SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
CHECK THE APPROPRIATE BOX:
/ / 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.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
______________________________
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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/X/ NO FEE REQUIRED
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PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE
FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED):
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(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
_______________________________________
(5) TOTAL FEE PAID:
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/ / FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
/ / CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE
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PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER,
OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) AMOUNT PREVIOUSLY PAID:
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(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
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(3) FILING PARTY:
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(4) DATE FILED:
_______________________________________
DCH TECHNOLOGY, INC.
24832 AVENUE ROCKEFELLER
VALENCIA, CALIFORNIA 91355
To The Stockholders:
The Board of Directors of DCH Technology, Inc., a Delaware corporation, is
seeking your approval for (i) a proposed amendment to our Certificate of
Incorporation increasing the number of authorized shares of common stock, and
(ii) an increase in the number of shares of common stock reserved for issuance
under our 2001 Stock Option Plan, by the solicitation of written consents in
lieu of a meeting of stockholders (the "Consent Solicitation"). No meeting of
stockholders is being held in connection with this Consent Solicitation.
In this Consent Solicitation, you are being asked to approve a proposed
amendment of our Certificate of Incorporation to increase the number of
authorized shares of common stock from 50,000,000 to 100,000,000. In addition,
you are being asked to approve an increase in the number of shares of common
stock reserved for issuance under our 2001 Stock Option Plan from 5,000,000
shares to 10,000,000 shares. The Board of Directors recommends that you vote FOR
both of these proposals.
DCH has made major strides since its beginning as a publicly traded
company, and in the ten months I have been with DCH we have greatly furthered
our progress.
Specifically, I have redirected our resources to near term product
development and sales with significant results. Third quarter 2001 sensor sales
were 60% higher than third quarter sales in 2000. Our backlog of fuel cells was
$1.1 million at September 30, 2001. We have also reduced our overall operating
costs through the elimination or delay of select projects that did not have near
term returns to you, our shareholders. THIS REFOCUSING SAVES OVER $1.3 MILLION
IN COMPENSATION ALONE ON AN ANNUAL BASIS. At the same time we have been able to
continue to advance our core sensor and fuel cell technologies.
We have financed much of this work through the sale of DCH stock. This has
been our primary source of operating capital to commercialize our technologies
and create shareholder value. I am writing because we need to expand our
---------------------
authorized stock level to continue our momentum and this requires shareholder
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approval. We are requesting approval to increase our stock authorization to
- --------
100,000,000 shares from the current 50,000,000 shares authorized.
This request for additional authorized stock should raise five questions
for every shareholder:
1. HOW HAVE WE USED THE PRESENT STOCK AUTHORIZATION?
2. WHAT VALUE HAS BEEN GAINED THROUGH THE USE OF THE PRESENT
AUTHORIZATION?
3. FOR WHAT PURPOSE WILL THE NEW STOCK AUTHORIZATION BE USED?
4. WHY IS THIS THE BEST FINANCING VEHICLE FOR US?
5. WHAT ARE THE IMPLICATIONS TO THE PRESENT SHAREHOLDERS?
I will answer these questions as directly as I can.
1. HOW HAVE WE USED THE PRESENT STOCK AUTHORIZATION?
As noted, we've used sales of our stock, in large part, to finance
operations - that is, to compensate employees, purchase materials and equipment,
fund R&D and marketing activities, etc.
For comparison, many of our peers raised and banked large amounts of cash
through IPOs when the stock market was at its peak in the late 1990s and early
2000. DCH was not in a position to capitalize on these favorable market
conditions.
The details of our initial stock authorization are listed below:
- Shares authorized - 50,000,000
- Shares outstanding when DCH became a public company in August
1999 - 14,800,000
- Shares sold from August 1999 to September, 2001 - approximately
16,100,000
- Capital raised through the sale of shares from August 1999 to
September, 2001: $10,147,571
- Shares outstanding as of September 30, 2001 - 30,925,173 shares
- Employee/director options outstanding as of September 30, 2001 -
approximately 13,000,000
2. WHAT VALUE HAS BEEN GAINED THROUGH THE USE OF THE PRESENT AUTHORIZATION?
- Increased sensor sales. Through many ongoing efforts, the
semiconductor industry is now embracing our Robust Hydrogen
Sensor(TM) for both process and safety applications. Likewise, we
are making excellent progress in several other industries,
including nuclear power, automotive, and waste management. The
best news of all is that we are poised to commercialize the next
generation of very high hydrogen-sensitivity sensory products
with the introduction of the H-FET sensor in early 2002. We are
confident that this will prove to be the new benchmark in
hydrogen sensing and will positively impact our financial
results.
- Increased fuel cell sales. We have just introduced our fourth
generations of both higher power (1 to 5 kW) and smaller,
portable (12 to 30 w) fuel cells, resulting in contracts. In
December of 2001, we delivered our first higher-power fuel cell
with a natural gas feed system to a European Utility using a UOP
reformer. Our hydrogen-gas fed fuel cell systems continue to
prove themselves as the technology of choice in applications
where load and load following is of paramount importance. At the
same time, our 12W/12V fuel cell platform has been significantly
upgraded to handle temperatures from -20 C to 50 C. We have also
been able to increase the power density of products from this
platform to up to 30w.
- While focusing on commercializing products, we are also seeing
the first fruits from our Center for Hydrogen Safety(TM). The CHS
is one of only two companies offering hydrogen-specific safety
services, and response has been very good. Since its formation in
April, the CHS has submitted several proposals for safety
services with major corporations, and we've been awarded
contracts on all of them. These contracts provide cash flow, but
more importantly, open future windows of opportunity for sales of
our fuel cells and sensor products to some of the key players in
the emerging hydrogen economy.
3. FOR WHAT PURPOSE WILL THE NEW STOCK AUTHORIZATION BE USED?
- Most importantly, we need the additional stock to attract and
capture strategic investors. Any investment by a strategic
financial partner will require DCH to have the underlying common
stock for such a transaction. We have a number of interested
parties with whom we are in various stages of discussions. I
assure you that we will only select those partners who we believe
will be long-term supporters of the stock.
- Product development of the larger fuel cell systems. At this time
we have clearly demonstrated the technical excellence of our
systems. The next step is to move from technical success to
commercialization success, which will focus on cost reducing the
production of our fuel cell.
- Commercialization of the H-FET sensor. We believe there is huge
market demand for this new sensor and we intend to complete the
design and commercialization.
4. WHY IS THIS THE BEST FINANCING VEHICLE FOR US?
We do not feel that financing the business through loans or lines of credit
is in the best interest of the company at this point in time because of the
burden on future cash flows to service debt payments. We have explored these
options and the terms available to us are not attractive. Raising capital
through the sale of stock provides a source of attractive funding for us that
will not require us to devote a valuable portion of our cash flow to servicing
debt payments.
5. WHAT ARE THE IMPLICATIONS TO THE PRESENT SHAREHOLDERS?
Stock dilution is a concern for all of us and should be measured by the
value it will create in moving your company forward. We intend to use the
additional shares authorized to create value by attracting strategic investors
and acquisition prospects that bring new opportunities to DCH. We see the
requests for additional stock and options as a strong springboard from which to
continue our march to full commercialization and the revenues this will
generate. This is a strategy with which we can all resonate.
Lastly, I am also requesting your support on expanding our employee stock
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option program. This is also an important part of our strategy to move forward.
- ---------------
We have continually awarded options in lieu of cash to employees for two
reasons: 1) to conserve cash for R&D and marketing expenditures; and 2) to align
our employees' interests more closely with those of our shareholders. When
compensated in options wholly or in part, their success - in a very real way -
is yours.
The Consent Solicitation Statement on the following pages further describes
the matters being presented to you in this Consent Solicitation.
The Board of Directors hopes that you will have your common stock
represented by signing, dating and returning your consent in the enclosed
envelope as soon as possible. If you submit a properly executed consent within
30 days of the delivery of the first dated consent delivered to us (as such date
may be extended by the Board of Directors), your common stock will be voted in
favor of the two proposals. Any other action by you will have the practical
effect of voting against the proposed amendment.
Thank you for your time and thoughtful consideration of your company's
needs. The future is bright. We must now act to fulfill our promise.
Cordially,
John Donohue
President & CEO
DCH Technology, Inc.
January 17, 2002
DCH TECHNOLOGY, INC.
24832 AVENUE ROCKEFELLER
VALENCIA, CALIFORNIA 91355
____________________
CONSENT SOLICITATION STATEMENT
January 17, 2002
GENERAL INFORMATION
INFORMATION REGARDING CONSENTS
This Consent Solicitation Statement is furnished in connection with the
solicitation of stockholder consents by the Board of Directors of DCH
Technology, Inc., a Delaware corporation, in lieu of a meeting of stockholders
(the "Consent Solicitation") in connection with (i) a proposed amendment to our
Certificate of Incorporation to increase the common stock authorized for
issuance from 50,000,000 to 100,000,000; and (ii) a proposed increase in the
number of shares of common stock reserved for issuance under our 2001 Stock
Option Plan from 5,000,000 to 10,000,000. Only stockholders of record at the
close of business on December 3, 2001 (the "Record Date") will be entitled to
submit a consent. It is anticipated that this Consent Solicitation Statement
and accompanying consent will first be mailed to stockholders on or about
January 17,2002.
We are incorporated in the State of Delaware and are therefore subject to
Title 8 of the Delaware Code. Section 228 of Title 8 of the Delaware Code
permits the stockholders of DCH to take action without a meeting if consents in
writing, setting forth the action so taken, are signed by holders of outstanding
stock having no less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. The Board of Directors has determined that the
minimum necessary votes must be received by us within 30 days of the date of the
first such written consent; however, such date may be extended by the Board of
Directors in its sole discretion. Accordingly, if within 30 days following our
receipt of the first written consent approving the two proposals (unless such
period is extended), we receive executed consents approving the two proposals
from the holders of a majority of the issued and outstanding shares of common
stock, and those consents have not been revoked, you will be deemed to have
approved both of the proposals. We intend to amend our Certificate of
Incorporation as soon as practicable following the receipt of the necessary
consents to approve the increase in our authorized common stock.
All written consents we receive, regardless of when dated, will expire
unless valid, written, unrevoked consents constituting the necessary vote for
approval of the proposed amendment are received by us within 30 days of the date
of receipt of the first such consent (unless such period is extended by the
Board of Directors). A consent executed by a stockholder may be revoked at any
time provided that a written, dated revocation is executed and delivered to us
on or prior to the time at which we receive written consents sufficient to
approve each proposal. A revocation may be in any written form validly signed by
the stockholder as long as it clearly states that the consent previously given
is no longer effective. The revocation should be sent to Ronald Ilsley, Chief
Financial Officer, DCH Technology, Inc. 24832 Avenue Rockefeller, Valencia,
California 91355.
We will pay the costs of solicitation of consents. In addition to
soliciting consents by mail, our officers, directors and other regular
employees, without additional compensation, may solicit consents personally or
by other appropriate means. Banks, brokers, fiduciaries and other custodians and
nominees who forward consent soliciting material to their principals will be
reimbursed their customary and reasonable out-of-pocket expenses.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record of our common stock as of the close of business
on December 3, 2001 (the "Record Date") will be entitled to submit a consent on
the accompanying form. On that date, there were listed as outstanding
32,138,313 shares of common stock. Each share of common stock is entitled
to one vote in the Consent Solicitation. Consents evidencing a majority of the
shares entitled to vote are required in order to approve the two proposals being
submitted to you for approval in the Consent Solicitation. To be counted toward
the majority required for approval of the proposed amendment, a consent must be
delivered to us within 30 days of the delivery of the first dated consent
(unless such period is extended by the Board of Directors).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30,
2001, relating to the beneficial ownership of our common stock by (i) all
persons known by us to beneficially own more than 5% of the outstanding shares
of the Common Stock, (ii) each of our Directors, and (iii) all of our executive
officers and directors as a group.
The percentages of total shares of common stock set forth below assume that
only the indicated person or group has exercised options and warrants which are
exercisable within 60 days of September 30, 2001, and do not reflect the
percentage of common stock which would be calculated if all other holders of
currently exercisable options or warrants had exercised their securities.
Unless otherwise indicated in the footnotes to the table, (1) the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own and (2) unless otherwise indicated, the address of
each beneficial owner listed below is c/o DCH Technology, Inc., 24832
Avenue Rockefeller, Valencia, California 91355.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS
EXECUTIVE OFFICERS AND DIRECTORS:
- ------------------------------------------ ------------------------ -----------
David P. Haberman 2,996,577 9%
John Donohue 587,996 2%
Dr. Johan (Hans) Friedericy 307,866 *
Daniel Teran 287,600 *
Robert S. Walker 224,714 *
Raymond N. Winkel 282,185 *
All executive officers and Directors as a 4,686,938
group (9 persons)
<FN>
* Less than one percent.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock options or warrants held by that person that are
currently exercisable or exercisable within 60 days of September 30, 2001 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
The number of shares shown for Mr. Haberman consists of 1,411,240 shares of
common stock subject to options that are exercisable within 60 days of September
30, 2001. This does not include options to purchase 750,000 shares of common
stock that will vest only upon the occurrence of certain events.
The number of shares shown for Mr. Donohue consists of 587,996 shares of
common stock subject to options that are exercisable within 60 days of September
30, 2001. This does not include options to purchase 1,500,000 shares of common
stock which vest only upon the occurrence of certain events.
The number of shares shown for Mr. Friedericy includes 302,866 shares of
common stock subject to options that are exercisable within 60 days of September
30, 2001.
The number of shares shown for Mr. Teran includes 267,600 shares of common
stock subject to options that will be exercisable within 60 days of September
30, 2001.
The number of shares shown for Mr. Walker includes 224,514 shares of common
stock subject to options that are exercisable within 60 days of September 30,
2001.
The number of shares shown for Mr. Winkel includes 100,395 shares of common
stock subject to options and warrants that are exercisable within 60 days of
September 30, 2001.
The number of shares shown for all executive officers and Directors as a
group includes 3,644,611 shares of common stock subject to options that are
exercisable within 60 days of September 30, 2001.
EXECUTIVE COMPENSATION SUMMARY
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 $100,000 during
the years ended December 31, 2000, 1999 and 1998 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- ------------------------- --------------------------- ----------------------
NAME AND YEAR SALARY ($) BONUS ($) NUMBER OF SECURITIES
PRINCIPAL UNDERLYING WARRANTS/
POSITION OPTIONS (#)
- ------------------------- ---- ---------- --------- ----------------------
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. Firestone 1999 - - 675,000
(3) 1998 - - 393,000
<FN>
(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.
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.
Effective July 1, 2001, we entered into an employment agreement with Ronald
Ilsley, our Chief Financial Officer. The employment agreement terminates on July
1, 2002 and provides for annual compensation of $190,000 of which up to $120,000
may be paid in the form of stock options. In addition, the agreement provides
for the grant of options to Mr. Ilsley for the purchase of 500,000 shares of our
common stock. This includes options to purchase 100,000 shares of common stock,
which options vested upon the execution of the employment agreement. The
remaining options to purchase 400,000 shares of common stock vest according to
certain performance criteria based on equity financing. The employment agreement
provides alternative vesting schedules for the options in the event that Mr.
Ilsley'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.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Dr. Johan (Hans) Friedericy, our Chief
Operating Officer. The employment agreement commenced on January 1, 2001 and
terminates on January 1, 2002. The 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.
In the third quarter of 2001, DCH's two co-founders, David Haberman and
David Walker, resigned from daily operations as part of a planned transition to
our senior operating team identified and retained over the past several months
from established corporations. As part of this transition, we have terminated
our employment agreements with Messrs. Haberman and Walker.
We have employment agreements with our Chief Executive Officer, John
Donohue and our Chief Financial Officer, Ronald Ilsley. These agreements are
discussed under the Executive Compensation Summary above.
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 then 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 $5.81
per share. All of these options vested immediately upon grant. During this
same year, we granted other officers, employees and consultants options to
purchase an aggregate of 1,673,011 shares of our common stock.
FISCAL YEAR OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Shown below is information regarding options exercised by the Named
Executive Officers during the year ended December 31, 2000, and unexercised
stock options held by the Named Executive Officers at December 31, 2000.
AGGREGATE OPTION EXERCISES IN 2000 AND YEAR END OPTION VALUES
NAME Shares Value Number of Unexercised Value of Unexercised In-the-
Acquired On Realized($) Options at Year End(#) Money Options at Year
Exercise(#) End($)(1)
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 (Hans) - - 35,077 - - -
Friedericy
<FN>
(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.
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;
For each Board meeting, $1,000;
For chairing a committee (excluding Audit Committee), $500;
For chairing the Audit Committee, $1,000;
For serving on a committee, $1,000; and
For each working Audit Committee meeting, $1,000.
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.
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PROPOSAL NO. 1
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APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION FOR INCREASE IN AUTHORIZED
NUMBER OF SHARES
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GENERAL
Our Board of Directors has approved a resolution to amend our Certificate
of Incorporation to increase the authorized shares of common stock from
50,000,000 to 100,000,000. The increase of authorized shares of common stock
will be effected by an amendment to our Certificate of Incorporation, and such
increase will become effective upon the filing of a Certificate of Amendment of
Certificate of Incorporation with the Secretary of State of the State of
Delaware in the form of Exhibit "A" to this Consent Solicitation Statement. The
increase will have no effect on the 5,000,000 shares of authorized preferred
stock, none of which are currently outstanding.
REASONS FOR INCREASE OF AUTHORIZED SHARES
The number of shares of Common Stock listed and outstanding as of the
Record Date is 32,138,313 which number is less than the currently authorized
50,000,000 shares. However, over the last year, we have issued or reserved for
issuance an aggregate of 8,100,000 shares of common stock pursuant to financing
transactions or equity compensation plans. For example, in August 2001 we
entered into a purchase agreement (the "Swartz Agreement") with Swartz Private
Equity, LLC ("Swartz"). Under the terms of the Swartz Agreement, we may offer
through a series of puts and Swartz must purchase, from time to time, up to a
maximum of 2,000,000 shares of our common stock. In addition, under the Swartz
Agreement we will provide Swartz with warrants to purchase up to 200,000 shares
of our common stock. We also entered into a sales agency agreement (the "Delano
Agreement") with Delano Group Securities, LLC ("Delano") dated April 23, 2001,
pursuant to which Delano agreed to act as our exclusive sales agent, on a best
efforts basis, to sell up to 900,000 shares of our common stock during the year
following the date of the Delano Agreement. As of November 13, 2001, we had
issued 613,400 shares under the Delano Agreement. We have reserved an aggregate
of 5,000,000 shares of common stock for issuance under our 2001 Stock Option
plan. As of September 30, 2001, we had granted options to purchase
substantially all of these shares, and are seeking approval to increase the
number of shares reserved for issuance under the 2001 Stock Option Plan to
10,000,000 shares. We have granted and will grant these options to our
employees and consultants in lieu of cash compensation, in order to conserve
cash. If all of these shares are issued, and warrants and options exercised,
the number of outstanding shares would increase to approximately 47,653,006.
Accordingly, an increase in the number of authorized shares of Common Stock
is necessary in order for us to satisfy our obligations to the holders of our
warrants and options, and to take advantage of the opportunity to raise
financing under the Delano and Swartz Agreements as well as other arrangements
we may make in the future. Our Board of Directors has determined that for these
reasons, it would be in our best interests to increase the number of authorized
shares of common stock to 100,000,000. We believe that having such additional
shares available for issuance will enable us to take prompt action on such
corporate opportunities as may materialize in the future if the Board of
Directors deems such opportunities to be in our best interest. The disadvantage
of such an increase is that any additional issuances of common stock will dilute
the percentage of DCH owned by existing stockholders. Approval of this proposal
will increase the number of shares of common stock available for us to issue to
100,000,000.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of our outstanding voting shares is
required for approval of this Proposal. Should stockholder approval not be
obtained, we will not be able to increase our authorized shares and will
therefore be unable to honor our obligations to our option and warrant holders
or use common stock to attract strategic investors.
RECOMMENDATION AND VOTE
The Proposal must be approved by holders of a majority of our outstanding
shares of common stock entitled to vote in the Consent Solicitation.
The Board recommends that you vote FOR approval of an increase to the
authorized number of shares and an amendment to the Certificate of Incorporation
that provides for an increase for the authorized number of shares of 50,000,000
to 100,000,000 shares of common stock.
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PROPOSAL NO. 2
--------------
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE
2001 STOCK OPTION PLAN
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The 2001 Stock Option Plan (the "Plan") was adopted by the Board of
Directors effective January 1, 2001 and approved by the shareholders on June 12,
2001. Currently, 5,000,000 shares of our common stock are reserved for issuance
under the Plan. To date, we have issued options under the Plan to purchase
4,541,888 shares of the Company's common stock.
We believe that our long-term success will depend upon our ability to
attract and retain qualified directors, officer, employees and consultants and
to motivate their best efforts on our behalf. In addition, as part of a cash
conservation plan implemented in the first quarter of 2001, we have granted
options to employees and consultants in lieu of cash compensation. We believe
that we have saved approximately $1,400,000 in cash through September 30, 2001
by using options. We intend to continue this program for the foreseeable
future. Thus, we believe that the Plan is an important part of our compensation
of directors, officers, employees and consultants. The Board of Directors
recommends amending the Plan to increase the number of shares of our common
stock reserved for issuance under the Plan from 5,000,000 to 10,000,000.
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 we currently have 5,000,000 shares of common stock reserved
for issuance pursuant to the grant of options.
The Plan is administered by the Compensation Committee of the Board of
Directors. 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 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 September 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 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 no taxable income generally 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 after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. 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
disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date 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 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. 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 is
required for approval of this Proposal. Should 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 AND VOTE
The Proposal must be approved by holders of a majority of our outstanding
shares of Common Stock entitled to vote in the Consent Solicitation.
The Board recommends that the stockholders vote FOR approval of an increase
in the number of shares reserved for issuance under the 2001 Stock Option Plan.
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DCH TECHNOLOGY, INC.
DCH TECHNOLOGY, INC., a Delaware corporation (the "Corporation") hereby
certifies:
FIRST: That Article IV of the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"This Corporation is authorized to issue two classes of shares to be
designated respectively common stock ("Common Stock") and preferred stock
("Preferred Stock"). The total number of shares of capital stock which the
Corporation shall have authority to issue is one hundred five million
(105,000,000) shares, of which one hundred million (100,000,000) shares
shall be Common Stock, $.001 par value per share, and five million
(5,000,000) shares shall be Preferred Stock, $.001 par value per share. The
Board of Directors of the corporation (the "Board of Directors") is hereby
authorized to provide for the issue of all or any of the remaining shares
of the Preferred Stock in one or more series, and to fix the number of
shares and to determine or alter, for each such series, such powers,
designations, preferences and relative participating, optional or other
rights and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions adopted by
the Board of Directors providing for the issue of such series and as may be
permitted by the General Corporation Law of the State of Delaware."
SECOND: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the Sate of
Delaware.
IN WITNESS WHEREOF, DCH Technology, Inc. has caused this Certificate to be
signed by its duly authorized officer, this __ day of ______________, 2002.
--------------------------------
John Donohue
Chief Executive Officer
STATE OF: California )
) ss
COUNTY OF: )
On _________________, 2002, before me __________________________________,
personally appeared John Donohue / / personally known to me - OR - / / proved to
me on the basis of satisfactory evidence to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal,
- ---------------------------- (Seal)
Signature of Notary
ACTION BY MAJORITY WRITTEN CONSENT
OF STOCKHOLDERS OF
DCH TECHNOLOGY, INC.,
A DELAWARE CORPORATION
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, being a holder of record of DCH Technology, Inc., a
Delaware corporation (the "Corporation"), as of the close of business on
December 3, 2001, hereby takes the following action, with respect to all stock
of the Corporation held by the undersigned, in connection with the solicitation
by the Board of Directors of the Corporation of written consents, pursuant to
Section 228 of Title 8 of the Delaware Code, to the amendment of the Certificate
of Incorporation of the Corporation and the increase in the number of shares of
the Corporation's Common Stock reserved for issuance under the 2001 plan from
5,000,000 to 10,000,000 as the same as described in the Company's Consent
Solicitation Statement dated January 17, 2002, without a meeting:
(Place an "X" in the appropriate box)
Proposal 1. Approval of amendment to Certificate of Incorporation to increase
the number of authorized shares of common stock from 50,000,000
to 100,000,000. The Board of Directors recommends that
Stockholders CONSENT to the proposed amendment.
CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN [ ]
If no box is marked with respect to the action described above, the
undersigned will be deemed to have consented to the proposed amendment.
Proposal 2. Increase in the number of shares of common stock reserved for
issuance under the 2001 Stock Option Plan from 5,000,000 to
10,000,000. The Board of Directors recommends that Stockholders
CONSENT to the proposed amendment.
CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN [ ]
If no box is marked with respect to the action described above, the
undersigned will be deemed to have consented to the proposed amendment.
Dated: _________________, 2002
_____________________________
Print Name(s)
_____________________________
Signature(s)
Please sign as registered and return promptly in the enclosed envelope.
Executors, trustees and others signing in a representative capacity should
include their names and the capacity in which they sign.