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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
DCH TECHNOLOGY, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(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): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] 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.
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(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
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DCH TECHNOLOGY, INC.
27811 AVENUE HOPKINS #6
VALENCIA, CALIFORNIA 91355
May 18, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of DCH Technology, Inc., which will be held at DCH's
sensor manufacturing facility at 24832 Avenue Rockefeller, Santa Clarita,
California 91355, on June 12, 2001, at 8:00 a.m. For directions to our Avenue
Rockefeller facility, please call (661) 775-8120.
Details of the business to be conducted at the Annual Meeting are given
in the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please complete, sign,
date and return the enclosed proxy promptly in the accompanying reply envelope.
If you decide to attend the Annual Meeting and wish to change your proxy vote,
you may do so automatically by voting at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
David P. Haberman
Chairman of the Board of Directors
John T. Donohue
President and Chief Executive Officer
Valencia, California
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested
to complete, sign, and date the enclosed proxy as promptly as possible and
return it in the enclosed envelope (to which no postage need be affixed if
mailed in the United States).
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DCH TECHNOLOGY, INC.
27811 AVENUE HOPKINS #6
VALENCIA, CALIFORNIA 91355
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 12, 2001
The Annual Meeting of Stockholders (the "Annual Meeting") of DCH
Technology, Inc., a Delaware corporation, will be held at our sensor
manufacturing facility at 24832 Avenue Rockefeller, Santa Clarita, California
91355, on June 12, 2001, at 8:00 a.m. for the following purposes:
1. To elect seven members of the Board of Directors for the term set
forth in the accompanying Proxy Statement and until their successors have been
elected and qualified;
2. To ratify the 2001 Stock Option Plan;
3. To ratify our selection of Moss Adams LLP as our independent auditors
for the year ending December 31, 2001; and
4. To transact such other business as may properly come before the
Annual Meeting and any adjournments or postponements.
The items of business set forth above are more fully described in the
Proxy Statement accompanying this Notice. Pursuant to our Bylaws, we have fixed
the time and date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting as the close of business on April 15, 2001.
Accordingly, only stockholders of record on such date and at such time will be
entitled to vote at the Annual Meeting, notwithstanding any transfer of stock on
our books thereafter.
Whether or not you expect to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy promptly in the accompanying reply
envelope. If you decide to attend the Annual Meeting and wish to change your
proxy vote, you may do so automatically by voting in person at the Annual
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
David P. Haberman
Chairman of the Board of Directors
John T. Donohue
President and Chief Executive Officer
Valencia, California
May 18, 2001
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DCH TECHNOLOGY, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of DCH Technology, Inc., a Delaware
corporation, for the Annual Meeting of Stockholders (the "Annual Meeting") to be
held at 24832 Avenue Rockefeller, Santa Clarita, California 91355, on June 12,
2001, at 8:00 a.m. and any adjournments thereof. This proxy statement, our
Annual Report for the year ended December 31, 2000 and the accompanying proxy
card were first mailed to stockholders on or about May 18, 2000.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
Our common stock is the only type of security entitled to vote at the
Annual Meeting. On April 15, 2001, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 28,673,187
shares of common stock outstanding. Each stockholder of record on the record
date is entitled to one vote for each share of common stock held by such
stockholder on that date.
A majority of the outstanding shares of common stock entitled to vote
must be present or represented by proxy at the Annual Meeting in order to have a
quorum. Abstentions and broker non-votes are counted as present for the purpose
of determining the presence of a quorum for the transaction of business.
In the election of directors, the seven candidates receiving the highest
number of affirmative votes will be elected. Proposals 2 and 3 each require the
approval of the affirmative vote of a majority of the outstanding voting shares
present or represented and entitled to vote at the Annual Meeting.
PROXIES
Whether or not you are able to attend the Annual Meeting, you are urged
to vote your proxy, which is solicited by our Board of Directors and which will
be voted as you direct on your proxy when properly completed. In the event no
directions are specified, such proxies will be voted FOR the nominees of the
Board of Directors (Proposal 1), FOR Proposals 2 and 3 and, in the discretion of
the proxy holders, as to other matters that may properly come before the Annual
Meeting. You may revoke or change your proxy at any time before the Annual
Meeting. To do this, send a written notice of revocation or another signed proxy
with a later date to the Secretary at our principal executive offices, located
at 27811 Avenue Hopkins #6, Valencia, California
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91355, before the beginning of the Annual Meeting. You may also revoke your
proxy by attending the Annual Meeting and voting in person.
SOLICITATION OF PROXIES
We will bear the entire cost of solicitation, including the preparation,
assembly, printing, and mailing of this Proxy Statement, the proxy, and any
additional solicitation material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that, they may forward this solicitation material to such beneficial owners.
The original solicitation of proxies by mail may be supplemented by a
solicitation by telephone, telegram, or other means by our directors, officers,
or employees. Except as described above, we do not presently intend to solicit
proxies other than by mail.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
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GENERAL
The names of the seven persons who are nominees for director and their
positions with us are set forth in the table below.
Our Articles of Incorporation, as amended, and Bylaws provide that the
number of directors shall be no less than three, the precise number to be
determined from time to time by the Board of Directors. The Board of Directors
is currently comprised of nine members. The directors to be elected at the
Annual Meeting are to be elected to hold office until the next Annual Meeting of
Stockholders or until the election of their respective successors. All proxies
received by the Board of Directors will be voted for the election, as directors,
of the nominees listed below if no direction to the contrary is given. In the
event that any nominee is unable or declines to serve, an event that is not
anticipated, the proxies will be voted for the election of any nominee who may
be designated by the Board of Directors.
The information set forth below is submitted with respect to the
nominees to the Board of Directors for whom it is intended that proxies will be
voted.
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NAME AGE POSITION(S)
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David P. Haberman 39 Chairman of the Board of Directors and Vice
President, Technology and Planning
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David A. Walker 43 Executive Vice President of Business Operations and
Director
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Dr. Johan (Hans) A. Friedericy 71 Director
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Mark Lezell 53 Director
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Daniel Teran 47 Director
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Robert S. Walker 58 Director
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Raymond N. Winkel 71 Director
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BIOGRAPHICAL INFORMATION WITH RESPECT TO DIRECTOR NOMINEES
DAVID P. HABERMAN is the Chairman of our Board of Directors and has
served in that capacity and as Vice President, Technology and Planning since
co-founding DCH with David A. Walker in November 1994. Mr. Haberman served as an
engineering consultant at CBOL Corporation between 1993 and 1994 and served in
various technical capacities at the Astronautics Corporation of America from
1983 to 1993. He is an experienced applications engineer and has a background in
the design and development of hardware. In addition, Mr. Haberman was elected to
the Board of Directors of the National Hydrogen Association in April 1999 and
previously served on that Board between 1996 and 1998. Since October 1998, Mr.
Haberman has also served as a member of the Hydrogen Technical Advisory Panel,
which reports to Congress on hydrogen-related issues. Mr. Haberman also serves
as an American delegate to the International Standards Organization (ISO) on
hydrogen safety.
DAVID A. WALKER has served as Executive Vice President, Operations of
DCH since April 1999. Prior to that, he served as Vice President, Operations of
DCH since co-founding DCH with David P. Haberman in November 1994. From April
1999 to June 2000, he also served as President. In addition, he served on the
Board of Directors from the inception of DCH through May 1997, and has served on
the current Board since January 1999. Mr. Walker also worked as an independent
management consultant for the Management Resource Group and the George S. May
International Company between January 1990 and November 1994. Between 1981 and
1990, he served in various management capacities for Rockwell International. He
is a member of the American Society for Quality, the American Management
Association, a Certified Quality Auditor and Certified Management Consultant.
Mr. Walker holds a B.S. degree in Business Administration from California
Baptist College and a M.S. degree in Human Resource Management from Chapman
University. Mr. Walker is no relation to Board Member Robert S. Walker.
DR. JOHN (HANS) FRIEDERICY has been a member of our Board of Directors
since April 2000 and was appointed Interim President and CEO in June 2000. Prior
to joining DCH, Dr Friedericy held the position as Director of Research and
Technology for Defense and Space at Honeywell International's Washington office,
having served in this capacity since January 1989. Dr. Friedericy began his
career with Honeywell International when he joined the Garrett Corporation,
later AlliedSignal, in 1968. Over the years, Dr. Friedericy has been responsible
for the technical and administrative direction of all phases of a 500-person
engineering and laboratory department, including design, development, program
management, sales and product support, as well as being responsible for
technology planning and transfer. A graduate of the University of Illinois, he
received his Ph.D. in Applied Mechanics from the University of Illinois in 1960.
Dr. Friedericy has 30 publications and seven patents to his credit, and is a
member of Sigma Xi and SAE and is currently listed in American Men of Science.
Dr. Friedericy is a founding member of the National Hydrogen Association.
MARK LEZELL has served as a member of our Board of Directors since
November 2000. Mr. Lezell is a partner in the Washington, D.C. office of the law
firm of Ropes & Gray. Since 1976, Mr. Lezell has been in private practice as an
attorney, with a domestic and international business practice emphasizing
assisting e-commerce and related high technology entities doing business in the
United States. He has been involved in the planning, counseling, structuring and
negotiating of a variety of emerging technologies and business ventures
involving limited liability companies, partnerships, corporations and other
entities. Mr. Lezell also has assisted clients in various transactions including
initial financings, acquisitions, dispositions, financing workouts and joint
ventures, and has represented issuers, underwriters and purchasers
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in public and private securities offerings. He obtained his undergraduate degree
from Michigan State University (B.A. 1969), his law degree from American
University -- Washington College of Law (J.D. 1973) and his Master of Laws
degree in Taxation from Georgetown University School of Law in 1976. Mr. Lezell
is the brother-in-law of David P. Haberman.
DANIEL TERAN has served as a member of our Board of Directors since
December 1997. Mr. Teran is a Certified Public Accountant licensed in the state
of California and has had his own practice in the City of Los Alamitos in Orange
County since July 1989. He offers services in accounting, systems setup and
design and taxation. He also provides tax planning and tax return preparation
for individuals and businesses, and represents clients in audits with the
Internal Revenue Service and the California Franchise Tax Board. Prior to July
1989, he worked as Chief Financial Officer for the Stephen Hopkins Development
Company (a shopping center developer) and as Controller for NRC Construction
Company. He also served as an auditor for Seidman and Seidman (a large national
public accounting firm). He is an active member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants, and has served on various committees within these professional
organizations. He received a B.S. degree in Accounting from California State
University at Long Beach.
ROBERT S. WALKER has served as a member of our Board of Directors since
January 1999. Mr. Walker has served as President of the Wexler Group, a
Washington D.C.-based lobbying firm, since his retirement from Congress in 1997
where he had served as a representative from Pennsylvania since 1977. During his
tenure in the House, he authored the Hydrogen Future Act of 1996 and served as
Chairman of the House Science Committee. Also, he served as Vice Chairman of the
Budget Committee, Chairman of the Republican Leadership, Chief Deputy Minority
Whip, and a member of Speaker Newt Gingrich's six person Advisory Group. For
many years, he was an active and influential member of the Republican majority
in Congress. Mr. Walker also serves on the Board of Trustees of the Aerospace
Corporation, the United States Space Science Foundation, and the Susquehana
Center for Public Policy. He is also a member of the Advisory Board for the Imax
Corporation. He is a fellow at Millersville University and Franklin and Marshall
College, and serves as a regular academic lecturer. In addition, he continues to
be a frequent guest on CNBC's "Hardball," PBS's "The Lehrer Newshour," and other
C-SPAN, CNN, FOX and MSNBC programs. Mr. Walker began his career as a high
school teacher and congressional aide. He received a B.S. degree in Education
from Millersville University, an M.A. degree in Political Science from the
University of Delaware and an Honorary Doctor of Laws from Franklin and Marshall
College. Mr. Walker is no relation to DCH Vice President and Board member David
A. Walker.
RAYMOND N. WINKEL, a retired US Navy Rear Admiral, has served as a
member of our Board of Directors since December 1996. He served as Vice
President of Programs for Astronautics Corporation of America in Milwaukee,
Wisconsin from 1984 until his retirement in 1995. Prior to this, he was Vice
President of the Telephonics Corporation between 1980 to 1983. However, the
majority of his career was spent in the United States Navy, working his way up
as one of the few enlisted men to ever reach flag Rank. Admiral Winkel joined
the Navy in 1947, flew the four engine P4Y2 Privateer Anti-Submarine Warfare
Aircraft during the Korean War and later served in several important capacities
until joining the Naval Air Systems Command in Washington in 1971. Admiral
Winkel has been awarded the Air Medal, the Naval Aviator's Gold Wings, the
Legion of Merit, the Presidential Meritorious Service Medal, the Secretary of
the Navy Commendation Medal, the Good Conduct Medal, the National Defense
Service Medal (with the Bronze Star), the China Service Medal, the Korean
Presidential Unit Citation Ribbon and a number of other medals and citations.
Adm. Winkel earned a B.S. degree at Naval Post Graduate School in Monterey,
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California, a M.S. degree from Villanova University, and graduated from the
Advanced Management Program at Harvard University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met four times in 2000. No director attended less
than 100% of the total number of all meetings of the Board and any committees of
the Board on which he served, if any, during 2000.
The Board of Directors currently has a Compensation Committee, an Audit
Committee, a Legal Committee, a Public Policy Committee and a Technical
Committee. The functions of each of these committees are described and the
members of each are listed below.
The Compensation Committee, which met two times in 2000, is chaired by
David A. Walker. Daniel Teran and Robert S. Walker serve as the other Committee
members. The Compensation Committee renders advice with respect to compensation
matters and administers our equity and incentive compensation plans.
The Audit Committee, which met three times in 2000, is chaired by Daniel
Teran. Raymond N. Winkel and Robert S. Walker also serve as members of the
Committee. The Audit Committee oversees our financial reporting processes and is
responsible for reviewing our financial condition.
Mark Lezell serves as the sole member of the Legal Committee. The Legal
Committee is responsible for monitoring changes in the law that may be
applicable to DCH, and for supervising the activities of our outside legal
counsel.
The Public Policy Committee is chaired by Robert S. Walker. David P.
Haberman and Raymond N. Winkel serve as the other members of the Committee. The
Public Policy Committee is responsible for monitoring and reporting on activity
occurring in government relating to hydrogen and other matters that could affect
us, our products and/or our marketing strategies.
The Technical Committee is chaired by Raymond N. Winkel. David P.
Haberman and Dr. John (Hans) Friedericy also serve as members of the Committee.
The Technical Committee examines new and existing technologies and renders
advice to us regarding potential products based on those technologies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee members are David A. Walker, Daniel Teran and
Robert S. Walker. David A. Walker is our Executive Vice President, Operations
and co-founder, and participated in the deliberations of our Board of Directors
concerning executive compensation during the last fiscal year.
DIRECTOR COMPENSATION
Compensation for members of the Board of Directors (regardless of
whether such members are employees of DCH) is as follows:
For serving on the Board of Directors, $10,000 per year;
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For each Board meeting, $2,000;
For chairing a committee, $2,000;
For serving on a committee, $2,000;
and For each working committee meeting, $2,000
At our option, the above compensation, payable at the end of the year,
may be paid in cash or in options to purchase shares of our common stock.
In addition, each non-employee director receives reimbursement for the
expenses that he incurs in traveling to meetings of the Board of Directors or
any of its committees.
INDEMNIFICATION
We indemnify our directors against all expenses and liabilities,
including attorneys' fees, reasonably incurred by or imposed on our directors in
connection with any proceeding to which they are made a party as a result of
their having been a member of our Board of Directors. At the present time, there
is no pending litigation or proceeding involving a director, officer, employee
or other agent of DCH in which indemnification would be required or permitted,
and we are not aware of any threatened litigation or proceeding which may result
in a claim for indemnification by us.
STOCKHOLDER APPROVAL
The seven director nominees that receive the highest number of
affirmative votes shall be elected to our Board of Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR all seven nominees listed
herein. We will vote your shares as you specify on the enclosed proxy card. If
you do not specify how you want your shares voted, we will vote them FOR the
election of all the nominees listed above. If unforeseen circumstances (such as
death or disability) make it necessary for the Board of Directors to substitute
another person for any of the nominees, we will vote your shares FOR that other
person. The Board of Directors does not presently anticipate that any nominee
will be unable to serve.
OTHER EXECUTIVE OFFICERS
The names of, and certain information regarding, our executive officers
who are not directors, are set forth below. The executive officers serve at the
pleasure of the Board of Directors.
JOHN T. DONOHUE has served as our President and Chief Executive Officer
since March 1, 2001. From 1999 to March 2001, Mr. Donohue served as President of
the $1.2 billion Spirit Energy 76, Unocal Corporation's Lower 48 exploration and
production business. During his tenure as President, Mr. Donohue exceeded
financial and performance goals for the first time in the four year history of
the business unit with pretax earnings exceeding $500 million in year 2000.
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Mr. Donohue joined Unocal Corporation in 1980 and subsequently held
numerous management positions in Operations, Exploration, and Information
Services. Of particular note, Mr. Donohue was named General Manager of the
Louisiana Onshore Business Unit, a $110 million development and operations
business based in Lafayette, LA in 1992. In 1995, he was appointed General
Manager of the Alaska Oil and Gas Division, a $250 million Alaskan exploration
and production operation. From 1996 until 1999, he served as Vice President of
the Agriculture Products, a $650 million business consisting of oil and gas
exploration and production in Alaska, fertilizer manufacturing in Alaska,
Washington, and California, and international and domestic sales. In 1999, Mr.
Donohue was appointed President of Unocal's Spirit Energy 76 Operations.
Mr. Donohue is a Director of both the U.S. Oil and Gas Association and
the National Ocean Industries Association. He served in the United States Air
Force from 1970 to 1974. Mr. Donohue holds a MS degree in geophysics from the
Rensselaer Polytechnic Institute in Troy, New York and a BS degree in physics
from Siena College in Loudonville, New York.
RONALD L. ILSLEY has served as our Chief Financial Officer since his
appointment in August 2000. Mr. Ilsley joined DCH from his position of Chairman,
Chief Financial Officer, and Director of Ceatech USA Inc., a successful,
technology-based aquaculture company supplying food products to domestic and
international markets. In this role he provided hands-on operating and financial
leadership with responsibility for audits, shareholder relations, corporate
finance, treasury, tax, accounting, management information systems, and risk
management. Prior to this, he served as Vice President & Chief Financial Officer
of Chemoil Corp., the largest independent integrated supplier of marine fuels in
the U.S., with substantial international operations. His responsibilities have
also included serving as Treasurer and Director of Finance for Santa Fe
International Corporation, a multinational energy company; and as Senior Vice
President & Manager, National Corporate Group, for the European American Bank.
STEPHANIE L. HOFFMAN has served as Vice President and General Manager of
our fuel cell division since her appointment in September 1999. From 1989 to
1999, Ms. Hoffman served as Director of Strategic Technology Planning, Manager
and Program Planner for advanced product portfolios for the Cutler-Hammer
division of Eaton Corporation, a leader in fuel cell technology development.
During her employment with Eaton Corporation, Ms. Hoffman managed in-depth
opportunity and risk assessments of fuel cell technologies, products and
services and developed commercial business plans for fuel cell market entry. She
is a member of the Society of Automotive Engineers, the Society for Competitive
Intelligence Professionals and has served on the Steering Committee for Advanced
Automotive Electrical/Electronic Systems with Daimler Chrysler, BMW, Ford, GM
and Volvo. In 1980, Ms. Hoffman received her B.A. in General Studies from Luther
College. Ms. Hoffman also holds a certificate of completion in General Business
Management from Northwestern University's Kellogg School of Business and has
attended executive business courses at the University of Chicago School of
Business, the University of Michigan Business School and California Institute of
Technology.
STEVEN A. HUENEMEIER has served as Vice President and General Manager of
our sensors division since his appointment in March of 2000. Prior to joining
DCH in March 2000, Mr. Huenemeier was President of R.J. Lison Co., a regional
distributor of industrial equipment from 1987 to 1999. Throughout his career,
Mr. Huenemeier has held several top management positions in which he was
responsible for establishing and overseeing business operations. Mr. Huenemeier
holds a BA degree in Business Administration and also holds several network
related certifications including Microsoft Certified Systems Engineer (MCSE),
Microsoft Certified Professional (MCP)+ Internet, and CISCO Certified Network
Associate (CCNA).
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PROPOSAL NO. 2
ADOPTION OF THE 2001 STOCK OPTION PLAN
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The Board of Directors proposes that stockholders adopt the 2001 Stock
Option Plan (the "Plan"), which was adopted by the Board of Directors effective
January 1, 2001.
We believe that our long-term success depends upon our ability to
attract and retain qualified directors, officer, employees and consultants and
to motivate their best efforts on our behalf. Thus, we believe that the Plan
will be an important part of our compensation of directors, officers, employees
and consultants.
The Plan is set forth in full as Exhibit A to this Proxy Statement. The
principal features of the Plan are summarized below, but the summary is
qualified in its entirety by the full text of the Plan.
DESCRIPTION OF THE PLAN
The purpose of the Plan is to enhance our profitability and stockholder
value by enabling us to offer stock based incentives to employees, directors,
consultants and affiliates. The Plan authorizes the grant of options to purchase
shares of common stock to our employees, directors and consultants and our
affiliates. Under the Plan, we may grant incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 and non-qualified
stock options. Incentive stock options may only be granted to our employees.
Under the Plan the number of shares available for options is 5,000,000
shares of common stock.
The Plan will be administered by the Compensation Committee of the
Board. Subject to the provisions of the Plan, the Compensation Committee has the
authority to determine which of our employees, directors and consultants will be
awarded options and the terms of such awards, including the number of shares
subject to such option, the fair market value of the common stock subject to
options, the exercise price per share and other terms.
Incentive stock options must have an exercise price equal to at least
100% of the fair market value of a share on the date of the award unless the
grant is to a stockholder holding more than 10% of our voting stock, in which
case the exercise price must be 110% of the fair market value on the date of
grant. Generally, the options may not have a duration of more than ten years, or
five years if the grant is to a stockholder holding more than 5% of our voting
stock. Terms and conditions of awards are set forth in written agreements
between us and the respective option holders. Awards under the Plan may not be
made after the tenth anniversary of the date of its adoption but awards granted
before that date may extend beyond that date.
Under the Plan, if the employment of the holder of an incentive stock
option is terminated for any reason other than as a result of the holder's death
or disability or for "cause" as defined in
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the Plan, the holder may exercise the option, to the extent exercisable on the
date of termination of employment, until the earlier of the option's specified
expiration date and 90 days after the date of termination. If an option holder
dies or becomes disabled, both incentive and non-qualified stock options may
generally be exercised, to the extent exercisable on the date of death or
disability, by the option holder or the option holder's survivors until the
earlier of the option's specified termination date and one year after the date
of death or disability.
As of April 30, 2001, no shares have been issued as the result of the
exercise of options granted under the Plan. The exercise price and vesting
schedules of options granted under the Plan will vary over time pursuant to
various option agreements that we will enter into with the grantees of such
options.
We have not registered the Plan or the shares subject to issuance
thereunder, pursuant to the Securities Act of 1933. Absent registration, such
shares, when issued upon exercise of options, would be "restricted securities"
as that term is defined in Rule 144 under the Securities Act of 1933. We may
register the Plan and the shares subject to issuance thereunder in the future.
Optionees have no rights as stockholders with respect to shares subject
to options prior to the issuance of shares pursuant to the exercise thereof.
Options issued to employees under the Plan, as amended, shall expire no later
than ten years after the date of grant. An option becomes exercisable at such
time and for such amounts as determined at the discretion of the Board of
Directors or the Compensation Committee at the time of the grant of the option.
An optionee may exercise a part of the option from the date that part first
becomes exercisable until the option expires. The purchase price for shares to
be issued to an employee upon his or her exercise of an option is determined by
the Board of Directors or the Compensation Committee on the date the option is
granted. The purchase price is payable in full in cash, by promissory note, by
net exercise or by delivery of mature shares of our common stock when the option
is exercised.
The Plan provides for adjustment as to the number and kinds of shares
covered by the outstanding options and the option price therefor to give effect
to any stock dividend, stock split, stock combination or other reorganization of
or by us.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE PLAN
Options granted under the Plan may be either incentive stock options,
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-qualified options, which are not intended to meet such requirements. The
federal income tax treatment for the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and generally no taxable income is recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made more than two years
from the date of grant and more than one year from the date of exercise. If
either of these two holding periods is not satisfied, then a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
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disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date (or the fair market date on the expiration date, if
less) over (ii) the exercise price paid for those shares will be taxable as
ordinary income to the optionee. Any additional gain or loss recognized upon the
disposition will be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased
shares, then we will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date (or the fair market
value on the expiration date, if less) over (ii) the exercise price paid for the
shares. In no other instance will we be allowed a deduction with respect to the
optionee's disposition of the purchased shares.
NON-QUALIFIED OPTIONS. No taxable income is recognized by an optionee
upon the grant of a non-qualified option which does not have a readily
ascertainable fair market value and is not transferable. Options granted under
the Plan do not have a readily ascertainable fair market value and are not
transferable. The optionee will in general recognize ordinary income, in the
year in which the option is exercised, equal to the excess of the fair market
value of the purchased shares on the exercise date over the exercise price paid
for the shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
If the shares acquired upon exercise of the non-qualified option are
unvested and subject to repurchase by us in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when our repurchase right lapses, an amount equal to
the excess of (i) the fair market value of the shares on the date the repurchase
right lapses over (ii) the exercise price paid for the shares. The optionee may,
however, elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year of exercise of the option an amount equal to the
excess of (i) the fair market value of the purchased shares on the exercise date
over (ii) the exercise price paid for such shares. If the Section 83(b) election
is made, the optionee will not recognize any additional income as and when the
purchase right lapses.
We will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised
non-qualified option. The deduction will in general be allowed for the taxable
year in which such ordinary income is recognized by the optionee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
We anticipate that any compensation deemed paid by us in connection with
disqualifying dispositions of incentive stock option shares or exercises of
non-statutory options will qualify as performance-based compensation for
purposes of Internal Revenue Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers.
Accordingly, all compensation deemed paid with respect to those options will
remain deductible by us without limitation under Code Section 162(m).
STOCKHOLDER APPROVAL
The affirmative vote of a majority of our outstanding voting shares
present or represented and entitled to vote at the Annual Meeting is required
for approval of this Proposal. Should
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stockholder approval not be obtained, the Plan will not be effective and the
Board of Directors will consider alternative methods of issuing the options
outside of the Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that stockholders vote FOR adoption of
the 2001 Stock Option Plan. We will vote your shares as you specify on the
enclosed proxy card. If you do not specify how you want your shares voted, we
will vote them FOR approval of the 2001 Stock Option Plan.
- --------------------------------------------------------------------------------
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF MOSS ADAMS LLP
- --------------------------------------------------------------------------------
The Board of Directors, upon the recommendation of our Audit Committee,
has appointed Moss Adams LLP to serve as our independent auditors for the year
ending December 31, 2001, subject to the approval of our stockholders.
Representatives of Moss Adams LLP will be present at the Annual Meeting to
answer questions. They will also have the opportunity to make a statement if
they desire to do so.
AUDIT FEES
The aggregate fees billed for professional services rendered for the
audit of our annual financial statements for the year ended December 31, 2000,
and for the reviews of the financial statements included in our Quarterly
Reports on Form 10-QSB for that fiscal year, were $47,457, of which $4,200 were
attributable to Moss Adams LLP.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Moss Adams LLP did not render professional services relating to
financial information systems design and implementation for the fiscal year
ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed by Moss Adams LLP and the predecessor audit
firm for services rendered to us, other than the services described above, for
the year ended December 31, 2000, were $56,763. These fees generally include
income tax preparation, income tax consultation, business acquisitions,
accounting consultations and similar matters. We have been advised by Moss Adams
LLP that neither the firm nor any member of the firm has any financial interest,
direct or indirect, in any capacity in DCH or our subsidiaries.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of our outstanding voting shares
present or represented and entitled to vote at the Annual Meeting is required
for approval of this Proposal. Should stockholder approval not be obtained, the
Board of Directors will reconsider the selection of Moss Adams LLP.
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RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors unanimously recommends that stockholders vote FOR
the ratification of the selection of Moss Adams LLP as our independent auditors
for 2001. We will vote your shares as you specify on the enclosed proxy card. If
you do not specify how you want your shares voted, we will vote them FOR the
ratification of the selection of Moss Adams LLP.
AUDIT COMMITTEE REPORT
This section of our proxy statement will not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this information by reference and will not otherwise be deemed filed
under such Acts.
For the last few years, we have had an audit committee. Our 2001 Audit
Committee is comprised of Daniel Teran (who also serves as Chairman of the
Committee), Raymond N. Winkel and Robert S. Walker. All three members of the
Audit Committee meet the independence and experience requirements of the
American Stock Exchange. Our Audit Committee has followed the substance of the
procedures recommended in the report of the Blue Ribbon Committee on Improving
the Effectiveness of Corporate Audit Committees, sponsored by the major
securities markets, issued in February 1999, and the Audit Committee has also
been advised by independent legal counsel in its role of overseeing financial
reporting and internal control matters. The Audit Committee operates under a
written charter adopted by our Board of Directors in March 2000. A copy of this
charter is attached as Exhibit B to this proxy statement.
Management has the primary responsibility for the financial reporting
process, including the system of internal controls. Our independent auditors are
responsible for performing an independent audit of our consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes. The Audit Committee recommends and our Board of Directors
appoints our independent auditors.
The Audit Committee has private sessions, at each of its meetings
(whether in person or via teleconference), with our independent auditors, at
which candid discussions of financial management, accounting and internal
control issues take place. The Audit Committee has reviewed with our financial
managers the selection of our independent auditors, overall audit scopes and
plans, the results of audit examinations, evaluations by the independent
auditors of our internal controls and the quality of our financial reporting.
Management has reviewed the audited consolidated financial statements in our
Annual Report on Form 10-KSB with the Audit Committee, including a discussion of
the quality (not just the acceptability) of the accounting principles utilized,
the reasonableness of significant judgments, and the clarity of disclosures in
the financial statements. In addressing the quality of management's accounting
judgments, members of the Audit Committee asked for management's representations
that the audited consolidated financial statements were prepared in accordance
with generally accepted accounting principles.
In its meetings with representatives of our independent auditors, the
Audit Committee asks the auditors to address and discuss their responses to
several questions that the Audit Committee believes are particularly relevant to
its oversight. These questions include: Are there any significant accounting
judgments made by management in preparing the financial statements
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that would have been made differently had the auditors themselves prepared and
been responsible for the financial statements? Based on the auditors' experience
and their knowledge of DCH, do our financial statements fairly present to
investors, with clarity and completeness, our financial position and performance
for the reporting period in accordance with generally accepted accounting
principles and SEC disclosure requirements? Based on the auditors' experience
and their knowledge of DCH, have we implemented internal controls that are
appropriate for us? The Audit Committee believes that by focusing its
discussions with the independent auditors, it can promote a meaningful dialogue
that provides a basis for its oversight judgments.
The Audit Committee also discussed with the independent auditors other
matters required to be discussed by the auditors with the Audit Committee under
Statement of Auditing Standards No. 61 (communication with audit committees).
Our independent auditors also provided to the Audit Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent auditors that firm's independence.
In performing all of these functions, the Audit Committee acts only in
an oversight capacity. In its oversight role, the Audit Committee relies on the
work and assurances of our management, which has the primary responsibility for
financial statements and reports, and of the independent auditors, who in their
report expressed an opinion on the conformity of our annual financial statements
with generally accepted accounting principles.
Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee's review of the representations of
management and the report of the independent auditors to the Audit Committee,
the Audit Committee recommended that our Board of Directors include the audited
consolidated financial statements in our Annual Report on Form 10-KSB for the
year ended December 31, 2000, filed with the Securities and Exchange Commission.
Audit Committee
Daniel Teran (Chairman)
Raymond N. Winkel
Robert S. Walker
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of February 28, 2001, (i) by each
director of DCH; (ii) by each person known by DCH to own beneficially more than
five percent of our common stock; (iii) by the executive officers named in the
Summary Compensation Table set forth in "Executive Compensation" and (iv) by all
directors and executive officers of DCH as a group.
Unless otherwise indicated in the footnotes to the table, the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own. The address of all persons listed below is c/o DCH
Technology, Inc. 27811 Avenue Hopkins, #6, Valencia, California 91355.
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The number of shares beneficially owned by each stockholder is
determined under rules promulgated by the Securities and Exchange Commission,
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting or investment power and also
any shares which the individual has the right to acquire within 60 days after
February 28, 2001. The inclusion herein of such shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of such shares. Unless otherwise indicated, each person named
in the table has sole voting and investment power (or shares such power with his
or her spouse) with respect to all shares of common stock listed as owned by
such person. The total number of outstanding shares of common stock at February
28, 2001 is 27,864,596.
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- -------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER Amount And Nature Of
Beneficial Ownership
EXECUTIVE OFFICERS AND DIRECTORS: (1) PERCENT OF CLASS
- -------------------------------------------------------------------------------
David A. Walker 1,083,738 3.89%
- -------------------------------------------------------------------------------
David P. Haberman 2,116,331 7.28%
- -------------------------------------------------------------------------------
Dr. Johan (Hans) Friedericy 35,077 *
- -------------------------------------------------------------------------------
Mark Lezell - *
- -------------------------------------------------------------------------------
Daniel Teran 169,422 *
- -------------------------------------------------------------------------------
Robert S. Walker 142,928 *
- -------------------------------------------------------------------------------
Raymond N. Winkel 248,540 *
- -------------------------------------------------------------------------------
All executive officers and Directors
as a group (10 persons) 4,169,349 13.6%
- -------------------------------------------------------------------------------
* Less than one percent.
The shares listed as owned by David A. Walker include 735,987 shares of
common stock issuable to him pursuant to option exercisable on or within 60 days
of February 28, 2001.
The shares listed as owned by David P. Haberman include 1,205,000 shares
of common stock issuable to him pursuant to options exercisable on or within 60
days of February 28, 2001.
The shares listed as owned by Dr. Johan (Hans) Friedericy include 35,077
shares of common stock issuable to him pursuant to options exercisable on or
within 60 days of February 28, 2001.
The shares listed as owned by Daniel Teran include 149,422 shares of
common stock issuable to him pursuant to options exercisable on or within 60
days of February 28, 2001.
The shares listed as owned by Robert S. Walker include 142,928 shares of
common stock issuable to him pursuant to options exercisable on or within 60
days of February 28, 2001.
The shares listed as owned by Raymond N. Winkel include 66,715 shares of
common stock issuable to him pursuant to options exercisable on or within 60
days of February 28, 2001.
The shares listed as owned by all executive officers and directors
include an aggregate of 2,694,942 shares of common stock issuable to them
pursuant to options exercisable on or within 60 days of February 28, 2001.
EXECUTIVE COMPENSATION
The following table provides compensation information for the period
indicated with respect to the persons who served as our Chief Executive Officers
for the years ended December 31, 2000, 1999 and 1998, and all other executive
officers of DCH receiving total salary and bonus in excess of $100,000 during
the years ended December 31, 2000, 1999 and 1998 (collectively, the "Named
Executive Officers"):
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SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
- --------------------------------------------------------------------------------------------------
RESTRICTED NUMBER OF SECURITIES
NAME AND STOCK UNDERLYING WARRANTS/ OPTIONS
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS($) (#)
- --------------------------------------------------------------------------------------------------
Dr. Johan (Hans) 2000 - - - 35,077
Friedericy,
Chief Executive
Officer (1)
- --------------------------------------------------------------------------------------------------
David A. Walker, 2000 218,615 - - -
Vice President 1999 - (2) - - -
1998 - - - 363,000
- --------------------------------------------------------------------------------------------------
David Haberman 2000 7,692 - 167,500 -
1999 - - - -
1998 - 364,000
- --------------------------------------------------------------------------------------------------
Dr. William L. 1999 - - - 675,000
Firestone (3) 1998 - - 393,000
- --------------------------------------------------------------------------------------------------
(1) Mr. Friedericy became our Chief Executive Officer in March 2000.
(2) Mr. Walker served as our Chief Executive Officer from April 1999 to
March 2000. He received $10,563 during the year ended December 31, 1999
as reimbursement for automobile expenses.
(3) Dr. Firestone resigned as our Chief Executive Officer in April 1999.
EMPLOYMENT AGREEMENTS
We currently have employment agreements with each of David P. Haberman,
David A. Walker and Dr. Johan (Hans) Friedericy, our Chairman and Vice
President, Technology and Planning, Executive Vice President of Business
Operations, and Chief Operating Officer, respectively. Each employment agreement
commenced on January 1, 2001 and terminates on January 1, 2002. The agreements
for Messrs. Haberman and Walker provide for an annual base salary of $350,000
and the equivalent of $162,500 per quarter payable in stock options in
accordance with our existing stock option plan. Each of Messrs. Haberman's and
Walker's employment agreements also provides for an incentive bonus equal to one
percent of our adjusted annual net profits for the prior fiscal year, commencing
with fiscal 2000. No bonus was earned for the year ended December 31, 2000. Dr.
Friedericy's employment agreement provides for an annual base salary of $60,000
and the equivalent of $90,000 in non-qualified stock options; it further
provides for additional equity compensation to be determined upon the
achievement of certain quarterly financial milestones. None of these employment
agreements provides for additional payments upon a change in control.
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Effective March 1, 2001, we entered into an employment agreement with
John T. Donohue, our President and Chief Executive Officer. This employment
agreement terminates on December 31, 2002, and provides for an annual base
salary of $40,000 and the grant of options to purchase up to an aggregate of
2,500,000 shares of our common stock pursuant to the terms of a stock option
agreement. This stock option agreement contains provisions for the vesting of
the options based on certain performance criteria relating to the closing market
price of our common stock. In addition, the employment agreement provides
alternative vesting schedules for the options in the event that Mr. Donohue's
employment is terminated due to a change in control or otherwise. The employment
agreement defines a "change in control" as a change that would be required to be
reported under certain provisions of the Securities Exchange Act of 1934.
FISCAL YEAR OPTION GRANTS
In the year ended December 31, 2000, the only Named Executive Officer to
receive a grant of stock options was Dr. Johan (Hans) Friedericy, our Chief
Executive Officer, who received options to purchase an aggregate of 35,077
shares of common stock at exercise prices ranging from $1.50 per share to $5.81
per share. All of these options vested immediately upon grant. During this same
year, we granted other officers, employees and consultants options to purchase
an aggregate of 1,673,011 shares of our common stock.
FISCAL YEAR OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Shown below is information regarding options exercised by the Named
Executive Officers during the year ended December 31, 2000, and unexercised
stock options held by the Named Executive Officers at December 31, 2000.
AGGREGATE OPTION EXERCISES IN 2000 AND YEAR END OPTION VALUES
- ----------------------------------------------------------------------------------------------
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT YEAR END(#) YEAR END($)(1)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------
David A. Walker 152,013 170,160 1,197,987 - 1,497,484 -
- ----------------------------------------------------------------------------------------------
David Haberman 100,000 266,250 1,205,000 - 1,506.250 -
- ----------------------------------------------------------------------------------------------
Dr. Johan - - 35,077 - - -
(Hans)
Friedericy
- ----------------------------------------------------------------------------------------------
(1) Based on a per share fair market value of our common stock equal to $1.50 at
December 31, 2000, the closing price for our common stock on that date as
reported by various market makers for our common stock on the Amex Stock Market.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the year ended December 31, 2000, we granted Dr. Johan (Hans)
Friedericy, our Chief Executive Officer, options to purchase an aggregate of
35,077 shares of common stock at exercise prices ranging from $1.50 per share to
$5.81 per share. All of these options vested immediately upon grant.
In the year ended December 31, 2000, we also granted options to purchase
shares of our common stock to certain of our officers and directors as
consideration for services performed during 2000 and 1999. All of these options
were fully vested on the date of grant, and are set forth below:
Options Granted
For Services in
Fiscal Year
--------------------
Name 2000 1999 Exercise Price
- ---- ------- ------- --------------
Ronald Ilsley 16,815 -- $3.04 - $4.51
Stephanie Hoffman 38,005 -- $3.04 - $6.10
Steven Huenemeier 39,318 -- $3.04 - $8.82
Dan Teran 6,204 93,218 $0.72 - $5.67
William Firestone (1) -- 73,000 $0.75 - $0.92
Randall Firestone(1) 73,000 -- $0.75 - $0.92
Raymond Winkel -- 66,750 $0.75 - $0.92
Robert Walker -- 142,928 $0.75 - $5.67
- ------------------
(1) William and Randall Firestone resigned as Board members in November
2000.
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. We intend that all future transactions, including loans, between
us and our officers, directors, principal stockholders and their affiliates will
be approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires our
officers and directors, and persons who own more than ten percent (10%) of a
registered class of our equity securities, to file certain reports regarding
ownership of, and transactions in, our securities with the Securities and
Exchange Commission. Such officers, directors, and 10% stockholders are also
required to furnish us with copies of all Section 16(a) forms that they file.
During 2000, David Haberman and William Firestone (a former Director of
DCH) did not timely file a Form 4. Subsequently, all required Form 4s were filed
by the previously named individuals. In making the foregoing disclosure, we have
relied solely on our review of copies of forms filed by such persons with the
SEC.
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STOCKHOLDER PROPOSALS FOR THE
2002 ANNUAL MEETING
We welcome comments and suggestions from our stockholders. Here are the
ways a stockholder may present a proposal for consideration by the other
stockholders at our 2001 Annual Meeting:
In our Proxy Statement: If a stockholder wants to submit a proposal for
inclusion in our proxy statement and form of proxy under Rule 14a-8 under the
Securities Exchange Act of 1934 (the "Exchange Act") for the 2002 Annual Meeting
of Stockholders, we must receive the proposal in writing on or before 5 p.m.,
Pacific Standard Time, January 17, 2002.
At the Annual Meeting: If a stockholder wishes to nominate a director or
bring other business before the stockholders at the 2002 Annual Meeting, we must
receive the stockholder's written notice not less than 60 days nor more than 90
days prior to the date of the annual meeting, unless we give our stockholders
less than 70 days' notice of the date of our 2002 Annual Meeting. If we provide
less than 70 days' notice, then we must receive the stockholder's written notice
by the close of business on the 10th day after we provide notice of the date of
the 2002 Annual Meeting. The notice must contain the specific information
required in our Bylaws. A copy of our Bylaws may be obtained by writing to our
Secretary. If we receive a stockholder's proposal within the time periods
required under our Bylaws, we may choose, but are not required, to include it in
our proxy statement. If we do, we may tell the other stockholders what we think
of the proposal, and how we intend to use our discretionary authority to vote on
the proposal.
Delivering a Separate Proxy Statement: We will not use our discretionary
voting authority if a stockholder submits a proposal within the time period
required under our Bylaws, and also provides us with a written statement that
the stockholder intends to deliver his or her own proxy statement and form of
proxy to our stockholders. Persons who wish to deliver their own proxy statement
and form of proxy should consult the rules and regulations of the SEC.
All proposals should be made in writing and sent via registered,
certified or express mail, to our executive offices, 27811 Avenue Hopkins,
Valencia, California 91355 Attention: Secretary.
VOTING
Stockholders are urged immediately to complete, date and sign the
enclosed proxy card and return it in the envelope provided, to which no postage
need be affixed if mailed in the United States.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for
stockholder action at the Annual Meeting. However, if other matters do properly
come before the Annual Meeting or any adjournments or postponements thereof, the
Board of Directors intends that the persons named in the proxies will vote upon
such matters in accordance with their best judgment.
BY THE BOARD OF DIRECTORS
David P. Haberman
Chairman of the Board
John T. Donohue
President and Chief Executive Officer
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EXHIBIT A
DCH TECHNOLOGY, INC.
2001 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
The purposes of this 2001 Stock Option Plan (the "Plan") of DCH
Technology, Inc., a Delaware corporation (the "Company") are to:
(i) Encourage selected officers, directors, key employees and
consultants to improve operations and increase profits of the Company or its
Affiliates;
(ii) Encourage selected officers and key employees to accept or continue
employment with the Company or its Affiliates; and
(iii) Increase the interest of selected officers, directors, key
employees and consultants in the Company's welfare through participation in the
growth in value of the common stock of the Company ("Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a key employee of
the Company or of any Affiliate (as defined below) (including employees who are
also officers or directors of the Company or of any Affiliate) is eligible to
receive NQOs or ISOs under this Plan. The term "Affiliate" as used in the Plan
means a parent or subsidiary corporation as defined in the applicable provisions
(currently Sections 424(e) and (f), respectively) of the Code. Every person who
is a director of or consultant to the Company or any Affiliate at the date of
grant of an Option is eligible to receive NQOs under this Plan.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the maximum
aggregate number of shares of stock which may be granted pursuant to this Plan
is five million (5,000,000) shares of Common Stock. The shares unexercised shall
become available again for grants under the Plan.
4. ADMINISTRATION
4.1 Option Committee. This Plan shall be administered by the Board of
Directors of the Company (the "Board") or by the Compensation Committee or some
other committee of at least two Board members, one of whom will serve as
Chairman (hereinafter referred to as the "Committee Chairman"), to which
administration of the Plan is delegated (in either case, the "Option
Committee"). No member of the Option Committee shall be liable for any decision,
action, or omission respecting the Plan, any options, or any option shares.
4.2 Disinterested Administration. From and after such time as the
Company registers a class of equity securities under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Plan
shall be administered in accordance with the disinterested administrative
requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission
("Rule 16b-3"), or any successor rule thereto.
25
4.3 Authority of the Option Committee. Subject to the other provisions
of this Plan, the Options Committee shall have the authority, in its discretion:
(i) to grant Options; (ii) to determine the fair market of the Common Stock
subject to Options; (iii) to determine the exercise price of Options granted;
(iv) to determine the persons to whom, and the time or times at which, Options
shall be granted, and the number of shares subject to each Option; (v) to
interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable; (viii) with the consent of
the optionee, to modify or amend any Option; (ix) to defer (with the consent of
the optionee) or accelerate the exercise date or vesting of any Option; (x) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (xi) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The Option
Committee may delegate nondiscretionary administrative duties to such employees
of the Company as it deems proper.
4.4 Determinations Final. All questions of interpretation,
implementation, and application of this Plan shall be determined by the Board or
the Option Committee. Such determinations shall be final and binding on all
persons.
5. GRANTING OF OPTIONS: OPTION AGREEMENT
5.1 Ten-Year Term. No Options shall be granted under this Plan after ten
years from the date of adoption of this Plan by the Board.
5.2 Option Agreement. Each Option shall be evidenced by a written stock
option agreement, in form satisfactory to the Company, executed by the Company
and the person to whom such Option is granted; provided, however, that the
failure by the Company, the optionee, or both to execute such an agreement shall
not invalidate the granting of any Option.
5.3 Designation as ISO or NQO. The agreement shall specify whether each
Option it evidences is a NQO or an ISO. Notwithstanding designation of any
Option as an ISO or a NQO, if the aggregate fair market value of the shares
under Options designated as ISOs which would become exercisable for the first
time by any Optionee at a rate in excess of $100,000 in any calendar year (under
all plans of the Company), then unless otherwise provided in the stock option
agreement or by the Option Committee, such Options shall be NQOs to the extent
of the excess above $100,000. For purposes of this Section 5.3, Options shall be
taken into account in the order in which they were granted, and the fair market
value of the shares shall be determined as of the time the Option, with respect
to such shares, is granted.
5.4 Grant to Prospective Employees. The Option Committee or the
Committee Chairman may approve the grant of Options under this Plan to persons
who are expected to become employees of the Company, but who are not employees
at the date of approval. In such cases, the Option shall be deemed granted,
without further approval, on the date the optionee is first treated as an
employee for payroll purposes.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be designated as a NQO or an
ISO. Each Option shall be subject to the terms and conditions set forth in
Section 6.1. NQOs shall be also subject to the terms and conditions set forth in
Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject
to the terms and conditions set forth in Section 6.3, but not those set forth in
Section 6.2.
26
6.1 Terms and Conditions to Which Options Are Subject. Options granted
under this Plan shall, as provided in Section 6, be subject to the following
terms and conditions:
6.1.1 Changes in Capital Structure. The existence of outstanding
Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations, or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred, or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, or other event, or converted into or
exchanged for other securities as a result of a merger, consolidation,
reorganization, or other event, appropriate adjustments shall be made in (i) the
number and class of shares of stock subject to this Plan and each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result to any such adjustments. Each such adjustment
shall be subject to approval by the Option Committee in its sole discretion, and
may be made without regard to any resulting tax consequence to the optionee.
6.1.2 Corporate Transactions. In connection with (i) any merger,
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Option Committee may, in its absolute
discretion, do one or more of the following upon ten days' prior written notice
to all optionees; (a) accelerate any vesting schedule to which an Option is
subject; (b) cancel Options upon payment to each optionee in cash, with respect
to each Option to the extent then exercisable, of any amount which, in the
absolute discretion of the Option Committee, is determined to be equivalent to
any excess of the market value (at the effective time of such event) of the
consideration that such optionee would have received if the Option had been
exercised before the effective time over the exercise price of the Option; (c)
shorten the period during which such Options are exercisable (provided they
remain exercisable, to the extent otherwise exercisable, for at least ten days
after the date the notice is given); or (d) arrange that new option rights be
substituted for the option rights granted under this Plan, or that the Company's
obligations as to Options outstanding under this Plan be assumed, by an employer
corporation other than the Company or by a parent or subsidiary of such employer
corporation. The actions described in this Section 6.1.2 may be taken without
regard to any resulting tax consequence to the optionee.
6.1.3 Time of Option Exercise. Except as necessary to satisfy the
requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable at such times as are specified in
the written stock option agreement relating to such Option: provided, however,
that so long as the optionee is a director or officer, as those terms are used
in Section 16 of the Exchange Act, such Option may not be exercisable, in whole
or in part, at any time prior to the six-month anniversary of the date of the
Option grant, unless the Option Committee determines that the foregoing
provision is not necessary to comply with the provisions of Rule 16b-3 or that
Rule 16b-3 is not applicable to the Plan. No Option shall be exercisable,
however, until a written stock option agreement in form satisfactory to the
Company is executed by the Company and the optionee. The Option Committee, in
its absolute discretion, may later waive any limitations respecting the time at
which an Option or any portion of an Option first becomes exercisable.
6.1.4 Option Grant Date. Except as provided in Section 5.4 or as
otherwise specified by the Option Committee, the date of grant of an Option
under this Plan shall be the date as of which the Option Committee approves the
grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the optionee except
by will, by the laws of descent and distribution, or pursuant to a qualified
domestic relations order (limited in the case of an ISO, to a qualified domestic
relations order that effects a
27
transfer of an ISO that is community property as part of a division of community
property). During the life of the optionee, an Option shall be exercisable only
by the optionee.
6.1.6 Payment. Except as provided below, payment in full shall be
made for all stock purchased at the time written notice of exercise of an Option
is given to the Company, and proceeds of any payment shall constitute general
funds of the Company. Payment may be made in cash, by promissory note, by
delivery to the Company of shares of Common Stock owned by the optionee (duly
endorsed in favor of the Company or accompanied by a duly endorsed stock power),
or by any other form of consideration and method of payment to the extent
permitted under applicable law. Any shares delivered shall be valued as of the
date of exercise of the Option in the manner set forth in Section 6.1.12.
Optionees may not exercise Options by delivery of shares more frequently than at
six-month intervals.
6.1.7 Termination of Employment. Unless determined otherwise by
the Option Committee in its absolute discretion to the extent not already
expired or exercised, every Option granted under this Plan shall terminate at
the earlier of (a) the Expiration Date (as defined in Section 6.1.12) or (b)
three months after termination of employment with the Company or any Affiliate;
provided, that an Option shall be exercisable after the date of termination of
employment only to the extent exercisable on the date of termination; and
provided further, that if termination of employment is due to the optionee's
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the optionee, or the optionee's personal representative, may at any time within
one (1) year after the termination of employment (or such lesser period as is
specified in the option agreement but in no event after the Expiration Date of
the Option), exercise the option to the extent it was exercisable at the date of
termination; and provided further that if termination of employment is due to
the Optionee's death, the Optionee's estate or a legal representative thereof,
may at any time within and including six (6) months after the date of death of
Optionee (or such lesser period as is specified in the option agreement but in
no event after the Expiration Date of the Option), exercise the option to the
extent it was exercisable at the date of termination. Transfer of an optionee
from the Company to an Affiliate or vice versa, or from one Affiliate to
another, or a leave of absence due to sickness, military service, or other cause
duly approved by the Company, shall not be deemed a termination of employment
for purposes of this Plan. For the purpose of this Section 6.1.7, "employment"
means engagement with the Company or any Affiliate of the Company either as an
employee, as a director, or as a consultant.
6.1.8 Repurchase of Stock. At the time it grants Options under
this Plan, the Company may retain, for itself or others, rights to purchase the
shares acquired under the Option or impose other restrictions on the transfer of
such shares. The terms and conditions of any such rights or other restrictions
shall be set forth in the option agreement evidencing the Option.
6.1.9 Withholding and Employment Taxes. At the time of exercise
of an Option (or at such later time(s) as the Company may prescribe), the
optionee shall remit to the Company in cash all applicable (as determined by the
Company in its sole discretion) federal and state withholding taxes. The Option
Committee may, in the exercise of its sole discretion, permit an optionee to pay
some or all of such taxes by means of a promissory note on such terms as the
Option Committee deems appropriate. If authorized by the Option Committee in its
sole discretion, and if the Option has been held for six months or more, an
optionee may elect to have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company or to tender to the Company other
shares of Common Stock or other securities of the Company owned by the optionee
on the date of determination of the amount of tax to be withheld as a result of
the exercise of such Option (the "Tax Date") to pay the amount of tax that is
required by law to be withheld by the Company as a result of the exercise of
such Option, provided that the election satisfies the following requirements:
(i) the election shall be irrevocable, shall be made at
least six months before the Option exercise, and shall be subject to the
disapproval of the Option Committee at any time before consummation of the
Option exercise; or
(ii) the election shall be made in advance to take effect
in a subsequent "window period" (as
28
defined below) in which the Option is exercised, and the Option Committee shall
approve the election when it is made or at any time thereafter up to
consummation of the Option exercise; or
(iii) the election shall be made in a window period and
the approval of the Option Committee shall be given after the election is made
and within the same window period, and the Option exercise shall be consummated
within such window period; or
(iv) shares or other previously owned securities shall be
tendered (but stock shall not be withheld) at any time up to the consummation of
the Option exercise (in which event, neither a prior irrevocable election nor
window period timing shall be required).
Notwithstanding the foregoing, clauses (ii) and (iii) shall not be
available until the Company has been subject to the reporting requirements of
the Securities Exchange Act of 1934 for at least one year.
A "window period" is the period beginning on the third business day
following the date of release for publication of quarterly or annual summary
statements of sales and earnings and ending on the 12th business day following
such date. Any securities so withheld or tendered shall be valued by the Company
as of the Tax Date.
6.1.10 Other Provisions. Each Option granted under this Plan may
contain such other terms, provisions, and conditions not consistent with this
Plan as may be determined by the Option Committee, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.
6.1.11 Determination of Value. For purposes of the Plan, the
value of Common Stock or other securities of the Company shall be determined as
follows:
(i) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers Automated Quotation System, its fair market value shall be the closing
sales price for such stock or the closing bid if no sale was reported, as quoted
on such system or exchange (or the largest such exchange) for the date the value
is to be determined (or if there is no sale for such date, then for the last
preceding business day on which there was at least one sale), as reported in the
Wall Street Journal.
(ii) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there is no quoted price
for the date of grant, then for the last preceding business day on which there
was a quoted price).
(iii) If the stock of the Company is as described in
Section 6.1.11(i) or (ii), but is restricted by law, contract, market
conditions, or otherwise as to salability or transferability, its fair market
value shall be as set forth in Section 6.1.11(i) or (ii), as appropriate, less,
as determined by the Option Committee, an appropriate discount, based on the
nature and terms of the restrictions.
(iv) In the absence of an established market for the
stock, the fair market value thereof shall be determined by the Option
Committee, with reference to the Company's net worth, prospective earning power,
dividend-paying capacity, and other relevant factors, including the goodwill of
the Company, the economic outlook in the Company's industry, the Company's
position in the industry and its management, and the values of stock of other
corporations in the same or a similar line of business.
6.1.12 Option Term. No Option shall be exercisable more than ten
years after the date of grant, or such lesser period of time as set forth in the
option agreement (the end of the maximum exercise period stated in the option
agreement is referred to in this Plan as the "Expiration Date"). No ISO granted
to any person who owns, directly
29
or by attribution, stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company of any Affiliate ( a "Ten
Percent Stockholder") shall be exercisable more than five years after the date
of grant.
6.1.13 Exercise Price. The exercise price of any Option granted
to any Ten Percent Stockholder shall in no event be less than 110 percent of the
fair market value (determined in accordance with Section 6.1.11) of the stock
covered by the Option at the time the Option is granted.
6.1.14 Compliance with Securities Laws. The Company shall not be
obligated to offer or sell any shares upon exercise of an Option unless the
shares are at that time effectively registered or exempt from registration under
the federal securities laws and the offer and sale of the shares are otherwise
in compliance with all applicable state and local securities laws. The Company
shall have no obligation to register the shares under the federal securities
laws or take whatever other steps may be necessary to enable the shares to be
offered and sold under federal or other securities laws. Upon exercising all or
any portion of an Option, an optionee may be required to furnish representations
or undertakings deemed appropriate by the Company to enable the offer and sale
of the Option shares or subsequent transfers of any interest in the shares to
comply with applicable securities laws. Stock certificates evidencing shares
acquired upon exercise of options shall bear any legend required by, or useful
for purposes of compliance with, applicable securities laws, this Plan, or the
option agreement evidencing the Option.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following additional terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section
6.1.13, the exercise price of a NQO shall not be less than 85 percent of the
fair market value (determined in accordance with Section 6.1.11) of the stock
subject to the Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following additional terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section
6.1.13, the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired upon
exercise of an ISO is disposed of in a "disqualifying disposition" within the
meaning of Section 422 of the Code, the holder of the stock immediately before
the disposition shall notify the Company in writing of the date and terms of the
disposition and comply with any other requirements imposed by the Company in
order to enable the Company to secure any related income tax deduction to which
it is entitled.
7. MANNER OF EXERCISE
7.1 Notice of Exercise. An optionee wishing to exercise an Option
shall give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the Option Committee,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option will be considered as the date such Option was exercised.
7.2 Issuance of Certificates. Promptly after receipt of written
notice of exercise of an Option, the Company shall, without stock issue or
transfer taxes to the optionee or other person entitled to exercise the Option,
30
deliver to the optionee or such other person a certificate or certificates for
the requisite number of shares of stock. Unless the Company specifies otherwise,
an optionee or transferee of an optionee shall not have any privileges as a
shareholder with respect to any stock covered by the Option until the date of
issuance of a stock certificate. Subject to Section 6.1.1 hereof, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the date the certificates are delivered.
8. EMPLOYMENT RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment at any time, nor confer upon any optionee
any right to continue in the employ of the Company or any of its Affiliates.
9. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to federal or other tax laws relating to
incentive stock options. No amendment shall require shareholder approval unless
shareholder approval is required to preserve incentive stock option treatment
for tax purposes or the Board otherwise concludes that shareholder approval is
advisable.
10. SHAREHOLDER APPROVAL; TERM
The Board of Directors of the Company adopted this Plan as of January 1,
2001 and the Company's shareholders approved this Plan as of _________________.
This Plan shall terminate ten years after initial adoption by the Board unless
terminated earlier by the Board. The Board may terminate this Plan without
shareholder approval. No Options shall be granted after termination of this
Plan, but termination shall not affect rights and obligations under
then-outstanding Options.
31
DCH TECHNOLOGY, INC.
STOCK OPTION AGREEMENT
[FORM]
This DCH Technology, Inc. Stock Option Agreement (the "Agreement"), by
and between DCH Technology, Inc., a Delaware corporation (the "Company"), and
____________ ("Optionee"), is made effective as of this _____ day of __________,
200_.
RECITALS
1. Pursuant to the DCH Technology, Inc. 2001 Stock Option Plan (the
"Plan"), the Board of Directors of the Company (the "Board") has authorized the
grant of an option to purchase common stock of the Company ("Common Stock") to
Optionee, effective on the date indicated above, thereby allowing Optionee to
acquire a proprietary interest in the Company in order that Optionee will have
further incentive for continuing his or her employment by, and increasing his or
her efforts on behalf of, the Company or an Affiliate of the Company.
2. The Company desires to issue a stock option to Optionee and Optionee
desires to accept such stock option on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Option Grant. The Company hereby grants to the Optionee, as a
separate incentive and not in lieu of any fees or other compensation for his or
her services, an option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of _________________ (___________) shares
of authorized but unissued shares of Common Stock, at the Purchase Price set
forth in paragraph 2 of this Agreement.
2. Purchase Price. The Purchase Price per share (the "Option Price")
shall be $_________, which is not less than eighty five percent (85%) [or one
hundred ten percent (110%)] of the fair market value per share of Common Stock
on the date hereof. The Option Price shall be payable in the manner provided in
paragraph 9 below.
3. Adjustment. The number and class of shares specified in paragraph 1
above, and the Option Price, are subject to appropriate adjustment in the event
of certain changes in the capital structure of the Company such as stock splits,
recapitalizations and other events which alter the per share value of Common
Stock or the rights of holders thereof. In connection with (i) any merger,
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Company may, in its absolute discretion, do
one or more of the following upon ten days' prior written notice to the
Optionee: (a) accelerate any vesting schedule to which this option is subject;
(b) cancel this option upon payment to the Optionee in cash, to the extent this
option is then exercisable, of any amount which, in the absolute discretion of
the Company, is determined to be equivalent to any excess of the market value
(at the effective time of such event) of the consideration that the Optionee
would have received if this option had been exercised before the effective time
over the Option Price; (c) shorten the period during which this option is
exercisable (provided that this option shall remain exercisable, to the extent
otherwise exercisable, for at least ten days after the date the notice is
given); or (d) arrange that new option rights be substituted for the option
rights granted under this option, or that the Company's obligations under this
option be assumed, by an employer corporation other than the Company or by a
parent or subsidiary of such employer corporation. The actions described in this
paragraph 3 may be taken without regard
32
to any resulting tax consequence to the Optionee.
[OPTIONAL FOUR YEAR VESTING]
4. Option Exercise. Commencing on the date one (1) year after the date
of this Agreement the right to exercise this option will accrue as to one-fourth
(1/4) of the number of shares subject to this option. Thereafter, the right to
exercise the remainder of this option will accrue in twelve (12) equal quarterly
installments. Shares entitled to be, but not, purchased as of any accrual date
may be purchased at any subsequent time, subject to paragraphs 5 and 6 below.
The number of shares which may be purchased as of any such anniversary date will
be rounded up to the nearest whole number. No partial exercise of the option may
be for an aggregate exercise price of less than One Hundred Dollars ($100). In
order to exercise any part of this option, Optionee must agree to be bound by
the Company's Shareholder Buy-Sell Agreement, if any, existing at the time of
the exercise of this Option.
[OPTIONAL IMMEDIATE VESTING]
4. Option Exercise. Commencing on the date of this Agreement, the right
to exercise this option will accrue as to all of the shares subject to this
option. Shares entitled to be, but not, purchased as of the accrual date may be
purchased at any subsequent time, subject to paragraphs 5 and 6 below. No
partial exercise of the option may be for an aggregate exercise price of less
than One Hundred Dollars ($100). In order to exercise any part of this option,
Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement,
if any, existing at the time of the exercise of this Option.
5. Termination of Option. The right to exercise this option will lapse
in four (4) equal installments of the number of shares subject to this option on
each of the sixth, seventh, eighth, and ninth anniversaries of the effective
date of this Agreement. Notwithstanding any other provision of this Agreement,
this option may not be exercised after, and will completely expire on, the close
of business on the date ten (10) years after the effective date of this
Agreement, unless terminated sooner pursuant to paragraph 6 below.
6. Termination of Employment. In the event of termination of Optionee's
employment with the Company for any reason, this option will terminate three (3)
months after the date of the termination of Optionee's employment, unless
terminated earlier pursuant to paragraph 5 above. However, (i) if termination is
due to the death of Optionee, the Optionee's estate or a legal representative
thereof, may at any time within and including six (6) months after the date of
death of Optionee, exercise the option to the extent it was exercisable at the
date of termination; or (ii) if termination is due to Optionee's "disability"
(as determined in accordance with Section 22(e)(3) of the Internal Revenue
Code), Optionee may, at any time, within one (1) year following the date of this
Agreement, exercise the option to the extent it was exercisable at the date of
termination. If the Optionee or his or her legal representative fails to
exercise the option within the time periods specified in this paragraph 6, the
option shall expire. The Optionee or his or her legal representative may, on or
before the close of business on the earlier of the date for exercise set forth
in paragraph 5 or the dates specified in paragraph 4 above, exercise the option
only to the extent Optionee could have exercised the option on the date of such
termination of employment pursuant to paragraphs 4 and 5 above.
7. Repurchase Option of Company. Pursuant to Section 6.1.8 of the Plan,
in the event of termination of Optionee's employment with the Company for any
reason, the Company shall have an option to repurchase ("Repurchase Option") any
Common Stock owned by the Optionee or his or her heirs, legal representatives,
successors or assigns at the time of termination, or acquired thereafter by any
of them at any time, by way of an option granted hereunder. The Repurchase
Option must be exercised, if at all, by the Company within ninety (90) days
after the date of termination upon notice ("Repurchase Notice") to the Optionee
or his or her heirs, legal representatives, successors or assigns, in
conformance with paragraph 13 below. The purchase price to be paid for the
shares subject to the Repurchase Option shall be One Hundred Fifteen Percent
(115%) of their book value. For the purposes of this paragraph, the Company's
book value shall be determined in accordance with generally accepted accounting
principles applied on a basis consistent with those previously applied by the
Company. The book value shall be fixed under this paragraph by the accountants
of the Company and shall be computed as of the last day of the Company's fiscal
quarter most recently preceding the Repurchase Notice. Any shares issued
pursuant to an exercise of an option hereunder shall contain the following
legend condition in addition to any other applicable legend condition:
2
33
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE
PROVISIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
8. Transferability. This option will be exercisable during Optionee's
lifetime only by Optionee. Except as otherwise set forth in the Plan, this
option will be non-transferable.
9. Method of Exercise. Subject to paragraph 10 below, this option may be
exercised by the person then entitled to do so as to any shares which may then
be purchased by delivering to the Company an exercise notice in the form
attached hereto as Exhibit A and:
(a) full payment of the Option Price thereof (and the amount of
any tax the Company is required by law to withhold by reason of such exercise)
in the form of:
(i) cash or readily available funds; or
(ii) delivery of Optionee's promissory note (the "Note")
substantially in the form attached hereto as Exhibit B in the amount of the
aggregate Option Price of the exercised shares together with the execution and
delivery by the Optionee of the Security Agreement attached hereto as Exhibit C;
or
(iii) a written request to Net Exercise, as defined in
this paragraph 9(a)(iii). In lieu of exercising this Option via cash payment or
promissory note, Optionee may elect to receive shares equal to the value of this
Warrant (or portion thereof being canceled) by surrender of this Option at the
principal office of the Company together with notice of election to exercise by
means of a Net Exercise in which event the Company shall issue to Optionee a
number of shares of the Company computed using the following formula:
X = Y (A-B)
-------
A
where X is the number of shares of stock to be issued to Optionee; Y is the
number of shares purchasable under this Option; A is the fair market value of
the stock determined in accordance with Section 6.1.12 of the Plan; and B is
the Option Price as adjusted to the date of such calculation.
(b) payment of any withholding or employment taxes, if any;
(c) an executed Shareholders Buy-Sell Agreement, if any, binding
the Company's shareholders and restricting the transfer of their shares,
executed appropriately by the Optionee and his or her spouse, if any.
The Company will issue a certificate representing the shares so purchased within
a reasonable time after its receipt of such notice of exercise, payment of the
Option Price and withholding or employment taxes, and execution of any existing
Shareholders Buy-Sell Agreement, with appropriate certificate legends.
10. Securities Laws. The issuance of shares of Common Stock upon the
exercise of the option will be subject to compliance by the Company and the
person exercising the option with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
option at any time when, in the opinion of counsel to the Company, such exercise
is not permitted under applicable federal or state securities laws. Nothing
herein will be construed to require the Company to register or qualify any
securities under applicable federal or state securities laws, or take any action
to secure an exemption from such registration and qualification for the issuance
of any securities upon the exercise of this option.
11. No Rights as Shareholder. Neither Optionee nor any person claiming
under or through Optionee will be, or have any of the rights or privileges of, a
shareholder of the Company in respect of any of the shares issuable upon the
exercise of the option, unless and until this option is properly and lawfully
exercised.
3
34
12. No Right to Continued Employment. Nothing in this Agreement will be
construed as granting Optionee any right to continued employment. EXCEPT AS THE
COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S
EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR
ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in
its sole discretion will determine whether any leave of absence or interruption
in service (including an interruption during military service) will be deemed a
termination of employment for the purpose of this Agreement.
13. Notices. Any notice to be given to the Company under the terms of
this Agreement will be addressed to the Company, in care of its Secretary, at
its executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
14. Non-Transferrable. Except as otherwise provided in the Plan or in
this Agreement, the option herein granted and the rights and privileges
conferred hereby will not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of
any right or upon any attempted sale under any execution, attachment or similar
process upon the rights and privileges conferred hereby, this option will
immediately become null and void.
15. Successor. Subject to the limitation on the transferability of the
option contained herein, this Agreement will be binding upon and inure to the
benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
16. California Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California.
17. Type of Option. The option granted in this Agreement:
[ ] Is intended to be an Incentive Stock Option ("ISO") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
[ ] Is a non-qualified Option and is not intended to be an ISO.
18. Plan Provisions Incorporated by Reference. A copy of the Plan is
attached hereto as Exhibit "A" and incorporated herein by this reference. In the
case of conflict between any provision in this Agreement and any provision in
the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this
Agreement shall prevail. In the case of conflict between any provision in the
Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of
the Plan shall prevail.
19. Term. Capitalized terms used herein, except as otherwise indicated,
shall have the same meaning as those terms have under the Plan.
4
35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written below.
COMPANY: DCH TECHNOLOGY, INC.
By:
--------------------------------
Its:
-------------------------------
OPTIONEE:
-----------------------------------
(Optionee)
Address:
---------------------------
-----------------------------------
5
36
EXHIBIT B
AUDIT COMMITTEE CHARTER
DCH Technology, Inc. (the "Company") presents the following charter for the
Audit Committee of the Board of Directors.
ORGANIZATION
This Charter governs the operations of the Audit Committee. The Committee shall
review and assess the Charter at least annually and obtain the approval of the
Board of Directors. The Committee shall be appointed by the Board of Directors
and shall comprise at least three directors, each of whom are independent of
management and the Company.
AUDIT COMMITTEE MEMBERSHIP ELIGIBILITY REQUIREMENTS
Committee membership eligibility requirements include the following. Members of
the Audit Committee:
- - shall have no relationship that may interfere with the exercise of their
independence from management and the Company;
- - shall have not been employed by the Company or any of its affiliates in
the current or past three years;
- - shall not have accepted compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year (except
for Board service, retirement plan benefits or non-discretionary
compensation);
- - shall not have an immediate family member who is, or has been in the
past three years, employed by the Company or its affiliates as an
executive officer;
- - shall not have been a partner, controlling shareholder or an executive
officer of any for-profit business to which the Company made, or from
which it received payments (other than those which arise solely from
investments in the Company's securities) that exceed five percent of the
organization's consolidated gross revenues for that year, or $200,000,
whichever is greater, in any of the past three years;
- - shall not have been employed as an executive of another entity where any
of the Company's executives serve on that entity's compensation
committee; and
- - shall be financially literate (i.e., able to read and understand
financial statements).
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibilities to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board. In
doing so, it is the responsibility of the Audit Committee to maintain free and
open communication between the Audit Committee, independent auditors, the
internal auditors and management of the Company. In discharging its oversight
role, the Audit Committee is empowered to investigate matters brought to its
attention with full access to all books, records, facilities and personnel of
the Company and the power to retain the outside counsel and other experts for
this purpose.
37
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The Audit Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The Audit
Committee should take the appropriate actions to set the overall corporate tone
for quality financial reporting, sound business risk practices and ethical
behavior.
The following shall be the principal processes of the Audit Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.
- - The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of
the Company's shareholders. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
independent auditors. The Committee shall discuss with the auditors
their independence from management and the Company and the matters
included in the required written disclosures. Annually, the Committee
shall review the Company's independent auditors and report the findings
of its review to the Board.
- - The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audit. Also, the Committee shall discuss with management, the internal
auditors and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee shall meet separately with the internal
auditors and the independent auditors, with and without management
present, to discuss the results of their examinations.
- - The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-QSB. Also, the Committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the Committee by the independent auditors
under generally accepted accounting principles.
- - The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report
on Form 10-KSB, including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and clarity of the disclosures in the financial
statements. Also, the Committee shall discuss the results of the annual
audit and any other matters required to be communicated to the Committee
by the independent auditors under generally accepted accounting
principles.
This Charter is adopted by the Audit Committee this 29th day of March, 2000.
Daniel Teran
Audit Committee Chairman
Approved by unanimous vote of the Board of Directors on March 29, 2000.
38
ANNUAL MEETING OF STOCKHOLDERS
OF
DCH TECHNOLOGY, INC.
JUNE 12, 2001
------------------------------
PROXY VOTING INSTRUCTIONS
------------------------------
VOTING BY MAIL
Please complete your voting selection, date, sign and mail your proxy card
in the envelope provided as soon as possible. You are encouraged to specify your
choices by marking the appropriate boxes, but you need not mark any box if you
wish to vote in accordance with the Board of Directors' recommendations.
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
[X] PLEASE MARK YOUR VOTES AS IN THE EXAMPLE TO THE LEFT USING DARK INK ONLY.
FOR AGAINST ABSTAIN
1. Election of Directors
Nominees: [ ] [ ] [ ] David P. Haberman
[ ] [ ] [ ] David A. Walker
[ ] [ ] [ ] Dr. Johan (Hans) Friedericy
[ ] [ ] [ ] Mark Lezell
[ ] [ ] [ ] Daniel Teran
[ ] [ ] [ ] Robert S. Walker
[ ] [ ] [ ] Raymond N. Winkel
39
2. Proposal to ratify the 2001 Stock Option Plan:
[ ] [ ] [ ]
3. Proposal to ratify selection of Moss Adams LLP as DCH's independent auditors:
[ ] [ ] [ ]
Date: -------------------
-------------------------
Signature(s)
Note: Please sign exactly
as name appears hereon.
Joint owners should each
sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give
full title as such. If a
corporation, partnership
or other entity, please
sign in full entity name
by authorized person.