VALENCE TECHNOLOGY INC
S-8, 1997-02-12
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH
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<PAGE>

  As filed with the Securities and Exchange Commission on February 12, 1997
                                                    Registration No. 333-  
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            ------------------------

                                    FORM S-8
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                                                       
                            ------------------------

                            VALENCE TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)
                                                       
                            ------------------------

         Delaware                                    77-0214673
 (State of Incorporation)              (I.R.S. Employer Identification No.)

                            ------------------------
                                                       
                                301 CONESTOGA WAY
                            HENDERSON, NEVADA  89015
                                 (702) 558-1000
          (Address and telephone number of principal executive offices)
                                                       
                            ------------------------

                 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
                            (Full title of the plan)

                               BRADLEY A. PERKINS
                  VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
                            VALENCE TECHNOLOGY, INC.
                                301 CONESTOGA WAY
                            HENDERSON, NEVADA  89015
                                 (702) 558-1000
            (Name, address, including zip code, and telephone number, 
                   including area code, of agent for service)

                            ------------------------
                                                      
                                   Copies to:
                             Andrei M. Manoliu, Esq.
                               Cooley Godward LLP
                               5 Palo Alto Square
                               3000 El Camino Real
                          Palo Alto, California  94306
                                 (415) 843-5000
                                                      
                            ------------------------

                         CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>                                                                          
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------

TITLE OF SECURITIES TO    AMOUNT TO BE   PROPOSED MAXIMUM OFFERING   PROPOSED MAXIMUM AGGREGATE      AMOUNT OF 
    BE REGISTERED          REGISTERED       PRICE PER SHARE (1)          OFFERING PRICE (1)      REGISTRATION FEE 
- -----------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>                         <C>                         <C>
Stock Options and Common 
Stock (par value $.001)     250,000             $6.29                        $1,572,500               $477 
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

______________

(1)  Estimated solely for the purpose of calculating the amount of the
     registration fee pursuant to Rule 457(h).  The price per share and
     aggregate offering price are based upon the average of the high and low
     prices of Registrant's Common Stock on February 6, 1997 as reported on the
     NASDAQ National Market System. 
                                                                           
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

     Approximate date of commencement of proposed sale to the public:  As soon
as practicable after this Registration Statement becomes effective.

<PAGE>
                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     The following documents filed by Valence Technology, Inc. (the "Company")
with the Securities and Exchange Commission are incorporated by reference into
this Registration Statement:  

     (a)  The Company's latest annual report on Form 10-K filed pursuant to
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or either (1) the Company's latest prospectus filed pursuant to
Rule 424(b) under the Securities Act of 1933, as amended (the "Act"), that
contains audited financial statements for the Company's latest fiscal year for
which such statements have been filed, or (2) the Company's effective
registration statement on Form 10 or 20-F filed under the Exchange Act
containing audited financial statements for the Company's latest fiscal year.

     (b)  All other reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the annual reports, the
prospectus or the registration statement referred to in (a) above.  

     (c)  The description of the Company's Common Stock which is contained in a
registration statement filed under the Exchange Act, including any amendment or
report filed for the purpose of updating such description.  

     All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing
of a post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part of this
registration statement from the date of the filing of such reports and
documents.  

                            DESCRIPTION OF SECURITIES

     Not applicable.

                     INTERESTS OF NAMED EXPERTS AND COUNSEL

     Not applicable.


                                      1.
<PAGE>

                    INDEMNIFICATION OF DIRECTORS AND OFFICERS

     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 Amended and 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 of the Company, for acts
or omissions not in good faith or involving intentional misconduct or known
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 unexcused 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
distribution to stockholders and improper loans to directors and officers.  This
provisions 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.

                       EXEMPTION FROM REGISTRATION CLAIMED

     Not applicable.



                                    EXHIBITS

EXHIBIT 
NUMBER                               DESCRIPTION 


                                      2.
<PAGE> 

 5.1        Opinion of Cooley Godward LLP 

23.1        Consent of Coopers & Lybrand LLP 
 
23.2        Consent of Cooley Godward LLP is contained in Exhibit 5.1 to 
            this Registration Statement 
 
24.1        Power of Attorney is contained on the signature pages. 

99.1        1996 Non-Employee Directors' Stock Option Plan 


                                  UNDERTAKINGS

     1.   The undersigned registrant hereby undertakes:

          (a)  To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

            (i)     To include any prospectus required by section 10(a)(3) of
the Securities Act;

           (ii)     To reflect in the prospectus any facts or events arising 
after the effective date of the registration statement (or the most recent 
post-effective amendment thereof) which, individually or in the aggregate, 
represent a fundamental change in the information set forth in the 
registration statement. Notwithstanding the foregoing, any increase or 
decrease in volume of securities offered (if the total dollar value of 
securities offered would not exceed that which was registered) and any 
deviation from the low or high end of the estimated maximum offering range 
may be reflected in the form of prospectus filed with the Commission pursuant 
to Rule 424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the 
changes in volume and price represent no more than a 20% change in the 
maximum aggregate offering price set forth in the "Calculation of 
Registration Fee" table in the effective registration statement.

          (iii)     To include any material information with respect to the 
plan of distribution not previously disclosed in the registration statement 
or any material change to such information in the registration statement;

     PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do not apply if 
the registration statement is on Form S-3 or Form S-8 and the information 
required to be included in a post-effective amendment by those paragraphs is 
contained in periodic reports filed by the issuer pursuant to section 13 or 
section 15(d) of the Exchange Act that are incorporated by reference in the 
registration statement.

          (b)  That, for the purpose of determining any liability under the 
Securities Act, each such post-effective amendment shall be deemed to be a 
new registration statement relating to the securities offered herein, and the 
offering of such securities at that time shall be deemed to be the initial 
bona fide offering thereof.

          (c)  To remove from registration by means of a post-effective 
amendment any of the securities being registered which remain unsold at the 
termination of the offering.

     2.   The undersigned registrant hereby undertakes that, for purposes of 
determining any liability under the Securities Act, each filing of the 
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the 
Exchange Act (and, where applicable, each filing of an employee benefit 
plan's annual report pursuant to section 15(d) of the Exchange Act) that is 
incorporated by reference in the Registration Statement shall be deemed to be 
a new registration statement relating to the securities offered herein, and 
the offering of such securities at that time shall be deemed to be the 
initial bona fide offering thereof.

     3.   Insofar as indemnification for liabilities arising under the 
Securities Act may be permitted to directors, officers and controlling 
persons of the registrant pursuant to the foregoing provisions, or otherwise, 
the registrant has 

                                      3.
<PAGE> 

been advised that in the opinion of the Securities and Exchange Commission 
such indemnification is against public policy as expressed in the Securities 
Act and is, therefore, unenforceable.  In the event that a claim for 
indemnification against such liabilities (other than the payment by the 
registrant of expenses incurred or paid by a director, officer or controlling 
person of the registrant in the successful defense of any action, suit or 
proceeding) is asserted by such director, officer or controlling person in 
connection with the securities being registered, the registrant will, unless 
in the opinion of its counsel the matter has been settled by controlling 
precedent, submit to a court of appropriate jurisdiction the question whether 
such indemnification by it is against public policy as expressed in the 
Securities Act and will be governed by the final adjudication of such issue.


                                      4.
<PAGE> 
                                   SIGNATURES

     THE REGISTRANT.  Pursuant to the requirements of the Securities Act of
1933, as amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-8 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Henderson, State of
Nevada, on February 12, 1997.


                                   VALENCE TECHNOLOGY, INC.



                                   By  /s/ Calvin L. Reed
                                      ----------------------------------
                                        Calvin L. Reed
                                        President and Chief Executive
                                        Officer


                                POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Calvin L. Reed and Bradley A. Perkins,
and each or any one of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.



                                      5.
<PAGE> 

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. 


  
 
 
  SIGNATURE                     TITLE                    DATE 
 
 
 
 /s/ Calvin L. Reed
- ----------------------------  President, Chief         February 6, 1997
     Calvin L. Reed           Executive Officer,       
                              and Chairman of the 
                              Board (Principal 
                              Executive Officer) 
 
 /s/ David Archibald
- ----------------------------  Vice President,          February 6, 1997
    David Archibald           Finance, Chief           
                              Financial Officer 
                              (Principal Financial 
                              and Accounting 
                              Officer) 
 
 /s/ Carl E. Berg 
- ----------------------------  Director                 February 12, 1997
      Carl E. Berg                                      
 
 /s/ Alan F. Shugart
- ----------------------------  Director                 February 7, 1997
      Alan F. Shugart                                  



                                    6.
<PAGE>
                                  EXHIBIT INDEX



EXHIBIT 
NUMBER                                 DESCRIPTION 
 
 5.1          Opinion of Cooley Godward LLP 

23.1          Consent of Coopers & Lybrand LLP 
 
23.2          Consent of Cooley Godward LLP is contained in Exhibit 5.1 to 
              this Registration Statement 
 
24.1          Power of Attorney is contained on the signature pages. 

99.1          1996 Non-Employee Directors' Stock Option Plan 



                                  7.



<PAGE>

                                   EXHIBIT 5.1


                                  [LETTERHEAD]
February 12, 1997



Valence Technology, Inc.
301 Conestoga Way
Henderson, Nevada  89015

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by Valence Technology, Inc. (the "Company") of a Registration
Statement on Form S-8 (the "Registration Statement") with the Securities and
Exchange Commission covering the offering of up to 250,000 shares of the
Company's Common Stock, $.001 par value, (the "Shares") pursuant to its 1996
Non-Employee Directors' Stock Option Plan (the "Plan").

In connection with this opinion, we have examined the Registration Statement and
related Prospectus, your Certificate of Incorporation and By-laws, as amended,
and such other documents, records, certificates, memoranda and other instruments
as we deem necessary as a basis for this opinion.  We have assumed the
genuineness and authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies thereof, and
the due execution and delivery of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Plan, the
Registration Statement and related Prospectus, will be validly issued, fully
paid, and nonassessable (except as to shares issued pursuant to certain deferred
payment arrangements, which will be fully paid and nonassessable when such
deferred payments are made in full).

We consent to the filing of this opinion as an exhibit to the Registration
Statement.

Very truly yours,

Cooley Godward LLP

By: /s/ Andrei M. Manoliu
   ------------------------ 
        Andrei M. Manoliu




<PAGE>

                                                                    EXHIBIT 23.1


                   CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements 
of Valence Technology, Inc. and subsidiaries on Form S-8 of our report dated 
June 6, 1996, on our audits of the consolidated financial statements as of 
March 31, 1996 and March 26, 1995 and for the period from March 3, 1989 (date 
of inception) to March 31, 1996 and for each of the three years in the period 
ended March 31, 1996, which report is included in the 1996 Annual Report on 
Form 10-K.


                                           /s/ Coopers & Lybrand LLP
San Jose, California
February 12, 1997



<PAGE>

EXHIBIT 99.1


                         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

Page 1
<PAGE>

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.

Page 2
<PAGE>

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

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