<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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 Section 240.14a-11(c) or Section
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:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
VALENCE TECHNOLOGY, INC.
301 Conestoga Way
Henderson, Nevada 89015
___________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 3, 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, October 3, 1997, at 3:00 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 1,000,000 shares.
3. To approve an amendment to the Company's 1996 Non-Employee Directors'
Stock Option Plan to increase the aggregate number of shares of common
stock authorized for issuance under such plan by 90,000 shares.
4. To ratify the selection of Coopers & Lybrand LLP as the Company's
independent public accountants for its fiscal year ending March 29,
1998.
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 August 18, 1997 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
/s/ Bradley A. Perkins
Bradley A. Perkins
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Henderson, Nevada
September 2, 1997
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, October 3, 1997, at 3:00 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 September 2, 1997 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, or at the Company's request, Corporate
Investor Communications, Inc. No additional compensation will be paid to
directors, officers or other regular employees for such services, but
Corporate Investor Communications, Inc. will be paid its customary fee,
estimated to be about $4,500, if it renders such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of common stock at the close of business on August 18,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on August 18, 1997, the Company had outstanding and
entitled to vote 23,139,993 shares of common stock, held of record by 713
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.
The required quorum for the meeting, which must be represented in person or
proxy, is a majority of the outstanding shares of Common Stock. 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.
1
<PAGE>
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders, which is expected to be held on or about
August 28, 1998, must have been received by the Company not later than May 5,
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) 59 Director
Alan F. Shugart(1)(2) 67 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 the Singapore and the 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 currently serves as a director of one
private company.
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 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
2
<PAGE>
until September 1991, and from October 1992 to the present. Mr. Shugart
currently serves as a director of Sandisk Corporation.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 30, 1997, the Board of Directors held five
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 did not
meet during the 1997 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 three times during the 1997
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 30, 1997, 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 August 1, 1997 there were
3,500,000 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 August 1, 1997, options (net of canceled or expired options) covering an
aggregate of 3,486,682 shares of the Company's Common Stock had been granted
under the 1990 Plan, and 13,318 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 July 1997, 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 by 1,000,000 shares from a total of 3,500,000 shares to 4,500,000
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.
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 3,500,000
shares. 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
3
<PAGE>
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
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 95 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,
unless otherwise delegated. 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. The authority to make option grants to employees who are not
officers has been delegated to the Non-Officer Stock Option Administration
Committee. The Board has delegated all other powers of 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. Employees (including
officers) and consultants are eligible to receive nonstatutory stock options
under the 1990 Plan.
No incentive stock 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. In addition, 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. The 1990 Plan includes a per-employee, per-fiscal year grant
limitation equal to 700,000 shares of Common Stock.
4
<PAGE>
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 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 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 option. 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
5
<PAGE>
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.
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 the 1990 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 the 1990 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 16, 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 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
6
<PAGE>
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 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 how long the optionee held
the stock. 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 how long the optionee held the stock.
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 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.
PROPOSAL 3
AMENDMENT OF 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"). At August 1, 1997 there were 250,000
shares of the Company's Common Stock authorized for issuance under the
Directors' Plan.
At August 1, 1997, options (net of canceled or expired options) covering an
aggregate of 246,668 shares of the Company's Common Stock had been granted
under the Directors' Plan, and 3,332 shares (as well as any shares that might
in the future be returned to the Directors' Plan as a result of cancellation
or expiration of options) remained available for future grant under the
Directors' Plan. During the last fiscal year, under the Directors' Plan, the
7
<PAGE>
Company granted to all current non-employee directors as a group options to
purchase 66,668 shares at exercise prices of $5.94 and $6.75 per share.
In July 1997, the Board approved an amendment to the Directors' Plan, subject
to stockholder approval, to increase the number of shares authorized for
issuance under the Directors' Plan by 90,000 shares from a total of 250,000
shares to 340,000 shares. The Board adopted this amendment to ensure that
the Company can continue to attract and retain qualified non-employee
directors by compensating them at levels determined appropriate by the
Board.
Stockholders are requested in this Proposal 3 to approve the Directors' Plan,
as amended. If the stockholders fail to approve this Proposal 3, the number
of shares authorized for issuance under the Directors' Plan will remain at
250,000 shares. 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, 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 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 to non-employee directors of the Company. 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
8
<PAGE>
(100,000) shares of Common Stock on such date. In addition, each person 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 evidencing an option granted under
the Directors' Plan 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 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
9
<PAGE>
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.
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.
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 how long the stock was held.
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 29, 1998, 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.
10
<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 August 1, 1997 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.
BENEFICIAL OWNERSHIP(1)
-----------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------- ----------- ------------
Carl E. Berg(2) 4,071,156 17.59%
10050 Bandley Drive
Cupertino, CA 95014
Bell Communications Research, Inc. 1,500,000 6.49%
445 South Street
Morristown, NJ 07960
Calvin L. Reed(3) 687,656 2.89%
William J. Masuda(3) 185,230 *
Alan F. Shugart(3) 147,780 *
Bradley A. Perkins(3) 112,033 *
R. Joseph Horning(3) 103,604 *
Ralph Brodd(3) 89,254 *
All directors and executive officers
as a group (10 persons)(4) 5,500,650 23.77%
________________
* 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 23,115,993 shares of
common stock outstanding on August 1, 1997, adjusted as required by rules
promulgated by the Commission.
(2) Includes 150,000 shares held by Mr. Berg; 23,334 share issuable upon
exercise of options held by Mr. Berg that are exercisable with 60 days of
August 1, 1997; 1,222,825 shares 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 August 1, 1997.
(4) Includes 1,437,828 shares issuable upon exercise of options.
11
<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. 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
Company's 1990 Stock Option Plan (the "1990 Plan").
Each non-employee director of the Company also receives stock option grants
pursuant to the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). Only non-employee directors of the Company or an
affiliate of such directors (as defined in the Code) are eligible to receive
options under the Directors' Plan. The plan provides that new directors will
receive an initial stock option of 100,000 shares of common stock upon their
election to the Board. The exercise price for this initial option will be the
fair market value on the day it is granted. This initial option will vest
one-fifth on the first and second anniversaries of the grant of the option,
and quarterly over the next three years. On each anniversary of the
director's election to the Board, the director will receive an annual stock
option in the amount of 100,000 shares less the total amount of unvested
shares remaining in the initial option and any annual options previously
granted. The exercise price for this new option will be the fair market value
on the day it is granted. This annual option will vest quarterly over a three
year period. A director who had been granted an option prior to the adoption
of the Directors' Plan will start receiving annual grants on the anniversary
date of that director's prior grant. A director who had not received an
option upon becoming a director will receive an initial stock option of
100,000 shares on the date of the adoption of the plan, and then receive
annual options on the anniversary dates of that grant. No options granted
under the Directors' Plan may be exercised until the plan is approved by the
stockholders.
During the last fiscal year, the Company granted options covering 20,000
shares to Carl Berg, at an exercise price per share of $5.94, and 46,668
shares to Alan Shugart, at an exercise price per share of $6.75, non-employee
directors of the Company, under the Directors' Plan. The fair market value of
such Common Stock on the dates of grant was $5.94 and $6.75, respectively,
per share (based on the closing sales price reported in the NASDAQ National
Market for the date of grant). As of August 1, 1997, no options had been
exercised under the Directors' Plan.
12
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended March 30, 1997, March 31,
1996 and March 26, 1995, certain compensation awarded or paid to, or earned by
the Company's Chief Executive Officer and its other four most highly compensated
executive officers at March 30, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long
Other Term
Annual Compen- All Other
Annual Compen- sation Compen-
Compensation sation Awards sation
----------------------- ----------
Fiscal Salary Bonus Options(1)
Name and Principal Position Year ($) ($) ($) (#) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calvin L. Reed 1997 250,000 -- -- 297,630 7,540(2)
President and Chief 1996 250,000 -- -- 30,000 4,854(2,4)
Executive Officer 1995 252,115 -- -- 150,000 49,923(2,3)
William J. Masuda 1997 175,000 -- -- 136,550 --
Executive Vice President, 1996 175,000 -- -- -- 476(4)
Worldwide Operations 1995 165,084 -- -- 100,000 --
R. Joseph Horning 1997 145,600 -- -- 44,442 --
Vice President, 1996 145,600 -- 12,500(5) 10,000 48,531(3)
Engineering 1995 141,241 -- -- 136,000 --
Ralph J. Brodd 1997 134,834 -- 16,667(5) 59,017 2,084(4)
Vice President, 1996 127,404 -- 13,035(5) 80,000 28,331(3,4)
Marketing 1995 109,039 -- -- 15,000 --
Bradley A Perkins 1997 130,000 -- 13,520(5) 69,117 --
Vice President and 1996 130,000 -- 11,898(5) 10,000 7,679(3,4)
General Counsel 1995 128,269 -- -- 97,000 --
</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.
13
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers pursuant to its 1990
Plan. As of August 1, 1997, options to purchase a total of 3,486,682 shares
were outstanding under the 1990 Plan and 13,318 shares remained available for
grant thereunder (See Proposal 2, above). The following tables show for the
fiscal year ended March 30, 1997, 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
------------------------
Percent of
Total Potential Realizable Value
Options at Assumed Annual Rates of
Granted to Stock Price Appreciation for
Options Employees Exercise Option Term(3)
Granted in Fiscal Price Expira- ----------------------------
Name (#)(1) Year(2) ($/Sh) tion Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calvin L. Reed 232,500 20.7% 5.88 6/7/06 859,762 2,178,804
11,250 1.0% 5.00 7/1/06 35,376 89,648
25,782 2.3% 5.88 9/30/06 95,339 241,608
28,098 2.5% 4.19 12/30/06 74,041 187,633
William J. Masuda 96,250 8.6% 5.88 6/7/06 355,923 901,978
5,625 0.5% 5.00 7/1/06 17,688 44,824
16,641 1.5% 5.88 9/30/06 61,537 155,946
18,034 1.6% 4.19 12/30/06 47,521 120,427
R. Joseph Horning 21,600 1.9% 5.88 6/7/06 79,875 202,418
3,250 0.3% 5.00 7/1/06 10,220 25,898
9,400 0.8% 5.88 9/30/06 34,760 88,089
10,192 0.9% 4.19 12/30/06 26,857 68,060
Bradley A. Perkins 42,950 3.8% 5.88 6/7/06 158,825 402,493
3,250 0.3% 5.00 7/1/06 10,220 25,898
18,285 1.6% 5.88 9/30/06 67,616 171,352
4,632 0.4% 4.19 12/30/06 12,206 30,932
Ralph Brodd 36,000 3.2% 5.88 6/7/06 133,124 337,363
3,250 0.3% 5.00 7/1/06 10,220 25,898
9,000 0.8% 5.88 9/30/06 33,281 84,341
10,767 1.0% 4.19 12/30/06 28,372 71,900
</TABLE>
___________________
(1) Options granted in fiscal 1997 generally vest over four years, with 1/16 of
the shares vesting each quarter and with full vesting occurring on the
fourth anniversary date.
(2) Based on an aggregate of 1,125,558 options granted to employees, including
the Named Executive Officers, in fiscal year 1997.
(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.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares
Acquired Number of Unexercised Options Value of Unexercised In-the-
on Value at FY-End (#) Money Options at FY-End ($)(1)
Exercise Realized -----------------------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calvin L. Reed 0 0 626,084 360,000 3,434,889 513,965
William J. Masuda 0 0 150,711 180,000 679,782 289,625
R. Joseph Horning 0 0 81,271 120,000 250,822 288,793
Bradley A. Perkins 0 0 90,539 120,000 342,134 228,873
Ralph Brodd 0 0 68,707 120,000 295,029 300,376
</TABLE>
___________________
(1) Based on the fair market value of the Company's Common Stock as of March
30, 1997 ($6.75) 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, with 20% vested immediately and the remainder vesting 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 expenses. 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.
In February 1997, the Company entered into an employment agreement with Dr.
Kalnoki-Kis pursuant to which the Company retained Dr. Kalnoki-Kis as its
Vice President and Chief Technical Officer at an annual salary of $175,000.
The Company granted Dr. Kalnoki-Kis an option to purchase 150,000 shares of
common stock at an exercise price of $5.88 per share, vesting over a
four-year period. In addition, the Company agreed to pay Dr. Kalnoki-Kis's
relocation expenses. The Company also loaned Dr. Kalnoki-Kis $200,000
pursuant to a loan agreement, in which the Company will forgive the principle
and interest over the first four years of his employment.
15
<PAGE>
OPTION REPRICING INFORMATION
The following table shows certain information concerning option repricings
received by any Named Officer during the last ten years.
TEN YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Length of
Number of Original
Options/ Market Price Option Term
SARs of Stock at Exercise Price Remaining at
Repriced Time of at Time of New Date of
or Repricing or Repricing or Exercise Repricing or
Amended Amendment Amendment Price Amendment
Name Date (#) ($) ($) ($) (years)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R. Joseph Horning 01/18/93 22,000 11.50 22.75 11.50 4.75
</TABLE>
16
<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 1997, 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 790,890 shares. The Committee based this determination on the
need to incentivize the staff in connection with the Company's efforts to
commercialize the technology.
Compensation of the Chief Executive Officer is evaluated by the Compensation
Committee based on the criteria outlined above for all other executive
officers of the Company, including his contributions for the prior year, his
success in managing and motivating the Company's employees, and the
challenges to be faced in the year ahead, as well as the desire to offer a
competitive salary. The Compensation Committee has set Mr. Reed's total
annual compensation, including salary and option grants, at a level they
believe is competitive with that of other Chief Executive Officers at other
companies in the same industry. In addition, Mr. Reed's salary and option
grants were set at a level the Compensation Committee believes will properly
motivate and retain Mr. Reed as the Chief Executive Officer of the Company.
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 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.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 30, 1997, the Compensation Committee
consisted of Messrs. Shugart and Berg.
In July 1990, Mr. Berg loaned the Company $520,000 for a seven year term at
an interest rate of 10% per annum and the Company issued a warrant
exercisable for an aggregate of 130,000 shares of common stock to Mr. Berg.
This warrant was exercised on March 31, 1992 at $4.40 per share by
cancellation of indebtedness under such loan. From July 1990 to March 1992
the Company issued additional 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 30 1997, 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.
In September 1990, the Company issued an aggregate of 500,000 shares of
common stock to four stockholders affiliated with the then majority holder of
Innocell in exchange for payments aggregating $5,000. As partial
consideration for the settlement of the Company's disagreements with the
holders of the other 55% interest in Innocell and with the four stockholders,
in March 1992, Mr. Berg obtained for a cash payment of $131,250 irrevocable
options to repurchase an aggregate of 375,000 shares of common stock from the
four stockholders exercisable at $5.00 per share. Because of certain Danish
tax considerations, the four stockholders would not grant the options to the
Company. Mr. Berg agreed to hold such options for the benefit of the Company.
The Company exercised such options in October 1993 for an aggregate of
$1,875,000. The Company has reimbursed Mr. Berg for all of his costs
(including the $131,250 option payment) and indemnified him for any liability
incurred in connection with this transaction. In connection with the
acquisition of the options from the four stockholders, Mr. Berg obtained
letters of credit aggregating $1,875,000 to support the option exercise
price. The Company has paid $1,875,000 as substitute collateral for the
collateral made available by Mr. Berg.
18
<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
[GRAPH]
* $100 invested on 5/7/92 in stock or index- including reinvestment of
dividends.
___________
** 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.
19
<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 of 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 officers 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 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 June 1996 ("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 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. In January 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. In April 1996, the Court dismissed with prejudice
all remaining claims against a present director and limited claims against a
former officer and
20
<PAGE>
director to the period when that person was an officer. In December 1996,
the Company and the remaining individual defendants filed motions for summary
judgment, which the plaintiffs opposed.
In January 1997, the Court appointed a Special Master to hear the defendants'
motions for summary judgment and submit recommendations to the Court with
respect to their disposition. In March 1997, the Special Master held a
hearing on the defendants' motions for summary judgment. While the Court had
set a September 1997 trial date, the Court has vacated that trial date
pending submission and review of the Special Master's recommendations. The
plaintiffs have requested a jury trial and are expected to ask for a
substantial sum in damages. If the plaintiffs prevail in their demands,
damages awarded by the jury may exceed the assets of the Company. Although,
the Company believes that it has meritorious defenses and intends to defend
the lawsuit vigorously, there can be no assurance that the Company will
prevail or that the plaintiffs will not be awarded damages.
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 Securities and
Exchange Commission (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 30, 1997, 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
/s/ Bradley A. Perkins
Bradley A. Perkins
VICE PRESIDENT, GENERAL COUNSEL, AND SECRETARY
September 2, 1997
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended March 30, 1997 is available
without charge upon written request to: Corporate Secretary, Valence
Technology, Inc., 301 Conestoga Way, Henderson, Nevada 89015.
21
<PAGE>
PROXY
DETACH HERE
VALENCE TECHNOLOGY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 3, 1997
The undersigned hereby appoints CALVIN L. REED and BRADLEY A. PERKINS,
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, October 3, 1997 at 3:00
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.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE>
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
/ / / /
/ / __________________________________________
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
2. To approve an amendment to the Company's 1996 Stock Option Plan to increase
the aggregate number of shares of Common Stock authorized for issuance
under such plan by 1,000,000 shares, from 3,500,000 to 4,500,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the Company's 1996 Non-Employee Directors'
Stock Option Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 90,000 shares, from
260,000 to 340,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify selection of Coopers & Lybrand LLP as independent auditors of
the Company for its fiscal year ending March 29, 1998.
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: ___________
