SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] 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)(4) 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.
6. Amount Previously Paid:
---------------------------------------------------------------------------
7. Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
8. Filing Party:
---------------------------------------------------------------------------
9. Date Filed:
<PAGE>
VALENCE TECHNOLOGY, INC.
301 CONESTOGA WAY
HENDERSON, NEVADA 89015
NOTICE OF ANNUAL MEETING OF STOCKHOLDER
TO BE HELD ON FEBRUARY 15, 2000
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
Tuesday, February 15, 2000, at 9:00 a.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 Second Amended and Restated
Certificate of Incorporation to increase the aggregate number of shares of
common stock authorized for issuance from 50,000,000 shares to 100,000,000
shares.
3. To approve the Company's 2000 Stock Option Plan.
4. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants for its fiscal year ending March 26, 2000.
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on December 21, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
SECRETARY
Henderson, Nevada
January 18, 2000
Page 2
<PAGE>
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.
VALENCE TECHNOLOGY, INC.
301 CONESTOGA WAY
HENDERSON, NEVADA 89015
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING GENERALLY
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 Tuesday, February 15, 2000, at 9:00
a.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 January 18, 2000, 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 December
21, 1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on December 21, 1999, the Company had outstanding and entitled
to vote 32,449,837 shares of common stock, held of record by 690 persons.
Page 3
<PAGE>
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 offices, 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.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of the
Securities and Exchange Commission, or for submitting a stockholder proposal or
a nomination for director that is not to be included in such proxy statement and
proxy, is August 20, 2000, unless the 2000 annual meeting of stockholders is
held more than 30 days from February 15, 2001, in which case such stockholder
proposals or nominations must be received within a reasonable period of time
before the Company solicits proxies for the 2000 annual meeting. Stockholders
are also advised to review the Company's Bylaws, which contain additional
requirements with respect to advance notice of stockholder proposals and
director nominations.
Page 4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
There are four nominees for the five Board positions presently authorized
in the Company's Bylaws. There is one vacant seat on the Board. 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 four 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>
Lev M. Dawson 61 Chairman of the Board, President, Chief Executive
Officer and Director
Carl E. Berg (1)(2) 62 Director
Alan F. Shugart (1)(2) 69 Director
Bert C. Roberts, Jr. 57 Director
<FN>
- ----------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</FN>
</TABLE>
Mr. Dawson rejoined the Company in December 1997 as Chairman of the Board, Chief
Executive Officer and President. Mr. Dawson, a founder of the Company, served as
Chairman of the Board and Chief Executive Officer from its founding in March
1989 until April 1993. Mr. Dawson also served as President from March 1989 until
June 1991. From May 1993 to December 1997, Mr. Dawson was involved in private
family companies. From January 1988 to March 1989, Mr. Dawson devoted
significant time to the organization of the Company. From May 1978 through
January 1988, Mr. Dawson was President, Chairman, and Chief Executive Officer of
Robinton Products, Inc. ("ROBINTON"), a company which manufactured solid state
meters and data retrieval systems for the electric utility industry. Mr. Dawson
holds a B.S.E.E. degree in electrical engineering from the University of
Southwestern Louisiana.
Page 5
<PAGE>
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. Roberts rejoined the Company as a director in November 1998. Mr. Roberts is
Chairman of MCI Worldcom, Inc., one of the world's largest and fastest growing
communications companies. He was named Chairman and CEO of MCI in 1992, after
serving as President and Chief Operating Officer since 1985. Additionally, Mr.
Roberts serves on the boards of Telefonica de Espana, News Corporation, Ltd.,
CaPCURE and Johns Hopkins University.
Mr. Shugart joined the Company as a director in March 1992. Mr. Shugart was the
Chief Executive Officer and a director of Seagate since its inception in 1979
until July 1998. Mr. Shugart also served as Seagate's President from 1979 to
1983 and from September 1991 to July 1998. Additionally, Mr. Shugart served as
Chairman of the Board of Seagate from 1979 until September 1991, and from
October 1992 to July 1998. Mr. Shugart currently serves as a director of Sandisk
Corporation, Inktomi, and Cypress Semiconductor.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 28, 1999, the Board of Directors held
two meetings. In fiscal 1999, the Board of Directors acted twelve times by
unanimous written consent. The Board has an Audit Committee and a Compensation
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 1999 fiscal year. It currently is composed of Messrs. Berg and
Shugart, two of the Company's three 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, two of the
Company's three non-employee directors. It did not meet during the 1999 fiscal
year, and acted fifteen times by unanimous written consent during the 1999
fiscal year.
Other than Mr. Roberts, who did not attend one of the meetings held by the
Board during fiscal 1999, each Board member attended 75% or more of the meetings
of the Board held during fiscal 1999.
Page 6
<PAGE>
PROPOSAL 2
AMENDMENT OF SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
THE AMENDMENT
The Board has approved, subject to stockholder approval, an amendment to
its Second Amended and Restated Certificate of Incorporation (the "AMENDMENT")
that will increase the aggregate number of shares of common stock authorized for
issuance from 50,000,000 shares to 100,000,000 shares (the "AUTHORIZED SHARE
INCREASE"). The complete text of the Amendment is set forth as EXHIBIT A to this
Proxy Statement.
At December 31, 1999, Valence had 34,582,376 shares of Common Stock issued
and outstanding. In addition, Valence has reserved: (i) 7,652,880 shares of
Common Stock reserved for issuance pursuant to options and warrants (ii) 304,901
shares of Common Stock for issuance upon conversion of convertible notes, and
(iii) 616,498 shares of Common Stock for issuance upon conversion of outstanding
shares of Preferred Stock. Thus, at December 31, 1999, there were 6,843,345
authorized shares of Common Stock unissued and not reserved for issuance.
The proposed increase in the authorized Common Stock has been recommended
by the Board to assure that an adequate supply of authorized unissued shares is
available for general corporate needs, such as future stock dividends or stock
splits or the issuance of shares under Valence's stock incentive plans. The
additional authorized shares of Common Stock could also be used for such
purposes as raising additional capital for the operations of Valence. In
addition, the availability of a large number of shares of Common Stock for
issuance by the Board without further stockholder approval could have the effect
of making it more difficult, and thereby discouraging, a merger, tender offer,
proxy contest or assumption of control and change of incumbent management. There
currently are no plans or arrangements relating to the issuance of any of the
additional shares of Common Stock proposed to be authorized.
If the Proposal is adopted, the amended portion of Article Fourth of
Valence's Amended and Restated Certificate of Incorporation will read as
follows:
"Article IV
1. The authorized capital stock of the Corporation shall consist of
one hundred ten million shares (110,000,000), of which one
hundred million (100,000,000) shares shall be designated Common
Stock, par value $.001 per share (the "COMMON STOCK"), and ten
million (10,000,000) shares shall be designated Preferred Stock,
par value $.001 per share (the "PREFERRED STOCK").
Shares of Preferred Stock may be issued from time to time in one or more classes
or series, each of which class of series shall have such distinctive designation
or title as shall be fixed by the Board of Directors of the Corporation (the
"BOARD") prior to the issuance of any shares thereof. Each such class or series
of Preferred Stock shall have such voting powers, full or limited, or no voting
powers, and such preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated in such resolution or resolutions providing for the issue of
such class or series of Preferred Stock as may be adopted from time to
Page 7
<PAGE>
time by the Board prior to the issuance of any shares thereof pursuant to the
authority hereby expressly vested in it, all in accordance with the GCL."
CERTAIN EFFECTS OF THE PROPOSED AMENDMENT
The Board believes that approval of the Proposal is essential for the
growth and development of Valence. However, the following should be considered
by a stockholder in deciding how to vote upon this Proposal.
The Proposal, if approved, would strengthen the position of the Board and
might make the removal of the Board more difficult, even if such removal would
be generally beneficial to Valence's stockholders. The authorization to issue
the additional shares of Common Stock would provide the Board with a capacity to
negate the efforts of unfriendly tender offerors through the issuance of
securities to others who are friendly or desirable to the Board.
The Proposal is not the result of the Board's knowledge of any specific
effort to accumulate Valence's securities or to obtain control of Valence by
means of a merger, tender offer, proxy solicitation in opposition to management
or otherwise. Valence is not submitting the Proposal to enable it to frustrate
any efforts by another party to acquire a controlling interest or to seek
representation on the Board. The submission of the Proposal is not a part of any
plan by Valence's management to adopt a series of amendments to the Second
Amended and Restated Certificate or Bylaws so as to render the takeover of
Valence more difficult.
The additional shares which the Board would be authorized to issue upon
approval of the Proposal, if so issued, would have a dilutive effect upon the
percentage of equity of Valence owned by present stockholders. The issuance of
such additional shares might be disadvantageous to current stockholders in that
any additional issuances would potentially reduce per share dividends, if any.
Stockholders should consider, however, that the possible impact upon dividends
is likely to be minimal in view of the fact that Valence has never paid
dividends, has never adopted any policy with respect to the payment of dividends
and does not intend to pay any cash dividends in the foreseeable future. Valence
instead intends to retain earnings, if any, for use in financing growth and
additional business opportunities.
If the Amendment is approved by the requisite vote of the Company's
stockholders, the Authorized Share Increase will be effective upon the close of
business on the date of filing of the Amendment with the Delaware Secretary of
State, which filing is expected to take place shortly after the Annual Meeting.
If this proposal is not approved by the stockholders, then the Amendment will
not be filed.
RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the Amendment. The affirmative vote of a
majority of the outstanding shares of the Company's common stock is required to
approve the Amendment. For purposes of the vote to amend the Second Amended and
Restated Certificate of Incorporation, abstentions and broker non-votes will
have the same effect as a vote against approval of the Amendment. The Board is
of the opinion that the Amendment is advisable and in the best interests of the
Company and recommends a vote FOR the approval of the Amendment. All proxies
will be voted to approve the Amendment unless a contrary vote is indicated on
the enclosed proxy card.
Page 8
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE IN FAVOR OF PROPOSAL 2, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
PROPOSAL 3
APPROVAL OF THE 2000 STOCK OPTION PLAN
INTRODUCTION
The proposed 2000 Stock Incentive Plan (the "2000 Plan") was adopted by the
Board effective as of January ___, 2000, subject to the approval of the 2000
Plan by the stockholders. The 2000 Plan provides for the issuance of options to
purchase shares of the Common Stock ("Shares") to selected officers, directors,
employees and consultants of the Company. Subject to adjustment for stock
splits, stock dividends and other similar events, the total number of Shares
reserved for issuance under the 2000 Plan shall be 2,500,000 Shares. As of the
Record Date, options to purchase 216,918 Shares had been granted to eligible
employees of the Company pursuant to the terms of the 2000 Plan, subject to the
approval of the 2000 Plan by the stockholders, at exercise prices of $5.00 per
share (168,352 Shares) and $21.59 per share (48,566 Shares).
The following sections summarize the principal features of the 2000 Plan, a
copy of which is attached as EXHIBIT B to this Proxy Statement. Although this
Proxy Statement contains a summary of the principal features of the 2000 Plan,
this summary is not intended to be complete and reference should be made to
EXHIBIT B to this Proxy Statement for the complete text of the 2000 Plan.
PURPOSE
The 2000 Plan was adopted to provide a means by which selected
officers, directors 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 employees and consultants are
eligible to participate in the 2000 Plan.
ADMINISTRATION
The 2000 Plan is administered by the Board of Directors (the "Plan
Administrator") of the Company, unless otherwise delegated. The Board has the
power to construe and interpret the 2000 Plan and, subject to the provisions of
the 2000 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 2000 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 2000 Plan to the Compensation Committee of the Board. As
used herein with respect to the 2000 Plan, the "BOARD" refers to the
Page 9
<PAGE>
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 2000 Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants are eligible to receive
nonstatutory stock options under the 2000 Plan.
No incentive stock option may be granted under the 2000 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 2000 Plan,
the aggregate fair market value, determined at the time of grant, of the Shares
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 2000 Plan includes a per-employee,
per-fiscal year grant limitation equal to 700,000 shares of Common Stock.
If the Company's stockholders approve the 2000 Plan, the group identified
below will receive options to purchase the number of Shares set forth opposite
its name pursuant to the resolution passed by the Compensation Committee of the
Board, which provides for the automatic granting of stock options to the
officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES FOR WHICH
NAME AND POSITION OPTIONS HAVE BEEN GRANTED
----------------- --------------------------
<S> <C>
Chief Executive Officer 190,957
Executive Officers, excluding Chief
Executive Officer 0
Directors who are not
Executive Officers 0
Officers 25,961
All employees, excluding
Executive Officers and other Officers 0
</TABLE>
STOCK SUBJECT TO THE 2000 PLAN
If options granted under the 2000 Plan expire or otherwise terminate
without being exercised, the Shares not purchased pursuant to such options again
become available for issuance under the 2000 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 2000 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Page 10
<PAGE>
EXERCISE PRICE; PAYMENT.
The exercise price of incentive stock options under the 2000 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 2000 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."
The exercise price of an option shall be paid, to the extent permitted by
applicable statutes and regulations, either: (a) in cash or check at the time
the option is exercised; or (b) in the discretion of the Plan Administrator,
upon such terms as the Plan Administrator shall approve, (i) by a copy of
instructions to a broker directing such broker to sell the shares for which such
option is exercised, and to remit to the Company the aggregate exercise price of
such options (a "cashless exercise"), (ii) by paying all or a portion of the
exercise price for the number of shares being purchased by tendering shares
owned by the optionee, duly endorsed for transfer to the Company, with a fair
market value on the date of delivery equal to the aggregate purchase price of
the shares with respect to which such option or portion thereof is thereby
exercised (a "stock-for-stock exercise"), (iii) by a stock for stock exercise by
means of attestation whereby the optionee identifies for delivery specific
shares already owned by optionee and receives a number of shares equal to the
difference between the option shares thereby exercised and the identified
attestation shares (an "attestation exercise"), or (iv) with a full-recourse
promissory note. However, the par value of the shares, if newly issued, shall be
paid in cash or cash equivalents. The shares shall be pledged as security for
payment of the principal amount of the promissory note and interest thereon. The
interest rate payable under the terms of the promissory note shall not be less
than the minimum rate (if any) required to avoid the imputation of additional
interest under the Internal Revenue Code of 1986, as amended. Subject to the
foregoing, the Plan Administrator (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other provisions of
such note.
OPTION EXERCISE.
Options granted under the 2000 Plan may become exercisable in cumulative
installments ("VEST") as determined by the Board. The Board has determined that
shares covered by options to be granted under the 2000 Plan typically will vest
at the rate of 25% on the first anniversary of the grant date and 6.25% of the
original amount every three (3) months thereafter. Shares covered by options
under subsequent grants to option holders under the 2000 Plan will vest
quarterly over a three-year period. However, shares covered by options granted
in the future under the 2000 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 2000 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.
Page 11
<PAGE>
TERM.
The maximum term of options under the 2000 Plan is ten (10) years, except
that in certain cases (see "Eligibility") the maximum term is five (5) years.
Options under the 2000 Plan terminate three (3) months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's permanent and total disability (as defined in the Code), in which case
the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within three (3) months after termination of such relationship, in
which case the option may, but need not, provide that it may be exercised (to
the extent the option was exercisable at the time of the optionee's death)
within eighteen (18) months of the optionee's death by the person or persons to
whom the rights to such option pass by will or by the laws of descent and
distribution; or (c) the option by its terms specifically provides otherwise.
Individual options by their terms may provide for exercise within a longer or
shorter period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited under then current securities
laws.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 2000 Plan or subject to
any option granted under the 2000 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 2000 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to the 2000 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 2000 Plan provides that, in the event of a complete liquidation of the
Company or a specified type of merger or corporate reorganization ("Corporate
Event"), any unexercised options theretofore granted under the 2000 Plan shall
be deemed cancelled unless the surviving corporation in any such Corporate Event
elects to assume the options under the 2000 Plan or to issue substitute options
in place thereof. Upon any cancellation of options pursuant to the above
provisions, the Plan Administrator shall notify the optionee in writing or
electronically that the option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the option shall terminate
upon the expiration of such period. Alternatively the purchaser(s) of the
Company's assets or stock may, in his, her, or its discretion, terminate all
outstanding options by delivering to the optionees the same kind of
consideration that is delivered to the stockholders of the Company as a result
of such Corporate Event, or the Board may terminate all outstanding options in
exchange for consideration in cash or in kind, which consideration in both cases
shall be equal in value to the higher of (i) the fair market value (as defined
in the 2000 Plan) of those shares of stock or other securities the holder of
such option would have received had the option been exercised and no disposition
of the shares acquired upon such exercise been made prior to such Corporate
Event, less the exercise price therefor, and (ii) the fair market value of those
shares of stock or other securities the holder of the option would have received
had the option been exercised and no disposition of the shares acquired upon
such exercise been made immediately following such Corporate Event, less the
exercise price therefor.
Page 12
<PAGE>
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2000 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 2000 Plan will terminate on January ___, 2010.
The Board may also amend the 2000 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 Stock
Market or securities exchange rules, as applicable. The Board may submit any
other amendment to the 2000 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 2000 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 2000 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 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,
Page 13
<PAGE>
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 2000 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.
RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the adoption of the 2000 Plan. The
affirmative vote of a majority of the Shares present in person or represented by
proxy at the Annual Meeting and voting on the approval of the adoption
Page 14
<PAGE>
of the 2000 Plan is required for the approval of the adoption of the 2000 Plan.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved. Unless marked
otherwise, proxies received will be voted for the adoption of the 2000 Plan.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF
PROPOSAL 3, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending March 26, 2000, and
has further directed that management submit the selection of independent
accountants for ratification by the stockholders at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's Financial statements since
January 1992. Representatives of PricewaterhouseCoopers 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 PricewaterhouseCoopers 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
PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP. 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 RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4, AND YOUR PROXY WILL BE SO
VOTED UNLESS YOU SPECIFY OTHERWISE.
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 January 6, 2000 by: (i) each
director; (ii) each of the executive officers in the Summary Compensation table;
(iii) all executive officers and directors 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.
Page 15
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
- -------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Carl E. Berg (2) 4,393,265 12.7%
10050 Bandley Drive, Cupertino, CA 95014
Lev M. Dawson (3) 2,009,002 5.8
301 Conestoga Way, Henderson, NV 89015
Alan F. Shugart (4) 381,488 1.1
R. Joseph Horning (5) 210,284 *
George W. Adamson (5) 81,909 *
Bert C. Roberts, Jr. (6) 90,000 *
All directors and executive officers as a group
(9 persons)(7) 7,311,782 21.14%
- -------------------------------------------
<FN>
* 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 34,591,204 shares of
common stock outstanding on January 6, 2000, adjusted as required by rules
promulgated by the Commission.
(2) Includes 150,000 shares held by Mr. Berg; 539,700 shares held by West Coast
Venture Capital; 129,636 shares issuable upon exercise of options held by
Mr. Berg that are exercisable within 60 days of January 6, 2000; 304,901
shares issuable upon conversion of a promissory note held by Mr. Berg that
is convertible within 60 days of January 6, 2000; 594,031 shares issuable
upon exercise of warrants held by Baccarat Electronics, Inc.; 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 1,222,825 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) Includes 1,933,144 shares held by Mr. Dawson and 75,858 shares issuable
upon exercise of options within 60 days of January 6, 2000.
(4) Includes 120,000 shares held by Mr. Shugart and 261,488 shares issuable
upon exercise of options within 60 days of January 6, 2000.
(5) Consists of shares issuable upon exercise of options that are exercisable
within 60 days of January 6, 2000.
(6) Includes 50,000 shares held by Mr. Roberts and 40,000 shares issuable upon
exercise of options within 60 days of January 6, 2000.
(7) Includes 945,009 issuable upon exercise of options within 60 days of
January 6, 2000.
</FN>
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act ("SECTION 16(A)") requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Page 16
<PAGE>
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 28, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
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.
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 Internal Revenue 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.
During the last fiscal year, the Company granted options covering 35,560
shares to Carl E. Berg, at an exercise price per share of $7.19; 56,296 shares
to Alan F. Shugart, at an exercise price per share of $7.00; and 200,000 shares
to Bert C. Roberts, Jr., at an exercise price per share of $7.06; all
non-employee Directors of the Company, under the Directors' Plan. The fair
market value of such Common Stock on the dates of grant was $7.19, $7.00, and
$7.06 respectively, per share (based on the closing sales price reported in the
Nasdaq National Market for the date of grant). As of January 6, 2000, no options
had been exercised under the Directors' Plan.
COMPENSATION OF EXECUTIVES
Executive officers are eligible to receive stock options under the 1990
Plan, and, if the 2000 Plan is adopted by the stockholders at the Annual
Meeting, will also be eligible to receive options under the 2000 Plan.
In June 1996, the Compensation Committee of the Board passed a resolution
which provides for the automatic granting of stock options to the officers of
the Company. According to this resolution, each quarter, each officer receives a
grant of options under the 1990 plan in an amount necessary to keep the amount
of unvested options held by that officer at a predetermined
Page 17
<PAGE>
level. These levels are 360,000 shares for the CEO, 180,000 shares for an
executive vice president, and 120,000 shares for a vice president. The
resolution was effective when passed, and the Company's officers have been
receiving such grants since that time. The resolution further provided that in
the event the Company ever grants a bonus to any officer, that one half of any
such bonus would be held by the Company for use by the officer only for
exercising his or her stock options. To date, no bonuses have been granted to
any officer.
In January 1998, the Company entered into an employment agreement with
Joseph P. Hendrickson pursuant to which the Company retained Mr. Hendrickson as
its Vice President of Administration at an annual salary of $175,000.
Subsequently, Mr. Hendrickson was promoted to Senior Vice President of
Operations at an annual salary of $200,000. The Company granted Mr. Hendrickson
an option to purchase 150,000 shares of common stock at an exercise price of
$5.31 per share, vesting over a period of eighteen months. The Company agreed to
pay Mr. Hendrickson's relocation expenses. Mr. Hendrickson's last day with the
Company was February 26, 1999. On his last day with the Company, the following
stock option amounts vested: nine thousand four hundred ten (9,410) shares of
his second stock option grant, dated January 5, 1998 and fifteen thousand five
hundred ninety (15,590) shares of his third stock option grant, dated January 5,
1998.
The following table shows for the fiscal years ended March 28, 1999, March
29, 1998 and March 30, 1997, certain compensation awarded or paid to, or earned
by the Company's Chief Executive Officer and its other four most highly
compensated executive officers, whose compensation exceeded $100,000 for the
fiscal year ended March 28, 1999 (the "NAMED EXECUTIVE OFFICERS"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------- OTHER COMPENSATION AWARDS ALL OTHER
ANNUAL ------------------- COMPEN-
COMPEN- OPTIONS SATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) SATION (1) (#) ($)
- ---------------------------- ----------- ---------- --------- ----------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lev M. Dawson 1999 274,208 -- -- -- 31 (2)
Chairman of the Board, Chief 1998 82,923 -- -- 1,000,000 9,762 (3)
Executive Officer and 1997 -- -- -- -- --
President
Joseph P. Hendrickson (4) 1999 186,717 -- -- 90,000 --
Former Senior Vice President 1998 37,019 -- -- 150,000 --
Operations 1997 -- -- -- -- --
R. Joseph Horning 1999 156,872 -- -- 52,818 --
Vice President, Engineering & 1998 145,600 -- -- 44,762 42 (2)
Standards 1997 145,600 -- -- 44,442 --
George W. Adamson 1999 114,691 -- -- 98,215 50 (2)
Vice President, Process 1998 78,884 -- -- 40,500 50 (2)
Engineering & Development 1997 16,154 -- -- 4,500 --
- -------------------------------
<FN>
(1) The Company has no stock appreciation rights ("SARS").
Page 18
<PAGE>
(2) These amounts consist of 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.
(3) Relocation expenses paid by the Company.
(4) Joseph P. Hendrickson was employed by the Company through February 26,
1999.
</FN>
</TABLE>
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended March 28, 1999, certain
information regarding options granted to, exercised by, and held at year-end by
the Named Executive Officers:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
TOTAL OPTIONS EXER- APPRECIATION FOR OPTION
OPTIONS GRANTED TO CISE TERM (3)
GRANTED (#) EMPLOYEES IN PRICE EXPIRA-TION -----------------------
NAME (1) FISCAL YEAR (2) ($/SH) DATE 5% ($) 10% ($)
- ----------------------------- ----------- --------------- ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lev M. Dawson -- -- -- -- -- --
Joseph P. Hendrickson 90,000 4.4% 4.94 05/07/08 279,465 708,219
R. Joseph Horning 15,529 0.8% 4.81 03/30/08 46,999 119,106
9,155 0.4% 5.75 06/29/08 33,106 83,897
20,000 1.0% 3.75 09/11/08 47,167 119,531
8,134 0.4% 6.31 12/28/08 32,291 81,832
George W. Adamson 35,000 1.7% 4.94 05/07/08 108,681 275,419
30,000 1.5% 5.69 06/30/08 107,305 271,932
20,000 1.0% 3.75 09/11/08 47,167 119,531
2,474 0.1% 4.13 09/28/08 6,418 6,265
10,741 0.5% 6.31 12/28/08 42,641 108,060
<FN>
(1) Options granted in fiscal 1999 generally vest over four years, with 1/16 of
the shares vesting each quarter and with full vesting occurring on the
fourth anniversary date. See "Executive Compensation" on page 18 of this
report for a description of severance agreements and how they affect the
vesting of options for Mr. Hendrickson.
(2) Based on an aggregate of 2,066,632 options granted to employees, including
the Named Executive Officers, in fiscal year 1999.
(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.
</FN>
</TABLE>
Page 19
<PAGE>
The following table shows the number and value of the unexercised options
held by each of the Named Executive Officers on March 28, 1999:
<TABLE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR, AND FY-END OPTION VALUES
<CAPTION>
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FY-END (#) AT FY-END ($) (1)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lev M. Dawson 0 0 19,753 19,753 $ 35,852 $ 35,852
Joseph P. Hendrickson 0 0 147,500 0 $ 238,906 $ 0
R. Joseph Horning 0 0 159,118 103,904 $ 415,033 $ 155,212
George W. Adamson 0 0 34,937 108,278 $ 70,737 $ 202,765
- -----------------------
<FN>
(1) Based on the fair market value of the Company's Common Stock as of March
28, 1999 ($6.875) minus the exercise price of the options multiplied by the
number of shares underlying the option.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
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.
Pursuant to action taken by the Board in January 1998, the Company entered
into an employment arrangement with Lev M. Dawson pursuant to which the Company
retained Mr. Dawson as its Chairman of the Board, Chief Executive Officer and
President at an annual salary of $280,000 effective January 1, 1998. The Company
granted Mr. Dawson an option to purchase 1,000,000 shares of common stock at an
exercise price of $5.06 per share, vesting over a period of eighteen months. The
Company agreed to pay Mr. Dawson's relocation expenses.
OPTION REPRICING INFORMATION
The following table shows certain information concerning option repricings
received by any Named Officer during the last ten years.
Page 20
<PAGE>
<TABLE>
TEN YEAR OPTION/SAR REPRICINGS
<CAPTION>
LENGTH OF
ORIGINAL
MARKET PRICE OPTION TERM
NO. OF OF STOCK AT EXERCISE PRICE REMAINING AT
OPTIONS/SARS TIME OF AT TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- ------------------------ ------- ------------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
R. Joseph Horning 1/18/93 22,000 11.50 22.75 11.50 4.75
</TABLE>
COMPENSATION COMMITTEE REPORT(1)
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. 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 also is 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 that are used by the
Committee in evaluating the compensation of the Chief Executive Officer are no
different from those that are used to evaluate the compensation of other
executives.
Page 21
<PAGE>
During the fiscal year 1999, the Committee provided stock option grants to
the executive officers of the Company pursuant to the 1990 Plan. The exercise
prices 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 grants to
acquire a total of 241,033 shares. The Committee based this determination on the
need to provide incentives for the staff in connection with the Company's
efforts to commercialize its technology.
Compensation of the Chief Executive Officer is evaluated by the 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 Committee
has set Mr. Dawson'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.
Dawson's salary and option grants were set at a level the Committee believes
will properly motivate and retain Mr. Dawson as the Chief Executive Officer of
the Company.
For fiscal 1999, the Compensation Committee determined that Mr. Dawson's
base salary would continue to be commensurate with his responsibilities; he has
been paid a salary of $280,000 per year since assuming the position of Chief
Executive Officer of the Company on January 1, 1998. None of the executive
officers were paid a bonus in fiscal 1999.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "CODE"),
places a limit of $1,000,000 on the amount of compensation that may be deducted
by the Company in any year with respect to each of the Company's five most
highly paid executive officers. Certain "performance-based" compensation that
has been approved by the Company's stockholders is not subject to the deduction
limit. The Company's 1990 Plan is qualified so that awards under the plan
constitute performance-based compensation not subject to Section 162(m) of the
Code. The 2000 Plan, if approved by the stockholders, also will be qualified so
that awards under the plan will constitute performance-based compensation not
subject to Section 162(m) of the Code.
Carl E. Berg
Alan F. Shugart
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
During the fiscal year ended March 28, 1999, the Compensation Committee
consisted of Messrs. Shugart and Berg.
On July 27, 1998, the Company entered into an agreement with an
institutional investor for the private placement of up to $15,000,000 of its
convertible preferred stock. Concurrently with the preferred stock financing,
Baccarat Electronics, Inc., an affiliate of Mr. Berg, loaned the Company $2.5
million and agreed to loan the Company up to an additional $7.5 million on terms
specified in the amended loan agreement. Baccarat Electronics received a warrant
to purchase 149,254 shares of the common stock of the Company in connection with
the $2.5 million loan, and is entitled to warrants to purchase up to 447,761
additional shares as additional amounts of the remaining $7.5 million loan
availability are drawn down. As of March 28, 1999, the Company has drawn down an
additional $2 million under the remaining $7.5 million loan availability and
issued Baccarat
Page 22
<PAGE>
Electronics additional warrants to purchase an additional 119,403 shares of
common stock in connection with such draw downs.
PERFORMANCE MEASUREMENT COMPARISON(1)
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. All values assume reinvestment of the
full amount of all dividends and are calculated as of March 31 of each year.
[OBJECT OMITTED]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------------
3/94 3/95 3/96 3/97 3/98 3/99
----------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
VALENCE TECHNOLOGY INC VLN 100.00 100.00 12.50 30.80 45.09 35.27
NASDAQ STOCK MARKET (U.S.) INAS 100.00 107.94 120.07 163.03 181.21 275.21
H & Q GROWTH IHQG 100.00 116.10 142.75 220.36 180.39 273.07
<FN>
(1) 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.
</FN>
</TABLE>
Page 23
<PAGE>
CERTAIN TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation" for a
description of certain transactions between the Company and Mr. Berg.
See "Employment Agreement" for a description of certain transactions
between the Company and certain named Executive Officers.
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
-----------------------------------
SECRETARY
January 18, 2000
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended March 28, 1999 is available
without charge upon written request to: Corporate Secretary, Valence Technology,
Inc., 301 Conestoga Way, Henderson, Nevada 89015.
Page 24
<PAGE>
PROXY
VALENCE TECHNOLOGY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 15, 2000
The undersigned hereby appoints Lev M. Dawson and Roy Wright, 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
Stockholders of Valence Technology, Inc. to be held at 301 Conestoga Way,
Henderson, Nevada 89015, on Tuesday, February 15, 1999, at 9:00 a.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.
[X] Please mark votes as in this example
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1
BELOW AND A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
1. To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
NOMINEES: Lev M. Dawson, Carl E. Berg, Alan F. Shugart and Bert C. Roberts, Jr.
[ ] FOR all nominees listed [ ] WITHHELD
(except as marked to the contrary
below).
-----------------------------------------
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)' NAME(S)
ABOVE:
2. To approve an amendment to the Company's Second Amended and Restated
Certificate of Incorporation to increase the aggregate number of shares of
Common Stock authorized for issuance from 50,000,000 shares to 100,000,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Company's 2000 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Page 25
<PAGE>
4. To ratify selection of PricewaterhouseCoopers LLP as independent auditors
of the Company for its fiscal year ending March 26, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF 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:_____
- --------
(1) 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.
Page 26
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
VALENCE TECHNOLOGY, INC.
Lev M. Dawson and Roy A. Wright, hereby certify that:
I. They are the Chief Executive Officer and Secretary, respectively, of
Valence Technology, Inc.
II. Valence Technology, Inc., is a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware (the "GCL").
III. The amendment to the Certificate of Incorporation of the Corporation
set forth below has been consented to in writing by Unanimous Written
Consent of the Board of Directors of the Corporation in accordance
with Section 141(f) of the General Corporation Law of the State of
Delaware.
IV. The annual meeting of the stockholders of the Corporation was duly
called and held upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the
amendment to the Certificate of Incorporation of the Corporation set
forth below was duly adopted in accordance with the provisions of
Section 241 of the General Corporation Law of the State of Delaware.
V. Article IV of the Certificate of Incorporation of the Corporation is
hereby amended in its entirety to read as follows:
"Article IV"
1. The authorized capital stock of the Corporation shall consist of
one hundred ten million shares (110,000,000), of which one
hundred million (100,000,000) shares shall be designated Common
Stock, par value $.001 per share (the "COMMON STOCK"), and ten
million (10,000,000) shares shall be designated Preferred Stock,
par value $.001 per share (the "PREFERRED STOCK").
2. Shares of Preferred Stock may be issued from time to time in one
or more classes or series, each of which class of series shall
have such distinctive designation or title as shall be fixed by
the Board of Directors of the Corporation (the "BOARD") prior to
the issuance of any shares thereof. Each such class or series of
Preferred Stock shall have such voting powers, full or limited,
or no voting powers, and such preferences and relative,
participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be
stated in such resolution or resolutions providing for the issue
of such class or series of Preferred Stock as may be adopted from
time to time by the Board prior to the issuance of any shares
thereof pursuant to the authority hereby expressly vested in it,
all in accordance with the GCL."
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment this _____ day of ______________, 2000.
-------------------------------------
Lev M. Dawson
Chairman of the Board, Chief
Executive Officer and President
-------------------------------------
Roy A. Wright
Senior Vice President, Operations
and Secretary
EX A - 2
<PAGE>
EXHIBIT B
VALENCE TECHNOLOGY, INC.
2000 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Plan is to further the growth and development of Valence
Technology, Inc., a Delaware corporation (the "Company"), and its Affiliates by
providing appropriate incentives and rewards to Employees (including officers of
the Company), Directors and Consultants who are in a position to contribute
materially to the prosperity of the Company, to increase such persons' interests
in the Company's welfare, to encourage them to continue their services to the
Company or its Affiliates, and to attract individuals of outstanding ability to
enter the employment of the Company or its Affiliates, to remain or become
directors of the Company and to provide valuable services to the Company or its
Affiliates. The Plan offers selected individuals an opportunity to acquire a
proprietary interest in the success of the Company, or to increase such
interest, by purchasing Shares of the Company's Stock.
2. INCENTIVE AND NONSTATUTORY STOCK OPTIONS
Two types of Stock Options (referred to herein as "Options" without
distinction between such two types) may be granted under the Plan: Options
intended to qualify as Incentive Stock Options under Section 422 of the Code and
Nonstatutory Stock Options not specifically authorized or qualified for
favorable income tax treatment by the Code. All options shall be separately
designated as Incentive Stock Options or Nonstatutory Stock Options at the time
of grant, and in such form as issued pursuant to SECTION 7, and a separate
certificate or certificates shall be issued for Shares purchased on exercise of
each type of Option. An Option designated as a Nonstatutory Stock Option shall
not be treated as an Incentive Stock Option.
3. DEFINITIONS
The following definitions are applicable to the Plan:
3.1 "AFFILIATE" shall mean any Parent or any Subsidiary of the Company.
3.2 "BOARD" shall mean the Board of Directors of the Company, as
constituted from time to time.
3.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
3.4 "COMMITTEE" shall mean a compensation committee of the Board, as
described in SECTION 4.2.
3.5 "COMPANY" shall mean Valence Technology, Inc., a Delaware corporation.
3.6 "CONSULTANT" shall mean an individual who performs bona fide services
for the Company or an Affiliate as a consultant or advisor, excluding Employees
and Directors.
3.7 "DIRECTOR" shall mean a member of the Board of the Company.
<PAGE>
3.8 "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment. For purposes of determining the term of an ISO pursuant to
SECTION 7.1 hereof, the Disability must be expected to result in death or to
have lasted or be expected to last for a continuous period of not less than 12
months. The determination of whether an individual has a Disability shall be
determined under procedures established by the Plan Administrator.
3.9 "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
3.10 "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
3.11 "FAIR MARKET VALUE" shall mean the fair market value of a Share,
determined as follows:
3.11.1 If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with
the greatest volume of trading in the Common Stock) on the last market
trading day prior to the day of determination, as reported in the WALL
STREET JOURNAL or such other source as the Plan Administrator deems
reliable;
3.11.2 If the Common Stock is quoted on the Nasdaq System (but not on
the Nasdaq National Market) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a share of Common Stock shall be the mean between the bid and
asked prices for the Common Stock on the last market trading day prior to
the day of determination, as reported in the Wall Street Journal or such
other source as the Plan Administrator deems reliable;
3.11.3 In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Plan
Administrator. Such determination shall be conclusive and binding on all
persons.
3.12 "INCENTIVE STOCK OPTION" shall mean an Option intended to be and
designated as an employee "incentive stock option" within the meaning of Section
422 of the Code.
3.13 "NON-EMPLOYEE DIRECTOR" means a director who either (i) is not a
current employee or officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
EX B - 2
<PAGE>
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
3.14 "NONSTATUTORY OPTION" shall mean an Option not described in Sections
422(b) or 423(b) of the Code.
3.15 "OPTION" shall mean an Incentive Stock Option or Nonstatutory Option
granted under the Plan and entitling the holder to purchase Shares, which shall
be evidenced by a written agreement between the Company and an Optionee.
3.16 "OPTIONEE" shall mean an individual who holds an Option.
3.17 "OUTSIDE DIRECTOR" shall mean a member of the Board who either (i) is
not a current employee of the Company or an Affiliate, is not a former employee
of the Company or an Affiliate receiving compensation for prior services (other
than benefits under a tax qualified pension plan), was not an officer of the
Company or an Affiliate at any time, and is not currently receiving a direct or
indirect remuneration from the Company or an Affiliate for services in any
capacity other than as a Director, or (ii) is otherwise considered an "outside
director" who satisfies the requirements of such term as defined in Treas. Regs.
ss.1.162-27(e)(3).
3.18 "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
3.19 "PLAN" shall mean this Valence Technology, Inc. 2000 Stock Option
Plan, as amended from time to time.
3.20 "PLAN ADMINISTRATOR" shall mean the Board or the Committee designated
pursuant to SECTION 4.2 hereof to administer, construe and interpret the terms
of the Plan.
3.21 "SERVICE" shall mean service as an Employee, Director or Consultant.
3.22 "SHARE" shall mean one share of Stock, as adjusted in accordance with
SECTION 8 (if applicable). ---------
3.23 "STOCK" shall mean the Common Stock of the Company, par value $0.001
per Share.
3.24 "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee, which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
3.25 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A
EX B - 3
<PAGE>
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
4. ADMINISTRATION
4.1 ADMINISTRATION BY BOARD. Subject to SECTION 4.2 hereof, the Plan
Administrator shall be the Board of Directors of the Company (the "Board")
during such periods of time as all members of the Board are Outside Directors.
The Plan Administrator shall have authority to construe and interpret the Plan,
to promulgate, amend, and rescind rules and regulations relating to its
administration, from time to time to select from among the eligible Employees,
Directors and Consultants (as determined pursuant to SECTION 6) of the Company
and its subsidiaries those persons to whom Options will be granted, to determine
the timing and manner of the grant of the Options, whether the option will be an
Incentive Stock Option or a Nonstatutory Stock Option, to determine the exercise
price, the number of shares covered by and all of the terms of the Options
(which need not be identical), to determine the duration and purpose of leaves
of absence which may be granted to Option holders without constituting
termination of their employment for purposes of the Plan, and to make all of the
determinations necessary or advisable for administration of the Plan. The Plan
Administrator may, in its absolute discretion, without amendment to the Plan,
accelerate the date on which any Option granted under the Plan becomes
exercisable, waive or amend the operation of Plan provisions respecting exercise
after termination of employment or otherwise adjust any of the terms of such
Option. The interpretation and construction by the Plan Administrator of any
provision of the Plan, or of any agreement issued and executed under the Plan,
shall be final and binding upon all parties. No member of the Board shall be
liable for any action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the Plan.
4.2 ADMINISTRATION BY COMMITTEE. The Board may, in its sole discretion,
delegate any or all of its duties as Plan Administrator and, subject to the
provisions of SECTION 4.3 of the Plan, at any time the Board includes any person
who is not an Outside Director, the Board shall delegate all of its duties as
Plan Administrator during such period of time to a Committee of not fewer than
two (2) members of the Board, all of the members of which Committee shall be
persons who, in the opinion of counsel to the Company, are Outside Directors and
Non-Employee Directors, to be appointed by and serve at the pleasure of the
Board. From time to time, the Board may increase or decrease (to not less than
two members) the size of the Committee, and add additional members to, or remove
members from, the Committee. The Committee shall act pursuant to a majority
vote, or the written consent of a majority of its members, and minutes shall be
kept of all of its meetings and copies thereof shall be provided to the Board.
Subject to the provisions of the Plan and the directions of the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business, as it may deem advisable. No member of the Committee shall be
liable for any action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the Plan.
4.3 EXCEPTIONS. Anything to the contrary notwithstanding, the requirements
in SECTIONS 2.1 and 2.2 that all members of the Committee be non-employee
directors and Outside Directors shall not apply for any period of time during
which the Company's Common Stock is not registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, and shall not apply with respect to
grants to employees other than the named executive officers who are subject
EX B - 4
<PAGE>
to the executive compensation disclosure rules under the Securities Exchange Act
of 1934, as amended. Those provisions of the Plan that make express reference to
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, shall apply
only to reporting persons. Whether or not the Board has delegated
administration, the Board shall have the final power to determine all questions
of policy and expediency that may arise in the administration of the Plan,
including the power to amend the Plan as provided in SECTION 12.1. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
5. SHARES SUBJECT TO THE PLAN
5.1 BASIC LIMITATION. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options) shall not exceed 2,500,000
Shares, subject to adjustment pursuant to SECTION 11. The number of Shares that
are subject to Options or other rights outstanding at any time under the Plan
shall not exceed the number of Shares that then remain available for issuance
under the Plan. The Company, during the term of the Plan, shall at all times
reserve and keep available a sufficient number of Shares to satisfy the
requirements of the Plan.
5.2 ADDITIONAL SHARES. In the event that any outstanding Option for any
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan. In the event that Shares issued under the Plan are reacquired by
the Company pursuant to the terms of any forfeiture provision, right of
repurchase or right of first refusal, such Shares shall again be available for
the purposes of the Plan.
5.3 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
(determined at the time the Option is granted) of the Shares with respect to
which ISOs granted after 1986 are exercisable for the first time by an Optionee
during any calendar year (under all ISO plans of the Company and its Affiliates)
shall not exceed $100,000. To the extent that the aggregate Fair Market Value
(determined at the time of the Option is granted) of the Shares with respect to
which ISOs are exercisable for the first time by an Optionee during any calendar
year exceeds $100,000, such Options shall be treated as Nonstatutory Options.
The determination of the Options to be treated as Nonstatutory Options shall be
made by taking Options into account in the order in which they were granted.
6. ELIGIBILITY
6.1 GENERAL RULE. Incentive Stock Options may be granted only to Employees
(including officers) of the Company or its Affiliates. A Director of the Company
shall not be eligible to receive Incentive Stock Options unless such director is
also an Employee (including an officer) of the Company or any Affiliate.
Nonstatutory Stock Options may be granted only to key Employees (including
officers) of, Directors of or Consultants to the Company or its Affiliates.
6.2 INDIVIDUAL LIMIT. Subject to the provisions of SECTION 11 relating to
adjustments upon changes in Stock, no person shall be eligible to be granted
Options covering more than 700,000 Shares of the Company's Stock in any
fiscal year.
EX B - 5
<PAGE>
6.3 TEN-PERCENT STOCKHOLDERS. No person shall be eligible for the grant of
an Incentive Stock Option under the Plan if, at the time of grant, such person
owns (or is deemed to own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of the Affiliates unless the exercise
price of such option is at least one hundred ten percent (110%) of the fair
market value of such Stock at the date of grant and the term of the Option does
not exceed five (5) years from the date of grant.
7. OPTION PROVISIONS
Each Option shall be in such form and shall contain such terms and
conditions as the Plan Administrator shall deem appropriate. The provisions of
separate Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option Agreement or
otherwise) the substance of each of the following provisions:
7.1 TERM. The term of any Option shall not be greater than ten (10) years
from the date it was granted. An Option shall terminate three (3) months after
termination of the Optionee's Service with the Company or an Affiliate, unless
(i) such termination is due to such person's Disability, in which case the
option may, but need not, provide that it may be exercised at any time within
one (1) year following such termination of Service; or (ii) the Optionee dies
while in the Service of the Company or an Affiliate, or within not more than
three (3) months after termination of such Service, in which case the Option
may, but need not, provide that it may be exercised at any time within eighteen
(18) months following the death of the Optionee by the person or persons to whom
the Optionee's rights under such Option pass by will or by the laws of descent
and distribution; or (iii) the Option by its terms specifies either (a) that it
shall terminate sooner than three (3) months after termination of the Optionee's
Service, or (b) that it may be exercised more than three (3) months after
termination of such Service with the Company or an Affiliate. This SECTION 7.1
shall not be construed to extend the term of any Option of to permit anyone to
exercise the Option after expiration of its term, nor shall it be construed to
increase the number of Shares as to which any Option is exercisable from the
amount exercisable on the date of termination of the Optionee's Service.
7.2 EXERCISE PRICE. The Exercise Price for the shares subject to any Option
shall be determined by the Plan Administrator at the time of grant, but shall
not be less than par value per share. Anything to the contrary notwithstanding,
the Exercise Price for the shares subject to any Incentive Stock Option shall
not be less than 100% of the Fair Market Value of the shares of Common Stock of
the Company on the date the Stock Option is granted. In the case of an Incentive
Stock Option granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
Affiliate, the Option price shall not be less than 110% of the fair market value
per share of the Stock of the Company on the date the Option is granted.
7.3 PAYMENT. The Exercise Price of an Option shall be paid, to the extent
permitted by applicable statutes and regulations, either:
7.3.1 In cash or check at the time the option is exercised; or
EX B - 6
<PAGE>
7.3.2 In the discretion of the Plan Administrator, upon such terms as
the Plan Administrator shall approve, (i) by a copy of instructions to a
broker directing such broker to sell the Shares for which such Option is
exercised, and to remit to the Company the aggregate exercise price of such
Options (a "cashless exercise"), (ii) by paying all or a portion of the
Exercise Price for the number of Shares being purchased by tendering Shares
owned by the Optionee, duly endorsed for transfer to the Company, with a
Fair Market Value on the date of delivery equal to the aggregate purchase
price of the Shares with respect to which such Option or portion thereof is
thereby exercised (a "stock-for-stock exercise"), (iii) by a stock for
stock exercise by means of attestation whereby the Optionee identifies for
delivery specific Shares already owned by Optionee and receives a number of
Shares equal to the difference between the Option Shares thereby exercised
and the identified attestation Shares (an "attestation exercise"), or (iv)
with a full-recourse promissory note. However, the par value of the Shares,
if newly issued, shall be paid in cash or cash equivalents. The Shares
shall be pledged as security for payment of the principal amount of the
promissory note and interest thereon. The interest rate payable under the
terms of the promissory note shall not be less than the minimum rate (if
any) required to avoid the imputation of additional interest under the
Code. Subject to the foregoing, the Plan Administrator (at its sole
discretion) shall specify the term, interest rate, amortization
requirements (if any) and other provisions of such note.
7.3.3 The Exercise Price shall include payment of the amount of all
federal, state, local or other income, excise or employment taxes subject
to withholding (if any) by the Company or any Affiliate as a result of the
exercise of a Stock Option. At the discretion of the Plan Administrator,
upon such terms as the Plan Administrator shall approve, the Optionee may
pay all or a portion of the tax withholding by (i) cash or check payable to
the Company, (ii) cashless exercise, (iii) stock-for-stock exercise, (iv)
by paying all or a portion of the tax withholding for the number of Shares
being purchased by withholding Shares from any transfer or payment to the
Optionee ("stock withholding"), or (v) a combination of one or more of the
foregoing payment methods. Any Shares issued pursuant to the exercise of an
Option and transferred by the Optionee to the Company for the purpose of
satisfying any withholding obligation shall not again be available for
purposes of the Plan and the number of Shares subject to stock withholding
shall not exceed an amount equal to the minimum required applicable tax
withholding rates.
7.4 RESTRICTIONS ON TRANSFER OF OPTION. Any Incentive Stock Option shall
not be transferable except by will, by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit the transfer of a Nonstatutory Stock
Option, the Nonstatutory Stock Option shall not be transferable except by will,
by the laws of descent and distribution or pursuant to a domestic relations
order satisfying the requirements of Rule 16b-3, and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by 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.
7.5 EXERCISABILITY. The total number of Shares subject to an option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). From time to
EX B - 7
<PAGE>
time during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the Shares allotted to that period, and
may be exercised with respect to some or all of the Shares allotted to such
period and/or any prior period as to which the Option was not fully exercised.
During the remainder of the term of the Option (if its term extends beyond the
end of the installment periods), the Option may be exercised from time to time
with respect to any Shares then remaining subject to the Option. The provisions
of this SECTION 7.5 are subject to any Option provisions governing the maximum
number of shares as to which an Option may be exercised. The Option may, but
need not, include a provision whereby the Optionee may elect at any time during
the Option term to exercise the Option as to any part or all of the Shares
subject to the Option prior to the stated vesting date of the Option or of any
installment or installments specified in the Option. Any Shares so purchased
from any unvested installment or Option may be subject to a repurchase right in
favor of the Company or to any other restriction the Plan Administrator
determines to be appropriate.
7.6 SECURITIES LAW REQUIREMENTS. The Company may require any optionee, or
any person to whom an option is transferred under SECTION 7.4, as a condition of
exercising any such option:
7.6.1 To give written assurances satisfactory to the Company as to the
Optionee's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together
with the purchaser representative, the merits and risks of exercising the
option; and
7.6.2 To give written assurances satisfactory to the Company stating
that such person is acquiring the Stock subject to the Option for such
person's own account and not with any present intention of selling or
otherwise distributing the Stock. These requirements, and any assurances
given pursuant to such requirements, shall be inoperative if:
(a) 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
(b) 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.
8. COVENANTS OF THE COMPANY
8.1 RESERVATION OF SHARES. During the terms of the Options granted under
the Plan, the Company shall keep available at all times the number of Shares of
Stock required to satisfy such Options.
8.2 RESTRICTION ON ISSUANCE OF SHARES. 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
EX B - 8
<PAGE>
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 form 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
unless and until such authority is obtained.
9. 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.
10. MISCELLANEOUS
10.1 NO SHAREHOLDER RIGHTS. Neither an Optionee nor any person to whom an
Option is transferred under SECTION 7.4 shall be deemed to be the holder of, or
to have any of the rights of the 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.
10.2 FINANCIAL DISCLOSURE. Throughout the term of any Option granted
pursuant to the Plan, the Company shall make available to the holder of such
Option, not later than one hundred twenty (120) days after the close of each of
the Company's fiscal years during the Option term, upon request, such financial
and other information regarding the Company as comprises the annual report to
the stockholders of the Company provided for in the bylaws of the Company.
10.3 NO RETENTION RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any eligible Employee or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Consultant or Director) or shall affect the right of the
Company or any Affiliate to terminate the Service of any Optionee with or
without cause. In the event that an Optionee is permitted or otherwise entitled
to take a leave of absence, the Company shall have the unilateral right to (i)
determine whether such leave of absence will be treated as a termination of
Service for purposes of SECTION 7.5 hereof and corresponding provisions of any
outstanding Options, and (ii) suspend or otherwise delay the time or times at
which the Shares subject to the Option would otherwise vest.
11. ADJUSTMENTS UPON CHANGES IN STOCK
11.1 GENERAL. If any change is made in the Stock subject to the Plan, or
subject to any Option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), then the Plan and
outstanding Options shall be appropriately adjusted:
11.1.1 In the class(es) and maximum number of Shares subject to the
Plan; and
EX B - 9
<PAGE>
11.1.2 In the class(es) and number of Shares and price per Share of
Stock subject to outstanding Options.
11.2 MERGERS AND CONSOLIDATIONS. In the event of a complete liquidation of
the Company or a merger, reorganization, or consolidation of the Company with,
or upon a sale of all or substantially all of the Company's assets to, or the
acquisition of all or substantially all of the Common Stock of the Company by
any other corporation in which the Company is not the surviving corporation or
the Company becomes a wholly-owned subsidiary of another corporation, or any
other corporate transaction occurs within the meaning of Code Section 424 and
the regulations thereunder that would result in the transfer to a new employer
or discharge of a significant number of employees or the creation or severance
of a parent-subsidiary relationship (a "Corporate Event"), any unexercised
Options theretofore granted under the Plan shall be deemed cancelled unless the
surviving corporation in any such Corporate Event elects to assume the Options
under the Plan or to issue substitute Options in place thereof; provided,
however, that, notwithstanding the foregoing, if such Options would be cancelled
in accordance with the foregoing, the Plan Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. Alternatively the
purchaser(s) in such Corporate Event may, in his, her, or its discretion,
terminate all outstanding Options by delivering to the Optionees the same kind
of consideration that is delivered to the stockholders of the Company as a
result of such Corporate Event, or the Board may terminate all outstanding
Options in exchange for consideration in cash or in kind, which consideration in
both cases shall be equal in value to the higher of (i) the Fair Market Value of
those Shares of Stock or other securities the holder of such Option would have
received had the Option been exercised and no disposition of the Shares acquired
upon such exercise been made prior to such Corporate Event, less the exercise
price therefor, and (ii) the Fair Market Value of those Shares of Stock or other
securities the holder of the Option would have received had the Option been
exercised and no disposition of the Shares acquired upon such exercise been made
immediately following such Corporate Event, less the exercise price therefor.
12. AMENDMENT OF THE PLAN
12.1 RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend, suspend or
terminate the Plan at any time and for any reason; provided, however, that any
amendment of the Plan which increases the number of Shares available for
issuance under the Plan (except as provided in SECTION 11), extends the term
beyond ten (10) years after the earlier of the date the Plan is adopted or the
date the Plan is approved by the Company's shareholders, or which materially
changes the class of persons who are eligible for the grant of ISOs, shall be
subject to the approval of the Company's stockholders. Stockholder approval
shall not be required for any other amendment of the Plan, except 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.
12.2 MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to the terms
and conditions and within the limitations of the Plan, the Plan Administrator
may modify, extend, or renew outstanding Options granted under the Plan, and
accept the surrender of outstanding Options (to the extent not theretofore
exercised). The Plan Administrator shall not, however, modify any outstanding
Incentive Stock Option in any manner that would cause the Option not to qualify
as an Incentive Stock Option within the meaning of Section 422 of the Code.
Notwithstanding the foregoing, no modification of an Option shall, without the
consent
EX B - 10
<PAGE>
of the Optionee, alter or impair any rights of the Optionee under the Option.
However, a termination of the Option in which the Optionee receives a cash
payment equal to the difference between the Fair Market Value and the exercise
price for all shares subject to exercise under any outstanding Option shall not
alter or impair any rights of the Optionee.
13. EFFECITVE DATE AND TERM OF PLAN
13.1 EFFECTIVE DATE. The Plan, as set forth herein, shall be effective as
of January ___, 2000 (the "Effective Date", which is date of its adoption by
the Board of Directors), subject to the approval of the Company's stockholders.
In the event that the stockholders fail to approve the Plan within 12 months
after its adoption by the Board of Directors, any grants of Options or sales or
awards of Shares that have already occurred shall be rescinded, and no
additional grants, sales or awards shall be made thereafter under the Plan.
13.2 TERMINATION DATE. The Plan shall terminate automatically on January
___, 2010 and may be terminated on any earlier date pursuant to SECTION 12.1
above.
14. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company
has caused its authorized officer to execute the same as of January ___, 2000.
VALENCE TECHNOLOGY, INC.
By:
-----------------------------------
EX B - 11
