previously, no such formal limitation was placed on the number of shares
available for option grants to any individual during any one fiscal year. In
addition, the 1986 Plan was amended, subject to stockholder approval, to provide
that, in the Board's discretion, directors who grant options to covered
employees generally will be "outside directors" as defined in Section 162(m).
For a description of this requirement, see "Administration."
The Board also amended the 1990 Plan to conform with changes in Section 16
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
Section 422 of the Code.
Stockholders are requested in this Proposal 2 to approve the 1990 Plan, as
amended. If the stockholders fail to approve this Proposal 2, the number of
shares authorized for issuance under the 1990 Plan will remain at 2,750,000
shares and all options granted in excess of that number will remain
unexercisable. In addition, options granted under the 1990 Plan after the Annual
Meeting will not qualify as performance-based compensation and, in some
circumstances, the Company may be denied a business expense deduction for
compensation recognized in connection with the exercise of these stock options.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the 1990 Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1990 Plan are outlined below:
GENERAL
The 1990 Plan provides for the grant of both incentive and nonstatutory (or
supplemental) stock options. Incentive stock options granted under the 1990 Plan
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code. Nonstatutory stock options granted under the 1990 Plan
are intended not to qualify as incentive stock options under the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of
incentive and nonstatutory stock options.
PURPOSE
The 1990 Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the
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services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum efforts for the success of the Company. All of
the Company's approximately 84 employees and consultants are eligible to
participate in the 1990 Plan.
ADMINISTRATION
The 1990 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1990 Plan and, subject to the
provisions of the 1990 Plan, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the 1990 Plan to a committee composed
of not fewer than two (2) members of the Board. Option grants to employees who
are not officers may be made by the Non-Officer Stock Option Administration
Committee. The Board has delegated administration of the 1990 Plan to the
Compensation Committee of the Board. As used herein with respect to the 1990
Plan, the "Board" refers to the Compensation Committee and the Non-Officer Stock
Option Administration Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the 1990 Plan only to employees
(including officers) of the Company and its affiliates. Selected employees
(including officers) and consultants are eligible to receive nonstatutory stock
options under the 1990 Plan.
No option may be granted under the 1990 Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five (5) years from the date of grant. With respect to incentive
stock options granted under the 1990 Plan, the aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect to
which such options are exercisable for the first time by an optionee during any
calendar year (under all such plans of the Company and its affiliates) may not
exceed $100,000.
Subject to stockholder approval of this Proposal 2, the Company has added to
the 1990 Plan a per-employee, per-fiscal year limitation equal to 700,000 shares
of Common Stock. The purpose of adding this limitation is generally to permit
the Company to continue to be able to deduct for tax purposes the compensation
attributable to the exercise of options granted under the 1990 Plan. Previously,
the Board or the Compensation Committee determined in its discretion the number
of shares subject to an option for any employee and no such formal limitation
was placed on the number of shares available for an option to an employee.
STOCK SUBJECT TO THE 1990 PLAN
If options granted under the 1990 Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such options again
becomes available for issuance under the 1990 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1990 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1990 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The
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exercise price of nonstatutory options under the 1990 Plan may not be less than
85% of the fair market value of the Common Stock subject to the option on the
date of the option grant. However, if options were granted with exercise prices
below market value, deductions for compensation attributable to the exercise of
such options could be limited by Section 162(m). See "Federal Income Tax
Information." At October 31, 1996, the closing price of the Company's Common
Stock as reported on the Nasdaq National Market System was $4.6875 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. The Company has provided that opportunity to employees in
the past. To the extent required by Section 162(m), an option repriced under the
1990 Plan is deemed to be canceled and a new option granted. Both the option
deemed to be canceled and the new option deemed to be granted will be counted
against the 700,000 share limitation.
The exercise price of options granted under the 1990 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
OPTION EXERCISE. Options granted under the 1990 Plan may become exercisable
in cumulative installments ("vest") as determined by the Board. Shares covered
by currently outstanding options under the 1990 Plan typically vest at the rate
of 20% on each of the first and second anniversaries of the grant date and 5%
every three (3) months thereafter during the optionee's employment or service as
a consultant. The Board has determined that shares covered by options to be
granted in the future will typically vest at the rate of 25% on the first
anniversary of the grant date and 6.25% every three (3) months thereafter.
Shares covered by options granted in the future under the 1990 Plan may be
subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, options granted under
the 1990 Plan may permit exercise prior to vesting, but in such event the
optionee may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested should the
optionee leave the employ of the Company prior to vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionee, by delivering already-owned stock
of the Company or by a combination of these means.
TERM. The maximum term of options under the 1990 Plan is ten (10) years,
except that in certain cases (see "Eligibility") the maximum term is five (5)
years. Options under the 1990 Plan terminate three (3) months after termination
of the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination is due to
such person's permanent and total disability (as defined in the Code), in which
case the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within three (3) months after termination of such relationship, in
which case the option may, but need not, provide that it may be exercised (to
the extent the option was exercisable at the time of the optionee's death)
within eighteen (18) months of the optionee's death by the person or persons to
whom the rights to such option pass by will or by the laws of descent and
distribution; or (c) the option by its terms specifically provides otherwise.
Individual options by their terms may provide for exercise within a longer or
shorter period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited under then current securities
laws.
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ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1990 Plan or subject to
any option granted under the 1990 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1990 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during a fiscal year, and the class, number
of shares and price per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1990 Plan provides that, in the event of a dissolution or liquidation of
the Company, specified type of merger or other corporate reorganization, to the
extent permitted by law, any surviving corporation will be required to either
assume options outstanding under the 1990 Plan or substitute similar options for
those outstanding under such plan, or such outstanding options will continue in
full force and effect. In the event that any surviving corporation declines to
assume or continue options outstanding under the 1990 Plan, or to substitute
similar options, then the options will terminate if not exercised prior to such
time.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1990 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1990 Plan will terminate on July 17, 2000.
The Board may also amend the 1990 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve (12) months before or after its adoption by the Board
if stockholder approval is required in order for the Plan to satisfy Section 422
of the Code, Rule 16b-3 ("Rule 16b-3") of the Exchange Act; or the Nasdaq or
securities exchange rules, as applicable. The Board may submit any other
amendment to the 1990 Plan for stockholder approval, including, but not limited
to, amendments intended to satisfy the requirements of Section 162(m) of the
Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1990 Plan, an option may be transferred by the optionee in limited
circumstances only as provided in the optionee's option agreement or pursuant to
a will or by the laws of descent and distribution and, during the lifetime of
the optionee, may be exercised only by the optionee. In addition, shares subject
to repurchase by the Company under an early exercise stock purchase agreement
may be subject to restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1990 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two (2) years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market
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value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on whether the stock was held
for more than one year. Long-term capital gains currently are generally subject
to lower tax rates than ordinary income. The maximum capital gains rate for
federal income tax purposes is currently 28% while the maximum ordinary income
rate is effectively 39.6% at the present time. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1990 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. In 1993, the Code was amended
to add Section 162(m), which denies a deduction to any publicly-held corporation
for compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee, as such term is defined
in Section 162(m) and the regulations thereunder. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan contains
a per-employee limitation on the number of shares for which options may be
granted during a specified period, the per-employee limitation is approved by
the stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by stockholders.
8
<PAGE>
PROPOSAL 3
APPROVAL OF THE 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1996, the Board adopted, subject to stockholder approval, the
1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") and
reserved 250,000 shares of Common Stock for issuance thereunder. The Board
adopted the Directors' Plan in order to attract and retain the services of
persons capable of serving on the Board of the Company.
In December 1996, the Board amended the Directors' Plan to conform with
Section 16 of the Exchange Act.
Stockholders are requested in this Proposal 3 to approve the adoption of the
Directors' Plan. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Directors' Plan. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Directors' Plan are outlined below:
GENERAL
The Directors' Plan provides for automatic, non-discretionary grants of
nonstatutory stock options. Options granted under the Directors' Plan are not
intended to qualify as incentive stock options, as defined under Section 422 of
the Code.
PURPOSE
The purpose of the Directors' Plan is to retain the services of persons now
serving as Non-Employee Directors of the Company (as defined below), to attract
and retain the services of persons capable of serving on the Board and to
provide incentives for such persons to exert maximum efforts to promote the
success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board. The Board has the final
power to construe and interpret the Directors' Plan and options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board is authorized to delegate administration of the
Directors' Plan to a committee of not less than two (2) members of the Board. As
used herein with respect to the Directors' Plan, the "Board" refers to any such
committee as well as to the Board of Directors itself.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
Non-Employee Directors of the Company. A "Non-Employee Director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of the Company or any affiliate of the Company. Two (2) of the
Company's three (3) current directors are eligible to participate in the
Directors' Plan.
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
NON-DISCRETIONARY GRANTS. Option grants under the Directors' Plan are
non-discretionary and made solely in accordance with the express provisions of
the Directors' Plan.
Each Non-Employee Director who was serving on the Board on February 13, 1996
(the "Effective Date") who had never previously been granted an option by the
Company was granted an option to purchase one hundred thousand (100,000) shares
of Common Stock on such date. In addition, each person
9
<PAGE>
who is first elected to the Board, and who otherwise qualifies as a Non-Employee
Director, after the Effective Date shall be granted, at the time of such
election, an option to purchase one hundred thousand (100,000) shares of Common
Stock. (The first grant received by a Non-Employee Director under the Directors'
Plan shall hereafter be referred to as the "Initial Grant.") Thereafter, on each
anniversary date of an Initial Grant, whether such anniversary is the Effective
Date of the Directors' Plan or the anniversary of initial election to the Board,
each Non-Employee Director who continues to serve on the Board shall
automatically be granted an option (an "Annual Grant") to purchase that number
of shares equal to the difference between (i) one hundred thousand (100,000)
shares and (ii) that number of shares underlying all other option grants held by
the Non-Employee Director on the date of Annual Grant which have not vested as
of the date of grant of such Annual Grant. No options other than the Initial
Grants and Annual Grants described above may be granted under the Directors'
Plan.
OPTION EXERCISE. An Initial Grant shall vest and become exercisable with
respect to twenty percent (20%) of the option shares on each of the first and
second anniversaries of the Initial Grant grant date and with respect to the
remaining sixty percent (60%) of the option shares in twelve (12) equal
quarterly installments over the following three (3) years thereafter. An Annual
Grant shall vest and become exercisable with respect to the option shares in
twelve (12) equal quarterly installments. Such vesting is conditioned upon
continued service as a Non-Employee Director or employee of or consultant to the
Company. Subject to provisions contained herein, no option granted under the
Directors' Plan may be exercised with respect to unvested shares after the date
service as a Non-Employee Director or employee of or consultant to the Company
has terminated. See "Effect of Certain Corporate Events" below.
An option may not be exercised for less than one thousand (1,000) shares
unless (i) the entire number of shares subject to a vested installment is less
than one thousand (1,000) or (ii) the exercise represents the final exercise of
the option.
EXERCISE PRICE; PAYMENT. The exercise price of options granted under the
Directors' Plan shall be equal to one hundred percent (100%) of the fair market
value of the Common Stock on the date such option is granted. Fair market value,
for purposes of the Directors' Plan, shall be the last sale price per share of
the Company's Common Stock as quoted on the Nasdaq National Market on the date
of the option grant. The exercise price of options granted may be paid (i) in
cash, (ii) in shares of Common Stock of the Company at the time the option is
exercised or (iii) or pursuant to a "same-day" sale program which results in the
receipt of cash (or check) by the Company prior to the issuance of shares of the
Common Stock. However, to the extent an option is exercised for one thousand
(1,000) shares or less, the exercise price must be paid in cash.
TRANSFERABILITY; TERM. Under the Directors' Plan, an option is not
transferable, except as specifically provided for in the option agreement,
pursuant to a will or the laws of descent and distribution, or pursuant to a
domestic relations order. No option granted under the Directors' Plan is
exercisable by any person after the expiration of ten (10) years from the date
the option is granted.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan, as may be
determined by the Board in its sole discretion.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the
Directors' Plan and the class, number of shares and price per share of stock
subject to outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of certain specified types of merger or other corporate
reorganizations, to the extent permitted by law, the time during which
outstanding options may be exercised shall be accelerated and the
10
<PAGE>
options terminated if not exercised prior to such event. The acceleration of an
option in the event of an acquisition or similar corporate event may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Directors' Plan at any time or
from time to time; provided, however, that the Board may not amend the
Directors' Plan with respect to the amount, price or timing of grants more often
than once every six (6) months other than to comport with changes to the Code.
No amendment will be effective unless approved by the stockholders of the
Company within twelve (12) months before or after its adoption by the Board if
such amendment requires stockholder approval in order for the Directors' Plan to
meet the requirements of Rule 16b-3 or the Nasdaq or securities exchange rules,
as applicable.
CERTAIN FEDERAL INCOME TAX INFORMATION
Options granted under the Directors' Plan are subject to federal income tax
treatment pursuant to rules governing options that are not incentive stock
options under Section 422 of the Code. The following is only a summary of the
effect of federal income taxation upon the optionee and the Company with respect
to the grant and exercise of options under the Directors' Plan, does not purport
to be complete and does not discuss the income tax laws of any state or foreign
country in which an optionee may reside.
Options granted under the Directors' Plan are nonstatutory stock options.
There are no tax consequences to the optionee or the Company by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the fair market value of the Common Stock on the date of exercise
over the option exercise price. Because the optionee is a director of the
Company, under existing laws, the date of taxation (and the date of measurement
of taxable ordinary income) may in some instances be deferred unless the
optionee files an election under Section 83(b) of the Code. The filing of a
Section 83(b) election with respect to the exercise of an option may affect the
time of taxation and the amount of income recognized at each such time. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income at the time the
option was exercised. Such gain or loss will be long or short-term depending on
whether the stock was held for more than one year.
DIRECTORS' PLAN BENEFITS
The following table presents certain information with respect to options
held under the Directors' Plan by each Non-Employee Director and to all
Non-Employee Directors as a group as of October 31, 1996:
<TABLE>
<CAPTION>
DOLLAR NUMBER OF SHARES
VALUE SUBJECT TO
NAME ($)(1) OPTIONS GRANTED
- ------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Carl E. Berg................................................. 450,000 100,000
Alan F. Shugart.............................................. 360,000 80,000
All Non-Employee Directors as a group (2 persons)............ 810,000 180,000
</TABLE>
- ------------------------
(1) Aggregate exercise price of options.
11
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand LLP as the Company's
independent accountants for the fiscal year ending March 30, 1997, and has
further directed that management submit the selection of independent accountants
for ratification by the stockholders at the Annual Meeting. Coopers & Lybrand
LLP has audited the Company's financial statements since January 1992.
Representatives of Coopers & Lybrand LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Coopers & Lybrand LLP as the
Company's independent accountants is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Coopers & Lybrand
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of a different independent accounting firm at any time during
the year if they determine that such a change would be in the best interests of
the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares represented
in person or by proxy and entitled to vote at the meeting will be required to
ratify the selection of Coopers & Lybrand LLP.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
12
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's common stock as of October 31, 1996 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation table under the caption "Executive Compensation" below; (iii) all
directors and executive officers of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent (5%) of
its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Carl E. Berg(2)....................................................... 4,047,822 17.68%
10050 Bandley Drive
Cupertino, CA 95014
Bell Communications Research, Inc..................................... 1,500,000 6.92%
445 South Street
Morristown, NJ 07960
Calvin L. Reed(3)..................................................... 596,225 2.68%
William J. Masuda(3).................................................. 131,547 *
Alan F. Shugart(3).................................................... 115,000 *
Bradley A. Perkins(3)................................................. 80,115 *
R. Joseph Horning (3)................................................. 70,440 *
Ralph Brodd(3)........................................................ 58,015 *
All directors and executive officers as a group (8 persons)(4)........ 5,123,296 21.37%
</TABLE>
- ------------------------
* Less than one percent (1%)
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13G filed with the Securities and
Exchange Commission (the "Commission"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially owned.
Applicable percentage ownership is based on 21,671,993 shares of common
stock outstanding on October 31, 1996, adjusted as required by rules
promulgated by the Commission.
(2) Includes 150,000 shares held by Mr. Berg; 1,222,825 shares issuable upon
exercise of warrants held by Baccarat Electronics, Inc., of which Mr. Berg
is President and principal stockholder; 2,499,997 shares held by Baccarat
Development Partnership for which Mr. Berg serves as the President of the
corporate general partner; 105,000 shares held by Berg & Berg Enterprises,
Inc. and 70,000 shares held by Berg & Berg Profit Sharing Plan U/A 1/1/80
FBO Carl E. Berg Basic Transfer, Carl E. Berg, Trustee. Does not include
80,000 shares held in trust for Mr. Berg's children. Mr. Berg is not a
trustee of the trust and he disclaims beneficial ownership of such shares.
(3) All shares are issuable upon exercise of options that are exercisable within
60 days of October 31, 1996.
(4) Includes 1,222,825 of these shares are issuable upon exercise of warrants
and 1,075,474 issuable upon exercise options.
13
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Company's Non-Employee Directors receive no cash compensation, but are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings in accordance with Company policy. In addition,
Non-Employee Directors receive automatic option grants pursuant to the
Directors' Plan (See Proposal 3, above). Directors who are employees of the
Company do not receive separate compensation for their services as directors,
but are eligible to receive stock options under the 1990 Plan.
During the last fiscal year, the Company granted options covering an
aggregate of 180,000 shares to Non-Employee Directors of the Company at an
exercise price per share of $4.50. The fair market value of such Common Stock on
the date of grant was $4.50 per share (based on the closing sales price reported
on the Nasdaq National Market for the date of grant). As of October 31, 1996, no
options had been exercised under the Directors' Plan.
14
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended March 31, 1996, March
26, 1995 and March 27, 1994, certain compensation awarded or paid to, or earned
by the Company's Chief Executive Officer and its other four most highly
compensated executive officers at March 31, 1996 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS(1) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------------------- ----------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Calvin L. Reed 1996 $ 250,000 -- -- 30,000 $ 4,854(2,4)
President and Chief 1995 $ 252,115 -- -- 150,000 $ 49,923(3)
Executive Officer 1994 $ 247,115 -- -- -- $ 4,176(2)
William J. Masuda 1996 $ 175,000 -- -- -- $ 476(4)
Executive Vice President, 1995 $ 165,084 -- -- 100,000 --
Worldwide Operations 1994 $ 141,156 -- -- -- $ 625(4)
R. Joseph Horning 1996 $ 145,600 -- $ 12,500(5) 10,000 $ 48,531(3)
Vice President, Engineering 1995 $ 141,241 -- -- 136,000 --
1994 $ 123,558 -- $ 14,705(5) -- --
Bradley A. Perkins 1996 $ 130,000 -- $ 11,898(5) 10,000 $ 7,679(3,4)
Vice President and General 1995 $ 128,269 -- -- 97,000 --
Counsel 1994 $ 124,346 -- -- 60,000 --
Ralph Brodd 1996 $ 127,404 -- $ 13,035(5) 80,000 $ 28,331(3,4)
Vice President, Research and 1995 $ 109,038 -- -- 15,000 --
Development 1994 $ 71,632 -- -- -- --
</TABLE>
- ------------------------
(1) The Company has no stock appreciation rights ("SARs").
(2) Life insurance premium payments.
(3) Relocation expenses (moving expenses, tax gross-up payments related to sale
of home, meals, relocation payment, travel expenses, etc.) related to the
Company's move to Henderson, Nevada.
(4) Patent award payments. Patent awards are granted to employees of the Company
for inventions made by employees for which they have submitted invention
disclosures to the Company, for which the Company has filed a patent
application with the United States Patent and Trademark Office, or for which
a patent has been issued by the United States Patent and Trademark Office.
(5) Amounts forgiven under loans provided to the Named Executive Officer by the
Company.
15
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers pursuant to its 1990
Plan. As of October 31, 1996, options to purchase a total of 2,557,968 shares
were outstanding under the 1990 Plan and no shares remained available for grant
thereunder (See Proposal 2, above). The following tables show for the fiscal
year ended March 31, 1996, certain information regarding options granted to,
exercised by, and held at year end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS(1) GRANTED TO EXERCISE OR OPTION TERM(3)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- ---------------------------------------- ----------- -------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Calvin L. Reed.......................... 30,000 5.96% 4.50 3/24/06 85,050 214,650
William J. Masuda....................... 15,000 2.98% 4.50 3/24/06 42,525 107,325
R. Joseph Horning....................... 10,000 1.99% 4.50 3/24/06 28,350 71,550
Bradley A. Perkins...................... 10,000 1.99% 4.50 3/24/06 28,350 71,550
Ralph Brodd............................. 70,000 13.91% 2.69 5/02/05 118,629 299,397
10,000 1.99% 4.50 3/24/06 28,350 71,550
</TABLE>
- ------------------------
(1) Options granted under the 1990 Plan typically vest over a five (5) year
period, 20% on each of the first and second anniversaries of the grant date
and 5% every three (3) months thereafter. During 1996, the Company issued
options becoming exercisable every three (3) months through the option
vesting period, and options vesting over a three (3) year period with 8.33%
of the options becoming exercisable every three (3) months through the
option vesting period. The Board of Directors may reprice the options under
the terms of the Company's 1990 Plan.
(2) Based on an aggregate of 503,100 options granted to employees, including the
Named Executive Officers, in fiscal year 1996.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, 10 years, compounded annually. It is calculated by
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price. No gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
16
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END (#) AT FY-END ($)(2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------- --------------- ----------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Calvin L. Reed..................... -0- -0- 531,099(1)/127,500 $1,969,351(1)/48,750
William J. Masuda.................. -0- -0- 86,250/88,750 256,725/125,875
R. Joseph Horning.................. -0- -0- 57,200/136,800 37,528/84,232
Bradley A. Perkins................. -0- -0- 49,100/95,900 98,206/86,654
Ralph Brodd........................ -0- -0- 31,500/87,500 89,765/140,075
</TABLE>
- ------------------------
(1) Does not include 221,406 vested options awarded to Mr. Reed's former wife
pursuant to a marital dissolution decree.
(2) Based on the fair market value of the Company's Common Stock as of March 31,
1996 ($4.3125) minus the exercise price of the options multiplied by the
number of shares underlying the option.
EMPLOYMENT AGREEMENTS
In May 1991, the Company entered into an agreement with Mr. Reed pursuant to
which Mr. Reed joined the Company as its President and Chief Operating Officer
for an annual salary of $250,000. The Company also granted Mr. Reed an option to
purchase 700,000 shares of common stock at an exercise price of $0.25 per share,
20% of the option shares were vested immediately and the remainder vested over a
four-year period.
In January 1993, the Company entered into an employment agreement with Mr.
Horning pursuant to which the Company retained Mr. Horning as its Director of
Product Engineering for an annual salary of $125,000. The Company granted Mr.
Horning an option to purchase 22,000 shares of common stock at an exercise price
of $22.75 per share, vesting over a five-year period. In addition, the Company
agreed to pay Mr. Horning's relocation expense. The Company also loaned Mr.
Horning $45,000 pursuant to a loan agreement, in which the Company forgave the
loan at a rate of $15,000 per year of his employment. Mr. Horning became a Vice
President of the Company in September 1993.
OPTION REPRICING INFORMATION
The following table shows certain information concerning option repricings
received by any Named Executive Officer during the last ten (10) years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE
UNDERLYING OF STOCK AT EXERCISE LENGTH OF
OPTIONS TIME OF PRICE AT TIME NEW ORIGINAL OPTION
REPRICED OR REPRICING OR OF REPRICING EXERCISE TERM REMAINING AT
AMENDED AMENDMENT OR AMENDMENT PRICE DATE OF REPRICING
NAME DATE (#) ($) ($) ($) OR AMENDMENT
- -------------------------------- --------- ----------- ------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
R. Joseph Horning............... 01/18/93 22,000 $ 11.50 $ 22.75 $ 11.50 4.75 years
</TABLE>
17
<PAGE>
COMPENSATION COMMITTEE REPORT*
The Compensation Committee of the Board of Directors (the "Committee")
consists of Messrs. Berg and Shugart, neither of whom is currently an employee
or an officer of the Company. It is the responsibility of the Committee to
establish and administer the Company's policies governing employee compensation
and to administer the Company's employee benefits plans, including the 1990
Plan. The Committee evaluates the performance of management, determines
compensation policies and levels, and makes decisions concerning salaries and
incentive compensation.
The Company's executive compensation program is designed to attract and
retain executives capable of leading the Company in its pursuit of its business
objectives and to motivate them in order to enhance long-term stockholder value.
Long-term equity compensation is also used to harmonize the interests of
management and stockholders. The main elements of the program are competitive
pay and equity incentives. Annual compensation for the Company's executive
officers historically consists of two elements: cash salary and stock options.
The Company does not have a management bonus plan; however, it is expected that
as the Company moves from being primarily involved in research and development
to being a manufacturing company, the Committee will recommend the institution
of a bonus plan as well.
The Committee considers a variety of individual and corporate factors in
assessing the Company's executive officers and making informed compensation
decisions. These factors include each officer's contributions to the Company,
the compensation paid by comparable companies to employees in similar
situations, and, most importantly, the progress of the Company towards its
long-term business objectives. When determining compensation for executive
officers, the committee looks to the following measures in evaluating the
Company's progress: (i) the acquisition and management of capital to allow the
Company to complete development and ultimately realize significant revenues,
(ii) the recruitment and retention of officers and other important personnel,
(iii) the progress of the Company's product development program, and (iv) the
evolution of manufacturing capability. The factors which are used by the
Committee in evaluating the compensation of the Chief Executive Officer are no
different from those which are used to evaluate the compensation of other
executives.
During the fiscal 1996, the Committee provided stock option grants to the
executive officers of the Company pursuant to the 1990 Plan. The exercise price
of the option grants were equal to the fair market value of the Company's Common
Stock on the date of grant. The executive officers received a total of 145,000
shares. The Committee based this determination on the need to incentivize the
staff in connection with the Company's efforts to commercialize the technology.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The Committee believes that at the present time it is unlikely that the
compensation paid to any Named Executive Officer in a taxable year which is
subject to the deduction limit will exceed $1 million. However, the Committee
has determined that stock awards granted under the 1990 Plan with an exercise
price at least equal to the fair market value of the Company's Common Stock on
the date of grant shall be treated as "performance-based compensation."
Carl E. Berg
Alan F. Shugart
- ------------------------
* The material in this report is not "soliciting material," is not deemed filed
with the SEC and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933 as amended (the "1933 Act") or the
Exchange Act.
18
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 31, 1996, the Compensation Committee
consisted of Messrs. Shugart and Berg.
From July 1990 to March 1992, the Company issued warrants exercisable for an
aggregate of 1,222,825 shares of common stock to Baccarat Electronics, Inc., an
entity affiliated with Mr. Berg, at an exercise price of $4.00 per share, in
consideration for a loan agreement in which such entity agreed to lend the
Company an aggregate of up to $5,000,000 (the "Loan Agreement"). Under the terms
of the Loan Agreement, the Company executed a promissory note payable in full in
July 1995 with 9% interest per annum through July 1993 and the prime rate
thereafter. In addition, to secure its obligations under the promissory note,
the Company granted to the entity a security interest in all of the Company's
assets. In August 1992, the Company entered into an amendment to the Loan
Agreement which allows the Company to borrow, prepay and re-borrow up to the
full $5,000,000 principal under the promissory note on a revolving basis and
provided that the lender will subordinate its security interest to other lenders
when the loan balance is at zero. In September 1992, the Company paid in full
all interest and principal outstanding under the Loan Agreement. As of March 31,
1996, the Company had no outstanding balance under the Loan Agreement.
The Company had two facilities in San Jose, California, which it no longer
occupies, under a five-year lease commencing May 1, 1993 with Berg & Berg
Developers. Carl E. Berg, a director of the Company, is a general partner of
Berg & Berg Developers. The Company has sublet, through Berg & Berg Developers,
both facilities for the entire term remaining on the lease, thereby releasing
the Company from any further obligation.
19
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON**
The following chart shows total stockholder return for the periods indicated
for each of (i) the Company's common stock, (ii) the Standard & Poors 500 Index
(the "S&P 500"), and (iii) Hambrecht & Quist Growth Index, a subset of the
Hambrecht & Quist Technology Index.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT*
AMONG VALENCE TECHNOLOGY, INC., THE NASDAQ STOCK MARKET--US INDEX,
AND THE HAMBRECHT & QUIST GROWTH INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALENCE TECHNOLOGY, INC. NASDAQ STOCK MARKET-US HAMBRECHT & QUIST GROWTH
<S> <C> <C> <C>
5/07/92 100 100 100
3/26/93 157 120 107
3/25/94 180 130 123
3/26/95 19 144 152
3/31/96 49 196 230
* $100 INVESTED ON
05/07/92 IN STOCK OR
ON 04/30/92 IN INDEX -
INCLUDING REINVESTMENT
OF DIVIDENDS.
</TABLE>
- ------------------------
** The material in this report is not "soliciting material," is not deemed to be
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the 1933 Act or the 1934 Act whether made before the
date hereof and irrespective of any general incorporation in any such filing.
20
<PAGE>
CERTAIN TRANSACTIONS
In March 1995, the Company entered into a relocation loan agreement with Mr.
Perkins, pursuant to which the Company agreed to lend $40,560 to Mr. Perkins at
an annual interest rate of 6%. The principal and interest shall be forgiven on a
monthly basis over a three-year period while Mr. Perkins remains an employee of
the Company. In the event Mr. Perkins ceases to be an employee of the Company,
the unforgiven portion of the principal and interest shall become due and
payable six (6) months following the cessation of Mr. Perkins employment
relationship with the Company.
In March 1995, the Company entered into a relocation loan agreement with Mr.
Horning, Vice President, Engineering, pursuant to which the Company agreed to
lend $20,000 at an annual interest rate of 6%, repayable upon the earlier of
December 31, 1995, or the sale of Mr. Horning's residence in California. The
loan was extended in December 1995 and was repaid in full on April 12, 1996.
See "Compensation Committee Interlocks and Insider Participation" for a
description certain transactions between the Company and Mr. Berg.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers.
In addition, the Company's Second Restated Certificate of Incorporation
provides that to the fullest extent permitted by Delaware law, the Company's
directors will not be personally liable for monetary damages for breach of the
directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Delaware law.
Each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for acts
or omissions that the director believes to be contrary to the best interests of
the Company or its stockholders, for any transaction from which the director
derived an improper personal benefit, for acts or omissions involving a reckless
disregard for the director's duty to the Company or its stockholders when the
director was aware or should have been aware of a risk of serious injury to the
Company or its stockholders, for acts or omissions that constitute an unexecuted
pattern of inattention that amounts to an abdication of the director's duty to
the Company or its stockholders, for improper transactions between the director
and the Company and for improper distributions to stockholders and loans to
directors and officers. this provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Company has obtained directors and offices liability insurance with
coverage of $2,000,000.
In May 1994, a series of class action lawsuits was filed in the United
States District court for the Northern District of California against the
Company and certain of its present and former officers and directors. These
lawsuits were consolidated, and in September 1994 the plaintiffs filed a
consolidated and amended complaint. Following the Court's Orders on motions to
dismiss the complaint, which were granted in part and denied in part, the
plaintiffs filed an amended complaint in October 1995 ("Complaint"). The
Complaint alleges violations of the federal securities laws against the Company,
certain of its present and former officers and directors, and the underwriters
of the Company's public stock offerings, claiming that the defendants issued a
series of false and misleading statements, including filings with the
21
<PAGE>
Securities and Exchange Commission (the "Commission"), with regard to the
Company's business and future prospects. The plaintiffs seek to represent a
class of persons who purchased the Company's common stock between May 7, 1992
and August 10, 1994. The Complaint seeks unspecified compensatory and punitive
damages, attorney's fees and costs. On January 23, 1996, the Court dismissed,
with prejudice, all claims against the underwriters of the Company's public
stock offerings, and one claim against the underwriters of the Company's public
stock offerings, and one claim against the Company and its present and former
officers and directors. On April 29, 1996, the Court dismissed with prejudice
all remaining claims against a present director and limited claims against a
former officer and director to the period when that person was an officer. The
Company believes that it has meritorious defenses and intends to defend the
lawsuit vigorously. The Company has also made a claim under its directors and
officers liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company and its officers and directors
have been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities (the "10% Owners"), to file
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company with the Commission. Officers,
directors and 10% Owners are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they filed during the previous
fiscal year.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1996, its
officers, directors and 10% Owners were in compliance with all Section 16(a)
filing requirements.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Bradley A. Perkins
VICE PRESIDENT, GENERAL COUNSEL, AND
SECRETARY
December 20, 1996
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1996 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, VALENCE TECHNOLOGY,
INC., 301 CONESTOGA WAY, HENDERSON, NEVADA 89015.
22
<PAGE>
DETACH HERE
PROXY
VALENCE TECHNOLOGY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 31, 1997
The undersigned hereby appoints CALVIN L. REED and DAVID ARCHIBALD, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Valence Technology, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders to be held at the Company's executive offices, 301 Conestoga
Way, Henderson, Nevada 89015 on Friday, January 31, 1997 at 4:00 p.m., local
time, and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with
the following instructions, with discretionary authority as to any and all
other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
-----------
DETACH HERE
/ X / Please mark
votes as in
this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND A
VOTE FOR PROPOSALS 2, 3 AND 4.
1. To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
NOMINEES: Calvin L. Reed, Carl E. Berg and Alan F. Shugart
FOR WITHHELD
/ / / /
/ / MARK HERE
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE FOR ADDRESS / /
CHANGE AND
NOTE BELOW
2. To approve the Company's 1990 Stock Option Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance under
such plan by 750,000 shares and to add provisions with respect to Section
162(m) of the Internal Revenue Code of 1986, as amended.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve the Company's 1996 Non-Employee Directors' Stock Option Plan
and to authorize 250,000 shares of common stock for issuance under such
plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify selection of Coopers & Lybrand LLP as independent auditors of
the Company for its fiscal year ending March 30, 1997.
FOR AGAINST ABSTAIN
/ / / / / /
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Please sign exactly as your name appears hereon. If the stock is registered
in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have
a duly authorized officer sign, stating title. If signer is a partnership,
please sign in partnership name by authorized person.
Signature: Date: Signature: Date:
----------------- --------- ----------------- -------
