EXHIBIT 10.38
[INITIAL] [ANNUAL] GRANT

VALENCE TECHNOLOGY, INC.
 
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
 
Notice is hereby given of the following option grant (the “Option”) to purchase
shares (the “Option Shares”) of the Common Stock of Valence Technology, Inc., a
Delaware corporation (the “Company”):
 
Optionee:                                                                                                       ____________
 
Grant
Date:                                                                                                       ___________
 
Vesting Commencement
Date:                                                                                               
 
Exercise Price: $________________ per share
 
Number of Option Shares: [100,000] [50,000] shares of Common Stock
 
Expiration
Date:                                                                                                       _______
 
Type of Option: ________________ Non-Qualified Stock Option
 
Vesting Schedule; Date Exercisable:  The Option shall become vested and
exercisable for [insert vesting schedule]. In no event shall the Option vest or
become exercisable for any additional Option Shares after Optionee ceases to be
a Non-Employee Director.

Optionee understands and agrees that the Option is granted subject to and in
accordance with the terms of the Valence Technology, Inc. 2009 Equity Incentive
Plan (the “Plan”).  Optionee further agrees to be bound by the terms of the Plan
and the terms of the Option as set forth in the Automatic Stock Option Agreement
attached hereto as Exhibit A.  Optionee hereby acknowledges receipt of a copy of
the prospectus for the Plan in the form attached hereto as Exhibit B.  A copy of
the Plan is available upon request made to the corporate secretary at the
Company’s principal offices.
 
No Impairment of Rights.  Nothing in this Notice or in the attached Automatic
Stock Option Agreement or Plan shall interfere with or otherwise restrict in any
way the rights of the Company or the Company’s stockholders to remove Optionee
from the Board at any time in accordance with the provisions of applicable law.
 
Definitions.  All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice, in the attached Automatic Stock Option
Agreement or in the Plan.
 
 
 

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EXHIBIT 10.38
 

 
VALENCE TECHNOLOGY, INC.
     
By:                                                                             
     
Title:                                                                          
     
Address:                                                                   
     
                                                                                    
         
OPTIONEE
     
Signature:                                                                  
     
Print Name:                                                               
     
Address:                                                                   
     
                                                                                    

 
 
Attachments:
Exhibit A – Automatic Stock Option Agreement
Exhibit B – Prospectus

 
* * * * * *
 
 
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EXHIBIT 10.38
 
EXHIBIT A
 
AUTOMATIC STOCK OPTION AGREEMENT
 
 
 

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EXHIBIT 10.38
 
VALENCE TECHNOLOGY, INC.
 
AUTOMATIC STOCK OPTION AGREEMENT
 
RECITALS
 
A.           The Board has adopted the 2009 Equity Incentive Plan (the “Plan”)
for the purpose of retaining the services of selected Employees, non-employee
members of the Board or the board of directors of any Affiliate and consultants
and other independent advisors in the service of the Company (or any Affiliate).
 
B.           Optionee is an eligible non-employee Board member, and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the Company’s automatic grant of an option to
purchase shares of the Company’s Common Stock under the Plan.
 
C.           The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Internal Revenue Code.
 
D.           All capitalized terms in this Agreement not defined herein shall
have the meaning assigned to them in the Grant Notice (as defined below) or in
the Plan.
 
NOW, THEREFORE, it is hereby agreed as follows:
 
1.           Grant of Option.  The Company hereby grants to Optionee, as of the
Grant Date as specified in the Notice of Grant of Stock Option accompanying this
Agreement, pursuant to which Optionee has been informed of the basic terms of
the option evidenced hereby (the “Grant Notice”), an option to purchase up to
the number of Option Shares specified in the Grant Notice.  The Option Shares
shall be purchasable from time to time during the option term specified in
Paragraph 2 at the Exercise Price.
 
2.           Option Term.  This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the date on which the option expires as specified in the Grant
Notice (the “Expiration Date”), unless sooner terminated in accordance with
Paragraph 5 or 6.
 
3.           Limited Transferability.
 
(a)           Except as set forth in paragraph 3(b) below, this option shall be
neither transferable nor assignable by Optionee other than by will or the laws
of inheritance following Optionee’s death and may be exercised, during
Optionee’s lifetime, only by Optionee.  However, Optionee may designate one or
more persons as the beneficiary or beneficiaries of this option, and this option
shall, in accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding this
option.  Such beneficiary or beneficiaries shall take the transferred option
subject to all the terms and conditions of this Agreement, including (without
limitation) the limited time period during which this option may, pursuant to
Paragraph 5, be exercised following Optionee’s death.
 
 
Exhibit A to Notice of Grant of Non-Employee Director Automatic Stock Option
 
Page 1

 
 

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EXHIBIT 10.38
 
(b)           Because this option is designated a Non-Qualified Option in the
Grant Notice, this option may be assigned in whole or in part during Optionee’s
lifetime to one or more of Optionee’s Family Members or to a trust established
for the exclusive benefit of Optionee and/or one or more such Family Members, to
the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order.  The assigned portion shall be
exercisable only by the person or persons who acquire a proprietary interest in
the option pursuant to such assignment.  The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior
to such assignment.  “Family Member” means, with respect to a particular
Optionee, any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law.
 
4.           Dates of Exercise.  This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice.  As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
 
5.           Cessation of Service.  The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
 
(a)           Should Optionee cease to remain in service for any reason (other
than death or Disability) while this option is outstanding, then Optionee (or
any person or persons to whom this option is transferred pursuant to a permitted
transfer under Paragraph 3) shall have a period of twelve (12) months
(commencing with the date of such cessation of service) during which to exercise
this option, but in no event shall this option be exercisable at any time after
the Expiration Date.
 
(b)           Should Optionee die while this option is outstanding, then the
personal representative of Optionee’s estate or the person or persons to whom
the option is transferred pursuant to Optionee’s will or the laws of inheritance
following Optionee’s death or, if applicable, the person to whom the option is
transferred during Optionee’s lifetime pursuant to a permitted transfer under
Paragraph 3 shall have the right to exercise this option.  However, if Optionee
dies while holding this option and has an effective beneficiary designation in
effect for this option at the time of his or her death, then the designated
beneficiary or beneficiaries shall have the exclusive right to exercise this
option following Optionee’s death.  Any such right to exercise this option shall
lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee’s death; or (ii) the Expiration Date.
 
(c)           Should Optionee cease service by reason of Disability while this
option is outstanding, then Optionee (or any person or persons to whom this
option is transferred pursuant to a permitted transfer under Paragraph 3) shall
have a period of twelve (12) months (commencing with the date of such cessation
of service) during which to exercise this option.  In no event shall this option
be exercisable at any time after the Expiration Date.
 
 
Exhibit A to Notice of Grant of Non-Employee Director Automatic Stock Option
 
Page 2
 
 

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EXHIBIT 10.38
 
(d)           During the limited period of post-service exercisability, this
option may not be exercised in the aggregate for more than the number of Option
Shares for which this option is exercisable pursuant to the exercise schedule
specified in the Grant Notice.  The option shall not become exercisable for any
additional Option Shares following Optionee’s cessation of service, except to
the extent (if any) specifically authorized by the Plan Administrator pursuant
to an express written agreement with Optionee.  Upon the expiration of such
limited exercise period or (if earlier) upon the Expiration Date, this option
shall terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised.
 
6.           Change of Control.
 
(a)           In the event of a Change of Control, any unexercisable or unvested
portions of outstanding Non-Employee Director Options held by Non-Employee
Directors whose Service has not terminated prior to such date shall be
immediately exercisable and vested in full as of the date ten (10) days prior to
the date of the Change of Control.  The exercise or vesting of any Non-Employee
Director Option and any shares acquired upon the exercise thereof that was
permissible solely by reason of Section 4.4 of the Plan shall be conditioned
upon the consummation of the Change of Control.  In addition, the Acquiring
Corporation may either assume the Company’s rights and obligations under
outstanding Non-Employee Director Options or substitute for outstanding Options
substantially equivalent options for the Acquiring Corporation’s stock.  Any
Non-Employee Director Options which are neither assumed nor substituted for by
the Acquiring Corporation in connection with the Change of Control nor exercised
as of the date of the Change of Control shall terminate and cease to be
outstanding effective as of the date of the Change of Control.  Notwithstanding
the foregoing, if the corporation the stock of which is subject to the
outstanding Non-Employee Director Options immediately prior to an event
constituting a Change of Control is the surviving or continuing corporation and
immediately after such event less than fifty percent (50%) of the total combined
voting power of its voting stock is held by another corporation or by other
corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the outstanding Non-Employee Director Options shall not terminate.
 
(b)           In the event a Hostile Take-Over occurs during Optionee’s period
of service, vesting of this option, to the extent not otherwise fully vested,
shall automatically accelerate so that this option shall, immediately prior to
the effective date of the Hostile Take-Over, become exercisable for any or all
of the Option Shares at the time subject to this option as fully-vested shares
of Common Stock.  This option shall remain exercisable until the expiration or
sooner termination of the option term.
 
(c)           In the event of a Change of Control, as more fully set forth in
the Plan, the Board shall have the right for a forty-five (45) day period
immediately following the date that the Change of Control is deemed to have
occurred to require all, but not less than all, Participants to transfer and
deliver to the Company all Awards previously granted to the Participants in
exchange for an amount equal to the Cash Value (defined below) of the
Awards.  Such right shall be exercised by written notice to all
Participants.  For purposes of this Paragraph 6(c), the “Cash Value” of an Award
shall equal the sum of (i) the cash value of all benefits to which the
Participant would be entitled upon settlement or exercise of any Award which is
not an Option or Restricted Stock and (ii) (A) in the case of any Award that is
an Option, the excess of the FMV Per Share over the option exercise price or (B)
in the case of an Award that is Restricted Stock the FMV Per Share of Restricted
Stock, multiplied by the number of shares subject to such Award.
 
 
Exhibit A to Notice of Grant of Non-Employee Director Automatic Stock Option
 
Page 3
 
 

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EXHIBIT 10.38
 
(d)           This Agreement shall not in any way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
 
7.           Adjustment in Option Shares.  In the event of any of the following
transactions affecting the outstanding Common Stock as a class without the
Company’s receipt of consideration: any stock split, stock dividend, spin-off
transaction, extraordinary distribution (whether in cash, securities or other
property), recapitalization, combination of shares, exchange of shares or other
similar transaction affecting the Common Stock without the Company’s receipt of
consideration, then equitable adjustments shall be made to (i) the total number
and/or class of securities subject to this option; and (ii) the Exercise
Price.  The adjustments shall be made by the Plan Administrator in such manner
as the Plan Administrator deems appropriate in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
 
8.           Stockholder Rights.  The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
 
9.           Manner of Exercising Option.
 
(a)           In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:
 
(i)           Pay the aggregate Exercise Price for the purchased shares and all
applicable income and employment taxes required (if any) to be withheld by the
Company by reason of such exercise in one or more of the following forms as
approved by the Plan Administrator:
 
(A)           cash or certified check made payable to the Company; or
 
(B)           a promissory note payable to the Company, but only to the extent
authorized by the Plan Administrator in accordance with Paragraph 13; or
 
(C)           in shares of Common Stock valued at Fair Market Value on the date
on which the options shall have been exercised in accordance with this
Paragraph 9 (the “Exercise Date”) and held by Optionee (or any other person or
persons exercising the option) for more than six months or, in the Company’s
sole discretion, the period (if any) necessary to avoid a charge to the
Company’s earnings for financial reporting purposes; or
 
 
Exhibit A to Notice of Grant of Non-Employee Director Automatic Stock Option
 
Page 4
 
 

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EXHIBIT 10.38
 
(D)           through a special sale and remittance procedure pursuant to which
Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable instructions (a) to a brokerage firm
(reasonably satisfactory to the Company for purposes of administering such
procedure in compliance with any applicable pre-clearance or pre-notification
requirements) to effect the immediate sale of the purchased shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price payable for the purchased
shares plus all applicable income and employment taxes required to be withheld
by the Company by reason of such exercise and (b) to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm on such
settlement date in order to complete the sale.
 
(ii)           Furnish to the Company appropriate documentation that the person
or persons exercising the option (if other than Optionee) have the right to
exercise this option.  Reference is made to Exhibit I, Notice of Exercise, which
in the absence of other instruction from the Company Optionee shall submit to
the Secretary of the Company in connection with any exercise of an option
governed hereby.
 
(iii)           Execute and deliver to the Company such written representations
as may be requested by the Company in order for it to comply with the applicable
requirements of applicable securities laws.
 
(iv)           Make appropriate arrangements with the Company (or Affiliate
employing or retaining Optionee) for the satisfaction of all applicable income
and employment tax withholding requirements (if any) applicable to the option
exercise.
 
(b)           As soon as practical after the Exercise Date, the Company shall
issue to or on behalf of Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the appropriate
legends affixed thereto.
 
(c)           In no event may this option be exercised for any fractional
shares.
 
10.           Compliance with Laws and Regulations.
 
(a)           The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Company and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange (or the Nasdaq Capital Market, if applicable)
on which the Common Stock may be listed for trading at the time of such exercise
and issuance.
 
(b)           The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Company of any liability with respect to the non-issuance or sale of
the Common Stock as to which such approval shall not have been obtained.  The
Company, however, shall use its best efforts to obtain all such approvals.
 
11.           Successors and Assigns.  Except to the extent otherwise provided
in Paragraphs 3 and 5, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Company and its successors and assigns and
Optionee, Optionee’s assigns and the legal representatives, heirs and legatees
of Optionee’s estate.
 
 
Exhibit A to Notice of Grant of Non-Employee Director Automatic Stock Option
 
Page 5
 
 

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EXHIBIT 10.38
 
12.           Notices.  Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company at its principal corporate offices.  Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee’s signature line on the Grant Notice.  All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
 
Optionee generally consents to the delivery of any notice by electronic
transmission (“Electronic Notice”) at the electronic mail address or the
facsimile number as set forth in the books of the Company.  To the extent that
any notice given via electronic transmission is returned or undeliverable for
any reason, the foregoing consent shall be deemed to have been revoked until a
new or corrected electronic mail address has been provided, and such attempted
Electronic Notice shall be ineffective and deemed to not have been
given.  Optionee agrees to promptly notify the Company of any change in
Optionee’s electronic mail address, but failure to do so shall not affect the
foregoing.
 
13.           Financing.  The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a full-recourse promissory note
bearing interest at a market rate and secured by those Option Shares.  The
payment schedule in effect for any such promissory note shall be established by
the Plan Administrator in its sole discretion.
 
14.           Construction.  This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan.  All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
 
15.           Governing Law.  The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of Texas without
resort to that state’s conflict-of-laws rules.
 
16.           Stockholder Approval.  If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the stockholders, then
this option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
 
* * * * * *
 
 
Exhibit A to Notice of Grant of Non-Employee Director Automatic Stock Option
 
Page 6
 
 

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EXHIBIT 10.38
 
EXHIBIT I
 
NOTICE OF EXERCISE
 
I hereby notify Valence Technology, Inc. (the “Company”) that I elect to
purchase __________ shares of the Company’s Common Stock (the “Purchased
Shares”) at the option exercise price of $__________ per share (the “Exercise
Price”) pursuant to that certain option (the “Option”) granted to me pursuant to
the automatic option grant program under the Company’s 2009 Equity Incentive
Plan on __________, 20___.
 
Concurrently with the delivery of this Exercise Notice to the Secretary of the
Company, I shall hereby pay to the Company the Exercise Price for the Purchased
Shares in such manner and form as approved by the Company and in accordance with
the provisions of my agreement with the Company evidencing the Option and shall
deliver whatever additional documents may be required by such agreement as a
condition for exercise.  Alternatively, I may utilize the special broker-dealer
sale and remittance procedure specified in my agreement to effect payment of the
Exercise Price for any Purchased Shares in which I am vested at the time of
exercise.
 

        Date                          
Optionee
                      Address:                
Print name in exact manner
it is to appear on the
stock certificate:
         
Address to which certificate
is to be sent, if different
from address above:
                     
Social Security Number:
   

 
* * * * * *
 
 
Exhibit I to Stock Option Agreement
 
Page 1
 
 

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EXHIBIT 10.38
 
EXHIBIT B
 
PROSPECTUS