<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 1996
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 0-20028
VALENCE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0214673
- ------------------------------------ ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 Conestoga Way, Henderson, Nevada 89015
--------------------------------------------------------------
(Address of prinicpal executive offices including zip code)
(702) 558-1000
--------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $0.001 par value 21,713,793 shares
- -------------------------------------------- ---------------------------------
(Class) (Outstanding at February 3, 1997)
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 29, 1996
INDEX
Pages
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
December 29, 1996 and March 31, 1996..............................3
Condensed Consolidated Statements of Operations
for the period from March 3, 1989 (date of inception)
to December 29, 1996 and for each of the three months and nine
months ended December 29, 1996 and December 24, 1995..............4
Condensed Consolidated Statements of Cash Flows
for the period from March 3, 1989 (date of inception)
to December 29, 1996 and for each of the nine months
ended December 29, 1996 and December 24, 1995.....................5
Notes to Consolidated Financial Statements........................6
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations...............................8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............11
Item 6. Exhibits and Reports on Form 8-K.................................11
SIGNATURES
2
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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
December 29, March 31,
1996 1996
---------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,900 $ 24,569
Short-term investments 6,420 26,492
Accounts receivable 577 545
Interest receivable 254 444
Prepaids and other current assets 214 299
-------- --------
Total current assets 40,365 52,349
Investments 4,000 5,790
Property, plant and equipment, net 12,385 11,752
Other assets 1,087 356
-------- --------
Total assets $ 57,837 $ 70,247
-------- --------
-------- --------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,851 $ 2,277
Accounts payable 1,629 1,251
Accrued expenses 5,279 6,180
Accrued compensation 1,658 1,360
-------- --------
Total current liabilities 10,417 11,068
Long-term debt, less current portion 5,091 6,169
-------- --------
Total liabilities 15,508 17,237
Contingencies (Note 3).
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
Authorized: 10,000 shares;
Issued and outstanding: none
Common stock, $0.001 par value:
Authorized: 50,000 shares;
Issued and outstanding: 21,673 and 21,665 shares at
December 29, 1996 and March 31, 1996, respectively 140,338 140,307
Deficit accumulated during the development stage (99,063) (87,638)
Cumulative translation adjustment 1,054 341
-------- --------
Total stockholders' equity 42,329 53,010
-------- --------
Total liabilities and stockholders' equity $ 57,837 $ 70,247
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
Period from
March 3, 1989
(date of inception)
through Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
December 29 December 29, December 24, December 29, December 24,
1996 1996 1995 1996 1995
----------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research and development
contracts $ 21,605 $ 0 $ 0 $ 0 $ 0
--------- ------- ------- -------- --------
Costs and expenses:
Research and development 67,034 $ 3,570 1,363 $ 8,810 5,531
Marketing 2,624 29 90 152 383
General and administrative 30,317 1,695 1,439 4,122 3,921
Purchase of in-process
technology 8,212 - - - 6,064
Investment in Danish
subsidiary 3,489 - - - -
Special charges 18,872 - - - -
--------- ------- ------- -------- --------
Total costs and expenses 130,548 5,294 2,892 13,084 15,899
--------- ------- ------- -------- --------
Operating loss (108,943) (5,294) (2,892) (13,084) (15,899)
Interest income 13,253 631 912 2,084 2,642
Interest expense (3,737) (139) (172) (425) (716)
--------- ------- ------- -------- --------
Net loss $ (99,063) $(4,802) $(2,152) $(11,425) $(13,973)
--------- ------- ------- -------- --------
--------- ------- ------- -------- --------
Net loss per share $ - $ (0.22) $ (0.11) $ (0.53) $ (0.69)
--------- ------- ------- -------- --------
--------- ------- ------- -------- --------
Shares used in computing
net loss per share - 21,673 20,134 21,672 20,160
--------- ------- ------- -------- --------
--------- ------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
4
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
Period from
March 3, 1989 Nine Months Nine Months
(date of inception) Ended Ended
through December 29, December 24,
December 29, 1996 1996 1995
----------------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (99,063) $ (11,425) $ (13,973)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,927 2,618 2,900
Write-off of equipment 14,767 - (1,085)
Write-off of in-process technology 8,212 - 8,064
Compensation related to stock options 1,451 30 -
Noncash charge related to acquisition of
Danish subsidiary 2,245 - -
Changes in assets and liabilities:
Accounts receivable 512 (32) (280)
Interest receivable (246) 192 1
Notes receivable 115 258 (146)
Prepaid expenses and other current assets (2,157) (899) 85
Accounts payable 1,528 378 (1,431)
Accrued liabilities (1,350) (604) (1,270)
--------- --------- ---------
Net cash used in operating activities (55,059) (9,484) (7,135)
--------- --------- ---------
Cash flows from investing activities:
Purchase of in-process technology (2,001) 0 (2,001)
Purchases of long-term investments (685,348) (288,259) (126,082)
Maturities of long-term investments 676,061 311,255 134,296
Capital expenditures (38,913) (3,040) (441)
Other (222) 0 0
--------- --------- ---------
Net cash provided by (used in)
investing activities (50,423) 19,956 5,772
--------- --------- ---------
Cash flows from financing activities:
Property and equipment grants 4,322 28 675
Borrowings of long-term debt 15,502 - -
Payments of long-term debt:
Product development loan (482) - -
Shareholder and director (6,173) - -
Other long-term debt (10,244) (1,505) (2,503)
Proceeds from issuance of common stock,
net of costs 136,511 0 179
--------- --------- ---------
Net cash provided by (used in)
financing activities 139,436 (1,477) (1,649)
--------- --------- ---------
Effect of foreign exchange rates on cash and cash
equivalents (1,054) (664) (321)
Increase (decrease) in cash and cash equivalents 32,900 8,331 (3,333)
Cash and cash equivalents, beginning of period 0 24,569 16,602
--------- --------- ---------
Cash and cash equivalents, end of period $ 32,900 $ 32,900 $ 13,269
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
-----
1. Interim Condensed Consolidated Financial Statements
---------------------------------------------------
These interim condensed consolidated financial statements are unaudited but
reflect, in the opinion of management all normal recurring adjustments
necessary to present fairly the financial position of Valence Technology,
Inc. and Subsidiaries (the Company) as of December 29, 1996 and March 31, 1996,
its consolidated results of operations and cash flows for the period
from March 3, 1989 (date of inception) to December 29, 1996 and for each of
the three-month and nine-month periods ended December 29, 1996 and December
24, 1995. Because all the disclosures required by generally accepted
accounting principles are not included, these interim condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto in the Company's Annual Report on Form 10-K as
of and for the year ended March 31, 1996. The year end condensed consolidated
balance sheet data as of March 31, 1996 was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The results of operations for the three-month and nine-month periods and the
cash flows for the nine-months ended December 29, 1996 are not necessarily
indicative of results of operations and cash flows for any future period.
2. Net Loss Per Share
------------------
The computation of net loss per share is based on the weighted average number
of common shares outstanding during the period. Common stock options and
warrants have not been included in the computation since their inclusion
would be antidilutive.
3. Contingencies
------------
LITIGATION
In May 1994, a series of class action lawsuits were 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 class action 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 Securities and Exchange 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 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 the person was an officer. The Company believes it has
meritorious defenses and intends to defend the lawsuit vigorously.
The ultimate outcome of these actions cannot presently be determined.
Accordingly, no provision for any liability or loss that may result from
adjudication or settlement thereof has been made in the accompanying
consolidated financial statements.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. Recent Accounting Pronouncements
--------------------------------
During March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires the Company to review for impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In certain situations, an
impairment loss would be recognized. It will be effective for the Companys
fiscal year 1996. The Company has studied the implications of the statement,
and based on its initial evaluation, does not expect it to have a material
impact on the Companys financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation, which
establishes a fair value based method of accounting for stock-based compensation
plans. The Company is currently following the requirements of APB Opinion No.
25, Accounting for Stock Issued to Employees while it studies the implications
of SFAS No. 123 and evaluates the effect, if any, on the financial condition and
results of operations of the Company. SFAS No. 123 will be effective for the
Companys fiscal year 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to the historical information contained herein, the following
discussion contains forward looking statements that involve risk and
uncertainties. The Companys actual results may differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section of the
Companys Annual Report on Form 10-K for the year ended March 31, 1996.
OVERVIEW
The Company was founded in 1989 to develop and commercialize advanced
rechargeable batteries based on lithium and polymer technologies. Since its
inception, the Company has been a development stage company primarily engaged in
acquiring and developing its initial technology, manufacturing limited
quantities of prototype batteries recruiting personnel, and acquiring capital.
To date, other than insubstantial revenues from limited sales of prototype
batteries, the Company has not received any significant revenues from the sale
of products. Substantially all revenues to date have been derived from a
research and development contract with the Delphi Automotive Systems Group
(Delphi, formerly the Delco Remy Division), and operating group of the General
Motors Corporation. The Company has incurred cumulative losses of $99,063,000
from its inception to December 29, 1996.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K as of and for the year ended March 31,
1996.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 29, 1996 AND DECEMBER 24, 1995 (THIRD
QUARTER AND FIRST NINE MONTHS OF FISCAL 1997 AND FISCAL 1996, RESPECTIVELY).
During the three and nine months ended December 29, 1996, the Company
continued development activities under a research and development agreement
with Delphi. Payments were generally made in accordance with the achievement
of certain milestones. No revenues were recognized during the third quarter
and first nine months of fiscal 1997.
In September, 1994 the Company and Delphi signed a new five year agreement to
combine efforts in developing the Company's rechargeable solid state lithium
polymer battery technology. Under the agreement, Delphi and the Company
combined their research and development activities in a new facility in
Henderson, Nevada. The new facility is owned by the Company, with Delphi
paying a fee of $50,000 per month over the five year term of the new
agreement for access to the Company's research and development (of which
$150,000 and $450,000 were recognized during the third quarter and nine
months of fiscal 1997, respectively, as an offset to research and product
development expenses). In addition, Delphi is paying a majority of the
facility's operating costs over the term of the new five year agreement. The
Company is treating both of these payments as an offset to research and
development expense.
Research and development expenses were $3,570,000 and $8,810,000 during the
three and nine months ended December 29, 1996 as compared to $1,363,000 and
$5,531,000 during the same periods of fiscal 1996. The increase between
comparable periods was primarily due to costs incurred to proceed with
manufacturing product in the first half of calendar year 1997.
Marketing expenses were $29,000 and $152,000 for the third quarter and nine
months of fiscal year 1997, respectively, as compared to $90,000 and $383,000
during similar periods of fiscal year 1996. The comparative decrease is the
result of a reduction in headcount, relocation and travel expenses.
General and administrative expenses increased to $4,122,000 during fiscal
1997s first nine months, up from $3,921,000 during the first nine months of
fiscal 1996. The year to year change primarily reflects an increase in
payroll and professional services spending. For the third quarter, general
and administrative expenses increased to
8
<PAGE>
$1,695,000 from $1,439,000 last year primarily as a result of increased legal
expenses and reduction in other income associated with the liquidation of our
Danish subsidiary in fiscal 1996.
Interest income decreased to $631,000 and $2,084,000 during the third quarter
and nine months of fiscal year 1997, respectively, as compared to $912,000 and
$2,642,000 during the prior fiscal year's same periods. The difference is a
result of fewer funds available for investment purposes.
Interest expense was $139,000 and $425,000 during the third quarter and nine
months of fiscal year 1997, respectively, as compared to $172,000 and $716,000
during the prior fiscal year's comparable periods. This decrease is a result of
reduction in long-term debt outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $9,484,000 net cash for operating activities during fiscal year
1997's first nine months whereas it used $7,135,000 during the first nine months
of fiscal year 1996, an increase between comparable periods of $2,349,000. This
net increase primarily resulted from costs associated with the product
commercialization activities.
During the nine months ended December 29, 1996, the Company provided $19,956,000
net cash from investing activities compared to $5,772,000 provided during the
first nine months of fiscal year 1996, an increase of $14,184,000 between
comparable periods. The increase primarily was a result of shortened investment
maturities, resulting in reclassification to cash and cash equivalents.
The Company used $1,477,000 net cash from financing activities during fiscal
year 1997's first nine months versus using $1,649,000 during the first nine
months of fiscal year 1996. This decrease resulted from lower grant levels and
reduced debt repayments.
As a result of the above, the Company had a net increase in cash and cash
equivalents of $8,331,000 during the fiscal year 1997's first nine months,
whereas it had a net decrease of $3,333,000 during the same period of fiscal
year 1996.
The Company's $2,000,000 working capital line of credit is available through
March, 1997. The working capital line collateralizes outstanding letters of
credit, which reduce borrowings otherwise available under the line. As of
December 29, 1996, there are outstanding letters of credit in the amount of
$1,375,000 to assure delivery of raw materials for product commercialization.
During fiscal year 1994, the Company through its Dutch subsidiary, signed an
agreement with the Northern Ireland Industrial Development Board (IDB) to open
an automated manufacturing plant in Northern Ireland in exchange for capital and
revenue grants from the IDB. The Company has also received offers from the IDB
to receive additional grants. The grants available under the agreement and
offers, for an aggregate of up to 27,555,000, generally become available over a
five year period through October 31, 1998. As of December 29, 1996, the Company
had received grants aggregating 3,978,050 reducing remaining grants available to
23,576,950 (US. $39,885,000 as of December 29, 1996). The Company is in the
process of negotiating an extension to the October 31, 1998 committment date
from the IDB.
As a condition to receiving funding from the IDB, the subsidiary must maintain a
minimum of 12,000,000 in debt or equity financing from the Company. Aggregate
funding under the grants is limited to 4,035,000 until the Company has
recognized $4,000,000 in aggregate revenue from the sale of its batteries
produced in Northern Ireland. Given that the Company has no agreements to
supply batteries using its current technology, there are no assurances that the
Company will be able to meet the agreement's revenue test.
The amount of the grants available under the agreement and offers is
primarily dependent on the level of capital expenditures made by the Company.
Substantially all of the funding received under the grants is repayable to
the IDB if the subsidiary is in default under the agreement and offers, which
includes the permanent cessation of business in Northern Ireland. Funding
received under the grants to offset capital expenditures is repayable if
related equipment is sold, transferred or otherwise disposed of during a four
year period after the date of grant. In addition, a portion of funding
received under the grants may also be repayable if the subsidiary fails to
maintain
9
<PAGE>
specified employment levels for the two year period immediately after the end
of the five year grant period. The Company has guaranteed the subsidiary's
obligations to the IDB under the agreement.
There can be no assurance that the Company will be able to meet the requirements
necessary for it to receive and retain grants under the IDB agreement and
offers.
The Company expects that its existing funds as of December 29, 1996, together
with the interest earned thereon, will be sufficient to fund the Company's
operations through the end of fiscal year 1997 and into fiscal 1998. The
Company anticipates that it may need substantial additional funds in the future
for capital expenditures, research and product development, marketing and
general and administrative expenses and to pursue joint venture opportunities.
The Company's cash requirements, however, may vary materially from those now
planned because of changes in the Company's operations, including changes in OEM
relationships or market conditions. There can be no assurance that funds for
these purposes, whether from equity or debt financing agreements with strategic
partners or other sources, will be available on favorable terms, if at all.
Forward looking statments involve a number of risks and uncertaintites
including, but not limited to, market acceptance, changing economic conditions,
risks in product and technology development, effect of the Companys accounting
policies and other risk factors detailed in the Companys Securities and Exchange
Commission filings.
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires the Company to review for impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In certain situations, an
impairment loss would be recognized. It will be effective for the Companys
fiscal year 1996. The Company has studied the implications of the statement,
and based on its initial evaluation, does not expect it to have a material
impact on the Companys financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation, which
establishes a fair value based method of accounting for stock-based compensation
plans. The Company is currently following the requirements of APB Opinion No.
25, Accounting for Stock Issued to Employees while it studies the implications
of SFAS No. 123 and evaluates the effect, if any, on the financial condition and
results of operations of the Company. SFAS No. 123 will be effective for the
Companys fiscal year 1997.
10
<PAGE>
Part II - OTHER INFORMATION
The discussion and analysis below, and throughout this report, contains forward
looking statements within the meaning of Section 27A of the Securities and
Exchange Act of 1934. Actual results could differ materially from those
projected or suggested in the forward looking statements as a result of the risk
factors set forth herein and in the Companys Annual Report on Form 10-K as of
and for the year ended March 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders of the Company was held on January 31,
1997.
Companys stockholders elected the Boards nominees as directors by the votes
indicated:
Nominee Votes For Votes Withheld
------- --------- --------------
Calvin L. Reed 18,048,277 1,286,457
Carl E. Berg 18,046,110 1,288,624
Alan F. Shugart 18,047,477 1,287,257
The selection of Coopers & Lybrand as the Companys independent auditors was
ratified with 18,976,410 votes in favor, 199,048 against and 159,276
abstentions.
The proposal to amend the 1990 Stock Option Plan to increase the aggregate
number of shares of common stock authorized for issuance by 750,000 shares and
to add provisions with respect to Section 162(m) of the Internal Revenue Code of
1986, as amended was ratified with 16,598,945 votes in favor, 2,285,725 against
and 206,014 abstentions.
The proposal to adopt the 1996 Non-Employee Directors Stock Option Plan and the
issuance of 250,000 shares of common stock under the plan was ratified with
15,021,733 votes in favor, 3,827,938 against and 241,013 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
Exhibit 11.1 Statement of Calculation of Net Loss Per Share
Exhibit 10.42 1990 Stock Option Plan
Exhibit 10.43 1996 Non-Employee Directors Stock Option Plan
b. Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended
December 29, 1996.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
VALENCE TECHNOLOGY, INC.
(Registrant)
Date: February 7, 1997 By: /s/ David Archibald
------------------------------------------
David Archibald
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
12
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Exhibit 11.1
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
STATEMENT OF CALCULATION OF NET LOSS PER SHARE
(Unaudited)
(in thousands, except per share amounts)
-----
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- ------------------------------
December 29, December 24, December 29, December 24,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual weighted average shares of common stock
outstanding for the period 21,673 20,134 21,672 20,160
Net loss for period $(4,802) $(2,152) $(11,425) $(13,973)
Net loss per share for period $ (0.22) $ (0.11) $ (0.53) $ (0.69)
</TABLE>
Dilutive common stock warrants and stock options have not been included in
the calculations of common and common equivalent shares to calculate net loss
per share, as their inclusion would be antidilutive.
13
<PAGE>
1990 STOCK OPTION PLAN
1. PURPOSE
a. The purpose of the Plan is to provide a means by which selected key
employees and directors (if declared eligible under paragraph 4) of and
consultants to Valence Technology, Inc., a Delaware corporation (the "Company"),
and its Affiliates, as defined in subparagraph 1(b), may be given an opportunity
to purchase stock of the Company.
b. The word "Affiliate" as used in the Plan means any parent corporation or
subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
c. The Company, by means of the Plan, seeks to retain the services of persons
now employed by or serving as consultants or directors to the Company, to secure
and retain the services of new employees/persons capable of filling such
positions, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
d. The Company intends that the options issued under the Plan shall, in the
discretion of the Board of Directors of the Company (the "Board") or any
committee to which responsibility for administration of the Plan has been
delegated pursuant to subparagraph 2(c), be either incentive stock options as
that term is used in Section 422 of the Code ("Incentive Stock Options"), or
options which do not qualify as incentive stock options ("Supplemental Stock
Options"). All options shall be separately designated Incentive Stock Options
or Supplemental Stock Options at the time of grant, and in such form as issued
pursuant to paragraph 5, and a separate certificate or certificates shall be
issued for shares purchased on exercise of each type of option. An option
designated as a Supplemental Stock Option shall not be treated as an incentive
stock option.
2. ADMINISTRATION
a. The Plan shall be administered by the Board unless and until the Board
delegates administration to a committee, as provided in subparagraph 2(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
b. The Board shall have the power, subject to, and within the limitations of,
the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under the
Plan shall be granted options; when and how the option shall be granted;
whether the option will be an Incentive Stock Option or a Supplemental
Stock Option; the provisions of each option granted (which need not be
identical), including the time or times during the term of each option
within which all or portions of such option may be exercised; and the
number of shares for which an option shall be granted to each such person.
(2) To construe and interpret the Plan options granted under it, and to
establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan or in any option agreement, in a manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective.
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company.
c. The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two
(2) or more Non-Employee Directors, in accordance with Rule 16b-3. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may
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be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
d. "Non-Employee Director" means a director who either (I) is not a current
employee or officer of the Company or its parent or subsidiary, does not receive
compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
e. "Outside Director" means a director who either (I) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
3. SHARES SUBJECT TO THE PLAN
a. Subject to the provisions of paragraph 9 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate Three Million Five Hundred Thousand
(3,500,000) shares of the Company's common stock. If any option granted under
the Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
b. The stock subject to the Plan may be unissued reacquired shares, bought on
the market or otherwise.
c. An Incentive Stock Option may be granted to an eligible person under the
Plan only if the aggregate fair market value (determined at the time the option
is granted) of the stock with respect to which incentive stock options (as
defined in the Code) granted after 1986 are exercisable for the first time by
such optionee during any calendar year under all incentive stock option plans of
the Company and its Affiliates does not exceed one hundred thousand dollars
($100,000). Should it be determined that an option granted under the Plan
exceeds such maximum for any reason other than the failure of a good faith
attempt to value the stock subject to the option, such option shall be
considered a Supplemental Stock Option to the extent, but only to the extent, of
such excess; provided, however, that should it be determined that an entire
option or any portion thereof does not qualify for treatment as an incentive
stock option by reason of exceeding such maximum, such option or the applicable
portion shall be considered a Supplemental Stock Option.
4. ELIGIBILITY
a. Incentive Stock Options may be granted only to employees (including
officers) of the Company or its Affiliates. A director of the Company shall not
be eligible to receive Incentive Stock Options unless such director is also an
employee (including an officer) of the Company or any Affiliate. Supplemental
Stock Options may be granted only to key employees (including officers) of,
directors of or consultants to the Company or its Affiliates.
b. Subject to the provisions of Section 9 relating to adjustments upon changes
in stock, no person shall be eligible to be granted options covering more than
seven hundred thousand (700,000) shares of the Company's common stock in any
fiscal year.
c. No person shall be eligible for the grant of an option under the Plan if,
at the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such option is at least one hundred ten
percent (110%) of the fair market value of such stock at the date of grant and
the term of the option does not exceed five (5) years from the date of grant.
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5. OPTION PROVISIONS
Each option shall be in such form and shall contain such terms and conditions as
the Board or the Committee shall deem appropriate. The provisions of separate
options need not be identical, but each option shall include (through
incorporation of provisions hereof by reference in the option or otherwise) the
substance of each of the following provisions:
a. The term of any option shall not be greater than ten (10) years from the
date it was granted.
b. The exercise price of each Incentive Stock Option shall be not less than
one hundred percent (100%) of the fair market value of the stock subject to the
option on the date the option is granted. The exercise price of each
Supplemental Stock Option shall be not less than eighty-five percent (85%) of
the fair market value of the stock subject to the option on the date the option
is granted.
c. The purchase price of stock acquired pursuant to an option shall be paid,
to the extent permitted by applicable statutes and regulations, either:
(i) in cash at the time the option is exercised, or
(ii) at the discretion of the Board or the Committee, either at the time of
the grant or exercise of the option,
(A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of
other common stock of the Company) with the person to whom the option
is granted or to whom the option is transferred pursuant to
subparagraph 5(d), or
(C) in any other form of legal consideration that may be acceptable
to the Board or the Committee.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
d. An Incentive Stock Option shall not be transferable except by will or by
the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Incentive Stock Option is granted only by
such person. A Supplemental Stock Option may be transferred to the extent
provided in the option agreement; provided that if the option agreement does not
expressly permit the transfer of a Supplemental Stock Option, the Supplemental
Stock Option shall not be transferable except by will, by the laws of descent
and distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or any transferee
pursuant to a domestice relations order. Notwithstanding the foregoing, the
person to whom the option is granted may, be delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the optionee, shall thereafter be entitled to exercise
the option.e. The total number of shares of stock subject to an option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the option
was not fully exercised. During the remainder of the term of the option (if its
term extends beyond the end of the installment periods), the option may be
exercised from time to time with respect to any shares then remaining subject to
the option. The provisions of this subparagraph 5(e) are subject to any option
provisions governing the minimum number of shares as to which an option may be
exercised.
f. The Company may require any optionee, or any person to whom an option is
transferred under subparagraph 5(d), as a condition of exercising any such
option,
(1) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together
with the purchaser representative, the merits and risks of exercising the
option; and
(2) to give written assurances satisfactory to the Company stating that
such person is acquiring the stock subject to the option for such person's
own account and not with any present intention of selling or otherwise
distributing the stock.
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These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if
(i) the issuance of the shares upon the exercise of the option has
been registered under a then currently effective registration
statement under the Securities Act of 1933, as amended (the
"Securities Act"), or
(ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
g. An option shall terminate three (3) months after termination of the
optionee's employment or relationship as a consultant or director with the
Company or an Affiliate, unless
(i) such termination is due to such person's permanent and total
disability, within the meaning of Section 422 (c)(7) of the Code, in which
case the option may, but need not, provide that it may be exercised at any
time within one (1) year following such termination of employment or
relationship as a consultant or director; or
(ii) the optionee dies while in the employ of or while serving as a
consultant or director to the Company or an Affiliate, or within not more
than three (3) months after termination of such relationship, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the
person or persons to whom the optionee's rights under such option pass by
will or by the laws of descent and distribution; or
(iii) the option by its terms specifies either
(a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment or relationship as a
consultant or director, or
(b) that it may be exercised more than three (3) months after
termination of such relationship with the Company or an Affiliate.
This subparagraph 5(g) shall not be construed to extend the term of any option
or to permit anyone to exercise the option after expiration of its term, nor
shall it be construed to increase the number of shares as to which any option is
exercisable from the amount exercisable on the date of termination of the
optionee's employment or relationship as a consultant or director.
h. The option may, but need not, include a provision whereby the optionee may
elect at any time during the term of his or her employment or relationship as a
consultant or director with the Company or any Affiliate to exercise the option
as to any part or all of the shares subject to the option prior to the stated
vesting date of the option or of any installment or installments specified in
the option. Any shares so purchased from any unvested installment or option may
be subject to a repurchase right in favor of the Company or to any other
restriction the Board or the Committee determines to be appropriate.
i. To the extent provided by the terms of an option, the optionee may satisfy
any federal, state or local tax withholding obligation relating to the exercise
of such option by any of the following means or by a combination of such means:
(1) tendering a cash payment;
(2) authorizing the Company to withhold from the shares of the common
stock otherwise issuable to the participant as a result of the exercise of
the stock option a number of shares having a fair market value less than or
equal to the amount of the withholding tax obligation; or
(3) delivering to the Company owned and unencumbered shares of the common
stock having a fair market value less than or equal to the amount of the
withholding tax obligation.
6. COVENANTS OF THE COMPANY
a. During the terms of the options granted under the Plan, the Company shall
keep available at all times the number of shares of stock required to satisfy
such options.
b. The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to issue and
sell shares of stock upon exercise of the options granted under the Plan;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
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relieved from any liability for failure to issue and sell stock upon exercise of
such options unless and until such authority is obtained.
7. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to options granted under the Plan shall
constitute general funds of the Company.
8. MISCELLANEOUS
a. Neither an optionee nor any person to whom an option is transferred under
subparagraph 5(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such option unless and
until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
b. Throughout the term of any option granted pursuant to the Plan, the Company
shall make available to the holder of such option, not later than one hundred
twenty (120) days after the close of each of the Company's fiscal years during
the option term, upon request, such financial and other information regarding
the Company as comprises the annual report to the stockholders of the Company
provided for in the bylaws of the Company.
c. Nothing in the Plan or any instrument executed or option granted pursuant
thereto shall confer upon any eligible employee or optionee any right to
continue in the employ of the Company or any Affiliate (or to continue acting as
a consultant or director) or shall affect the right of the Company or any
Affiliate to terminate the employment or consulting relationship or directorship
of any eligible employee or optionee with or without cause. In the event that
an optionee is permitted or otherwise entitled to take a leave of absence, the
Company shall have the unilateral right to
(i) determine whether such leave of absence will be treated as a
termination of employment for purposes of paragraph 5(g) hereof and
corresponding provisions of any outstanding options, and
(ii) suspend or otherwise delay the time or times at which the shares
subject to the option would otherwise vest.
9. ADJUSTMENTS UPON CHANGES IN STOCK
a. If any change is made in the stock subject to the Plan, or subject to any
option granted under the 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), then the Plan and outstanding options
shall be appropriately adjusted:
(1) in the class(es) and maximum number of shares subject to the Plan; and
(2) in the class(es) and number of shares and price per share of stock
subject to outstanding options.
b. In the event of:
(1) a merger or consolidation in which the Company is not the surviving
corporation; or
(2) a reverse merger in which the Company is the surviving corporation but
the shares of the Company's common stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise;
then to the extent permitted by applicable law:
(i) any surviving corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options for those outstanding under
the Plan, or
(ii) such Options shall continue in full force and effect.
In the event any surviving corporation refuses to assume such Options, refuses
to continue such Options in full force and effect, or refuses to substitute
similar options for those outstanding under the Plan, then all such vested
Options shall be terminated if not exercised prior to such event, and all such
unvested Options shall terminate upon such event. In the event of a dissolution
or liquidation of the Company, all vested Options outstanding under the Plan
shall terminate if not exercised prior to such event, and all unvested Options
outstanding under the Plan shall terminate upon such event.
10. AMENDMENT OF THE PLAN
a. The Board at any time, and from time to time, may amend the Plan. However,
except as provided in paragraph 9 relating to adjustments upon changes in stock,
no
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amendment shall be effective unless approved by the stockholders of the
Company to the extent stockholder approval is necessary for the Plan to satisfy
the requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
b. It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee incentive stock
options and/or to bring the Plan and/or incentive stock options granted under it
into compliance therewith.
c. Rights and obligations under any option granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the option was
granted and
(ii) such person consents in writing.
11. TERMINATION OR SUSPENSION OF THE PLAN
a. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the shareholders of the Company, whichever
is earlier. No options may be granted under the Plan while the Plan is
suspended or after it is terminated.
b. Rights and obligations under any option granted while the Plan is in effect
shall not be altered or impaired by suspension or termination of the Plan,
except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN
The Plan shall become effective as determined by the Board, but no options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, and, if required, an appropriate
permit has been issued by the Commissioner of Corporations of the State of
California.
ADOPTED BY THE BOARD OF DIRECTORS ON JULY 17, 1990
APPROVED BY THE STOCKHOLDERS ON JULY 23, 1990
AMENDED BY THE BOARD OF DIRECTORS ON OCTOBER 3, 1990
AMENDED BY THE BOARD OF DIRECTORS ON MARCH 14, 1992
APPROVED BY THE STOCKHOLDERS ON MARCH 23, 1992
AMENDED BY THE BOARD OF DIRECTORS ON JUNE 18, 1992
AMENDED BY THE STOCKHOLDERS ON SEPTEMBER 2, 1993
AMENDED BY THE BOARD OF DIRECTORS ON DECEMBER 18, 1996
AMENDED BY THE STOCKHOLDERS ON JANUARY 31, 1997
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1996 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
1. PURPOSE
a. The purpose of the Valence Technology, Inc. 1996 Non-Employee Directors'
Stock Option Plan ("Plan") is to provide a means by which each director of
Valence Technology, Inc., a Delaware corporation ("Company") who is not
otherwise an employee of the Company or of any Affiliate of the Company (each
such person being hereinafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.
b. The word "Affiliate" as used in the Plan means any parent corporation or
subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as
amended from time to time ("Code").
c. The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success
of the Company.
2. ADMINISTRATION
a. The Plan shall be administered by the Board of Directors of the Company
("Board") unless and until the Board delegates administration to a committee,
as provided in subparagraph 2.b.
b. The Board may delegate administration of the Plan to a committee composed
of not fewer than two (2) members of the Board ("Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the power theretofore
possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN
a. The stock that may be sold pursuant to options granted under the Plan shall
not exceed in the aggregate two hundred fifty thousand (250,000) shares of the
Company's common stock. If any option granted under the Plan shall for any
reason expire or otherwise terminate without having been exercised in full, the
stock not purchased under such option shall again become available for the Plan.
b. The stock subject to the Plan may unissued shares or reacquired shares,
bought on the market or otherwise.
4. ELIGIBILITY
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS
a. Each person who is, after the Effective Date, elected for the first time to
be a Non-Employee Director automatically shall, upon the date of initial
election to be a Non-Employee Director by the Board or Stockholders of the
Company, be granted an option to purchase one hundred thousand (100,000) shares
of common stock of the Company on the terms and conditions set forth herein. The
exercise price of each such option shall be equal to the last sale price per
share of the Company's Common Stock on the National Market of the Nasdaq Stock
Market on the date of the grant as reported in THE WALL STREET JOURNAL, which
the Board hereby determines, after consideration of all relevant factors, to be
equal to the fair market value of the Company's Common Stock on the date hereof,
and this option shall become exercisable according to one-fifth vesting on the
date of the first and second anniversary of the date the Non-Employee Director
was elected to the Board and one-twentieth quarterly vesting over the remaining
three (3) year vesting schedule, with vesting to begin on the date of the grant,
and the appropriate officers of the Company are hereby authorized and directed
to execute an option agreement with the foregoing optionee in the form approved
by the Board for use with the Plan, as well as any and all other documents
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convenient or proper to carry the foregoing option into effect, and to perform
the commitments of the Company upon the exercise of such option, including but
not limited to the sale and issuance of the shares covered by such options.
b. On the Effective Date of the Plan, each person who is, as of that date, a
Non-Employee Director who has never before been granted an option by the
Company, automatically shall be granted an option to purchase one hundred
thousand (100,000) shares of common stock of the Company. The exercise prices
and vesting schedule shall be determined as described in section 5.a., above.
c. On the anniversary of a Non-Employee Director's election to the Board (or
the anniversary of the Effective Date of the Plan for a Non-Employee Director
who received a stock option under section 5.b., above), the Non-Employee
Director shall be granted an option to purchase shares of the Company's common
stock. The number of shares subject to such option shall be equal to one
hundred thousand (100,000) less the number of unvested shares subject to options
granted to the Non-Employee Director by the Company. The exercise price shall
be determined as described in section 5.a., above. This option shall be become
exercisable according to one-twelfth quarterly vesting over a three (3) year
vesting period, with vesting to begin on the date of the grant.
6. OPTION PROVISIONS
a. The term of each option commences on the date it is granted and, unless
sooner terminated as set forth herein, expires on the date ("Expiration Date")
ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or Consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director, or employee of, or consultant, to the Company, or any
Affiliate, only as to that number of shares as to which it was exercisable on
the date of termination of such service.
b. Payment of the exercise price of each option is due in full in cash upon
any exercise when the number of shares being purchased upon such exercise is one
thousand (1,000) shares or less. However, when the number of shares being
purchased upon as exercise is more than one thousand (1,000) shares, the
optionee may elect to make payment of the exercise price under one of the
following alternatives:
i. payment of the exercise price per share in cash or by check at the
time of exercise;
ii. provided that at the time of the exercise the Company's common stock
is publicly traded and quoted regularly in the Wall Street Journal, payment
by delivery of shares of common stock of the Company already owned by the
optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which common stock shall be valued at
its fair market value on the date preceding the date of exercise; or
iii. payment by a combination of the methods of payment specified in
sections 6.b.i and 6.b.ii, above.
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which results in the receipt of cash (or check) by the Company prior to the
issuance of shares of the Company's common stock.
c. A option may be transferred to the extent provided in the option agreement;
provided that if the option agreement does not expressly permit the transfer of
a option, the option shall not be transferable except by will, by the laws of
descent and distribution or pursuant to a domestic relations order satisfying
the requirements of Rule 16b-3, and shall be exercisable during the lifetime of
the person to whom the option is granted only by such person or any transferee
pursuant to a domestic relations order. Notwithstanding the foregoing, the
person to whom the option is granted may, be delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the optionee, shall thereafter be entitled to exercise
the option.
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d. The minimum number of shares with respect to which this option may be
exercised at any one time is one thousand (1,000), except (a) as to an
installment subject to exercise, as set forth in paragraph 1, which amounts to
fewer than one thousand (1,000) shares, in which case, as to the exercise of
that installment, the number of such shares in such installment shall be the
minimum number of shares, and (b) with respect to the final exercise of this
option this minimum shall not apply. In no event may this option be exercised
for any number of shares which would require the issuance of anything other than
whole shares.
e. The Company may require any optionee, or any person to whom an option is
transferred under subparagraph 6(d), as a condition of exercising any such
option:
i. to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and
ii. to give written assurances satisfactory to the Company stating that
such person is acquiring the stock subject to the option for such person's
own account and not with any present intention of selling or otherwise
distributing the stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if the issuance of the shares upon the exercise of the
option has been registered under a then-currently-effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws.
f. Notwithstanding anything to the contrary contained herein, an option may
not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY
a. During the terms of the option granted under the Plan, the Company shall
keep available at all times the number of shares of stock required to satisfy
such options.
b. The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to issue and
sell shares of stock upon exercise of the options granted under the Plan;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to options granted under the Plan shall
constitute general funds of the Company.
9. MISCELLANEOUS
a. Neither an optionee nor any person to whom an option is transferred under
section 6.c shall be deemed to be the holder of, or to have any of the rights of
a holder with respect to, any shares subject to such option unless and until
such person has satisfied all requirements for exercise of the Option pursuant
to its terms.
b. Nothing in the Plan or in any instrument executed pursuant thereto shall
confer upon any Non-Employee Director any right to continue in the service of
the Company or any Affiliate or shall affect any right of the Company, its Board
or stockholders or any Affiliate to terminate the service of any Non-Employee
Director with or without cause.
c. No Non-Employee Director, individually or as a member of a group, and no
beneficiary or other person claiming under or through him, shall have any right,
title or interest in or to any option reserved for the purposes of the Plan
except as to such shares of common stock, if any, as shall have been reserved
for him pursuant to an option granted to him.
d. In connection with each option made pursuant to the Plan, it shall be a
condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to
the Company to insure that the amount of any
Page 3
<PAGE>
federal or other withholding tax required to be withheld with respect to such
sale or transfer, or such removal or lapse, is made available to the Company
for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK
a. If any change is made in the stock subject to the Plan, or subject to any
option granted under the Plan (through merger, consolidation, reorganization,
recapitalization, reincorporation, 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 Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
b. In the event of:
i. a dissolution, liquidation or sale of substantially all of the assets
of the Company;
ii. a merger or consolidation in which the Company is not the surviving
corporation;
iii. a reverse merger in which the Company is the surviving corporation but
the shares of the Company's common stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or
iv. any other capital reorganization (including a sale of stock of the
Company to a single purchaser or single group of affiliated purchasers)
after which less than fifty percent (50%) of the Outstanding voting shares
of the new or continuing corporation are owned by shareholders of the
Company immediately before such transaction;
options under the Plan shall immediately become fully vested and the time during
which options outstanding under the Plan may be exercised shall be accelerated
to permit the optionee to exercise all such options In full prior to such event,
and the options shall terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN
a. The Board at any time, and from time to time, may amend the Plan. However,
except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
b. Rights and obligations under any option granted before any amendment of the
Plan shall not be impaired by such amendment unless:
i. the Company requests the consent of the person to whom the option was
granted; and
ii. such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN
a. The Board may suspend or terminate the Plan at any time. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
b. Rights and obligations under any option granted while the Plan is in effect
shall not be impaired by suspension or termination of the Plan, except with the
consent of the person to whom the option was granted.
13. EFFECTIVE DATE OF THE PLAN; CONDITIONS OF EXERCISE
a. The Plan shall become effective on February 13, 1996 ("Effective Date"),
provided that no options may be exercised unless and until the Plan is approved
by stockholders of the Company.
b. No option granted under the Plan shall be exercised or exercisable unless
and until the condition of subparagraph 13.a, above, has been met.
ADOPTED BY THE BOARD OF DIRECTORS ON FEBRUARY 13, 1996
AMENDED BY THE BOARD OF DIRECTORS ON DECEMBER 18, 1996
APPROVED BY THE STOCKHOLDERS ON JANUARY 31, 1997
Page 4
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