<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 29, 1996.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20028
VALENCE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0214673
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
301 Conestoga Way, Henderson, Nevada 89015
-----------------------------------------------------------
(Address of principal executive offices including zip code)
(702) 558-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $0.001 par value 21,671,993 shares
---------------------------------- ---------------------------------
(Class) (Outstanding at November 1, 1996)
Page 1 of 14
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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 29, 1996
INDEX
PAGES
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
September 29, 1996 and March 31, 1996. . . . . . . . . . 3
Condensed Consolidated Statements of Operations
for the period from March 3, 1989 (date of inception)
to September 29, 1996 and for each of the three and
six month periods ended September 29, 1996 and
September 24, 1995 . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the period from March 3, 1989 (date of inception)
to September 29, 1996 and for each of the six months
ended September 29, 1996 and September 24, 1995. . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
SIGNATURES
2
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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
-----
September 29, March 31,
1996 1996
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 31,808 $ 24,569
Short-term investments 14,229 26,492
Accounts receivable 635 545
Interest receivable 171 444
Prepaids and other current assets 346 299
--------- ---------
Total current assets 47,189 52,349
Investments 3,034 5,790
Property, plant and equipment, net 10,621 11,752
Other assets 168 356
--------- ---------
Total assets $ 61,012 $ 70,247
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,974 $ 2,277
Accounts payable 906 1,251
Accrued expenses 5,071 6,180
Accrued compensation 1,537 1,360
--------- ---------
Total current liabilities 9,488 11,068
Long-term debt, less current portion 5,372 6,169
--------- ---------
Total liabilities 14,860 17,237
--------- ---------
Contingencies (Note 3).
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
Authorized: 10,000 shares;
Issued and outstanding: none
Common stock, $0.001 par value:
Authorized: 50,000 shares;
Issued and outstanding: 21,672 and 21,665
shares at September 29, 1996 and March 31,
1996, respectively 140,334 140,307
Deficit accumulated during the development stage (94,261) (87,638)
Cumulative translation adjustment 79 341
--------- ---------
Total stockholders' equity 46,152 53,010
--------- ---------
Total liabilities and stockholders'
equity $ 61,012 $ 70,247
--------- ---------
--------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
Period from
March 3, 1989
(date of
inception) Three Months Ended Six Months Ended
through ----------------------------- -----------------------------
September 29, September 29, September 24, September 29, September 24,
1996 1996 1995 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research and
development contracts $ 21,605
----------
Costs and expenses:
Research and development 63,464 $ 2,682 $ 2,117 $ 5,240 $ 4,168
Marketing 2,595 56 79 123 293
General and administrative 28,622 1,309 1,109 2,427 2,482
Purchase of in-process
technology 8,212 - 6,064 - 6,064
Investment in Danish
subsidiary 3,489 - - - -
Special charges 18,872 - - - -
---------- --------- --------- --------- ----------
Total costs and
expenses 125,254 4,047 9,369 7,790 13,007
---------- --------- --------- --------- ----------
Operating loss (103,649) (4,047) (9,369) (7,790) (13,007)
Interest income 12,622 779 955 1,453 1,730
Interest expenses (3,234) (161) (264) (286) (544)
---------- --------- --------- --------- ----------
Net loss $ (94,261) $ (3,429) $ (8,678) $ (6,623) $ (11,821)
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Net loss per share $ - $ (0.16) $ (0.43) $ (0.31) $ (0.59)
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Shares used in computing
net loss per share - 21,672 20,128 21,671 20,120
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
Period from
March 3, 1989
(date of inception) Six Months Six Months
through Ended Ended
September 29, September 29, September 24,
1996 1996 1995
------------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (94,261) $ (6,623) $ (11,821)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 18,434 2,125 1,929
Write-off of equipment 14,767 - (1,085)
Write-off of in-process technology 8,212 - 8,065
Compensation related to stock options 1,447 26 -
Noncash charge related to acquisition
of Danish subsidiary 2,245 - -
Changes in assets and liabilities:
Accounts receivable 454 (90) (48)
Interest receivable (164) 274 (672)
Notes receivable 45 188 (157)
Prepaid expenses and other current
assets (1,303) (45) 127
Accounts payable 806 (344) (1,574)
Accrued liabilities (1,679) (933) (613)
----------- ---------- -----------
Net cash used in operating
activities (50,997) (5,422) (5,849)
----------- ---------- -----------
Cash flows from investing activities:
Purchase of in-process technology (2,001) 0 (2,001)
Purchase of long-term investments (546,928) (149,839) (93,627)
Maturities of long-term investments 529,663 164,857 95,525
Capital expenditures (36,788) (915) (374)
Other (222) - -
----------- ---------- -----------
Net cash provided by (used in)
investing activities (56,276) 14,103 (477)
----------- ---------- -----------
Cash flows from financing activities:
Property and equipment grants 4,299 5 322
Maturities of restricted cash - - -
Borrowings of long-term debt 15,502 - -
Payments of long-term debt:
Product development loan (482) - -
Shareholder and director (6,173) - -
Other long-term debt (9,813) (1,074) (1,491)
Proceeds from issuance of common stock,
net of costs 136,511 - 163
----------- ---------- -----------
Net cash provided by (used in)
financing activities 139,844 (1,069) (1,006)
----------- ---------- -----------
Effect of foreign exchange rates on cash
and cash equivalents (763) (373) (282)
----------- ---------- -----------
Increase (decrease) in cash and cash
equivalents 31,808 7,239 (7,614)
Cash and cash equivalents, beginning
of period 0 24,569 16,602
----------- ---------- -----------
Cash and cash equivalents, end of period $ 31,808 $ 31,808 $ 8,988
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
-----
1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These interim condensed consolidated financial statements are unaudited but
reflect, in the opinion of management all normal recurring adjustments necessary
to present fairly the financial position of Valence Technology, Inc. and
Subsidiaries (the Company) as of September 29, 1996 and March 31, 1996, its
results of operations for the period from March 3, 1989 (date of inception) to
September 29, 1996 and for each of the three-month and six-month periods ended
September 29, 1996 and September 24, 1995 and its cash flows for the period from
March 3, 1989 (date of inception) to September 29, 1996 and for each of the six-
month periods ended September 29, 1996 and September 24, 1995. Because all the
disclosures required by generally accepted accounting principles are not
included, these interim condensed consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto in
the Company's Annual Report on Form 10-K as of and for the year ended March 31,
1996. The year end condensed consolidated balance sheet data as of March 31,
1996 was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
The results of operations and cash flows for the three-month and six-month
periods ended September 29, 1996 are not necessarily indicative of results of
operations and cash flows for any future period.
2. NET LOSS PER SHARE
The computation of net loss per share is based on the weighted average number of
common shares outstanding during the period. Common stock options and warrants
have not been included in the computation since their inclusion would be
antidilutive.
3. CONTINGENCIES
LITIGATION:
In May 1994, a series of class action lawsuits was filed in the United States
District Court for the Northern District of California against the Company and
certain of its present and former officers and directors. These lawsuits were
consolidated, and in September 1994 the plaintiffs filed a consolidated and
amended class action complaint. Following the Court's Orders on motions to
dismiss the complaint, which were granted in part and denied in part, the
plaintiffs filed an amended complaint in October 1995 ("Complaint"). The
Complaint alleges violations of the federal securities laws against the Company,
certain of its present and former officers and directors, and the underwriters
of the Company's public stock offerings, claiming that the defendants issued a
series of false and misleading statements, including filings with the Securities
and Exchange Commission, with regard to the Company's business and future
prospects. The plaintiffs seek to represent a class of persons who purchased
the Company's common stock between May 7, 1992 and August 10, 1994. The
Complaint seeks unspecified compensatory and punitive damages, attorney's fees
and costs. On January 23, 1996, the Court dismissed, with prejudice, all claims
against the underwriters of the Company's public stock offerings, and one claim
against the Company and its present and former officers and directors. On April
29, 1996, the Court dismissed with prejudice all remaining claims against a
present director and limited claims against a former officer and director to the
period when that person was an officer. The Company believes that it has
meritorious defenses and intends to defend the lawsuit vigorously.
The ultimate outcome of these actions cannot presently be determined.
Accordingly, no provision for any liability or loss that may result from
adjudication or settlement thereof has been made in the accompanying
consolidated financial statements.
4. RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires the Company to
6
<PAGE>
review for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain situations, an impairment loss would be recognized.
It will be effective for the Company's fiscal year 1997. The Company has
studied the implications of the statement, and based on its initial
evaluation, does not expect it to have a material impact on the Company's
financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which
establishes a fair value based method of accounting for stock-based compensation
plans. The Company is currently following the requirements of APB Opinion No.
25, "Accounting for Stock Issued to Employees". The Company plans to adopt SFAS
No. 123 during fiscal 1997 utilizing the disclosure alternative.
5. OTHER DEVELOPMENTS
In July, 1996, the Company, through its Dutch subsidiary, and Hanil Telecom Co.,
Ltd. ("Hanil Telecom") signed an agreement to establish a joint venture company
in Korea to manufacture, package and distribute advanced rechargeable solid
polymer electrolyte batteries utilizing the Company's solid polymer technologies
for the Korean markets. Hanil Telecom is a subsidiary of Hanil Cement Mfg. Co.,
Ltd., a major conglomerate in Korea producing a wide variety of products for the
Korean market. Hanil Valence Co., Ltd. ("Hanil Valence Co."), the joint venture
company, will be located in a Korean facility and has an initial capitalization
of $5 million, to be increased to $10 million within one year. All funds are to
be provided to the joint venture by Hanil Telecom. Hanil Telecom and the
company, through its Dutch subsidiary, each hold a 50% stake of the company.
Additionally, Hanil Telecom will provide $40 million in loan guarantees to Hanil
Valence Co. It is anticipated that the Company will supply Hanil Valence Co.
with its proprietary laminates, from which Hanil Valence Co. will manufacture
batteries for the Korean market. Additionally, Valence will supply the
technology, initial equipment and product designs and technical support out of
its Northern Ireland facility.
The Company and Alliant Techsystems ("Alliant") signed an agreement on
October 7, 1996 to establish a joint venture company utilizing the Company's
battery technology and technology obtained under the Company's Bellcore
license to develop and manufacture batteries for its military customers in
the United States and international military markets. Alliant / Valence,
L.L.C. ("Alliant / Valence"), the joint venture company, will operate a
battery fabrication facility at Alliant's Power Sources Center in Horsham,
Pennsylvania. The Company is expected to supply the electrode laminate
materials that are key to manufacturing high performance batteries.
Alliant's Power Sources Center is a major producer of military and aerospace
batteries.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was founded in 1989 to develop and commercialize advanced
rechargeable batteries based on lithium and polymer technologies. Since its
inception, the Company has been a development stage company primarily engaged in
acquiring and developing its initial technology, manufacturing limited
quantities of prototype batteries recruiting personnel, and acquiring capital.
To date, other than insubstantial revenues from limited sales of prototype
batteries, the Company has not received any significant revenues from the sale
of products. Substantially all revenues to date have been derived from a
research and development contract with the Delphi Automotive Systems Group
("Delphi," formerly the Delco Remy Division), and operating group of the General
Motors Corporation. The Company has incurred cumulative losses of $94,261,000
from its inception to September 29, 1996.
The discussion and analysis below contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth herein and in the Company's Annual
Report on Form 10-K as of and for the year ended March 31, 1996.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K as of and for the year ended March 31,
1996.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 29, 1996 (SECOND QUARTER AND FIRST HALF OF
FISCAL 1997) AND SEPTEMBER 24, 1995 (SECOND QUARTER AND FIRST HALF OF FISCAL
1996)
During the three and six months ended September 29, 1996, the Company continued
development activities under a research and development agreement with Delphi.
Payments were generally made in accordance with the achievement of certain
milestones. No revenues were recognized during the first three and six months
of fiscal 1997 and 1996.
In September, 1994 the Company and Delphi signed a new five year agreement to
combine efforts in developing the Company's rechargeable solid state lithium
polymer battery technology. Under the agreement, Delphi and the Company
combined their research and development activities in a new facility in
Henderson, Nevada. The new facility is owned by the Company, with Delphi paying
a fee of $50,000 per month over the five year term of the new agreement for
access to the Company's research and development (of which $150,000 and $300,000
was recognized during the second quarter and first half of fiscal 1997,
respectively, as an offset to research and product development expenses). In
addition, Delphi is paying a majority of the facility's operating costs over the
term of the new five year agreement. The Company is treating both of these
payments as an offset to research and development expense.
Research and development expenses were $2,682,000 and $5,240,000 during the
three and six months ended September 29, 1996 as compared to $2,117,000 and
$4,168,000 during the same period of fiscal 1996. The increase between
comparable periods was primarily due to costs incurred to proceed with
manufacturing product in the first quarter of calendar year 1997.
Marketing expenses were $56,000 and $123,000 for the second quarter and first
half of fiscal year 1997, as compared to $79,000 and $293,000 during similar
periods of fiscal year 1996. The comparative decrease is the result of a
decrease in headcount and relocation expenses.
8
<PAGE>
General and administrative expenses decreased to $2,427,000 during fiscal 1997's
first half, down from $2,482,000 during the first half of fiscal 1996. The year
to year decrease primarily reflects a reduction in legal and relocation
spending. For the second quarter, general and administrative increased to
$1,309,000 from $1,109,000 last year primarily as a result of increased legal
expenses.
Interest income decreased to $779,000 and $1,453,000 during the second quarter
and first half of fiscal 1997, respectively, as compared to $955,000 and
$1,730,000 during the prior fiscal year's same periods. The difference is a
result of fewer funds available for investment purposes.
Interest expense was $161,000 and $286,000 during the second quarter and first
half of fiscal 1997, respectively, as compared to $264,000 and $544,000 during
the prior fiscal year's comparable periods. This decrease is a result of
reduction in long-term debt outstanding as well as one-off adjustments to the
IDB loan.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $5,422,000 net cash for operating activities during fiscal year
1997's first six months whereas it used $5,849,000 during the first six months
of fiscal year 1996, a decrease between comparable periods of $427,000. This
net decrease primarily resulted from a reduction in technology acquisition
charges substantially offset by an increase in costs associated with the
commercialization activities.
During the six months ended September 29, 1996, the Company provided $14,103,000
net cash from investing activities compared to $477,000 used during the first
six months of fiscal year 1996, an increase of $14,580,000 between comparable
periods. The increase primarily was a result of maturities of investments being
reclassified to cash and cash equivalents.
The Company used $1,069,000 net cash from financing activities during fiscal
year 1997's first six months versus using $1,006,000 during the first six months
of fiscal year 1996. This decrease essentially resulted from lower grant
levels.
As a result of the above, the Company had a net increase in cash and cash
equivalents of $7,239,000 during the fiscal year 1996's first six months,
whereas it had a net decrease of $7,614,000 during the same period of fiscal
year 1996.
The Company's $2,000,000 working capital line of credit is available through
March, 1997. The working capital line collateralizes outstanding letters of
credit, which reduce borrowings otherwise available under the line. As of
September 29, 1996, there are no outstanding letters of credit.
During fiscal year 1994, the Company through its Dutch subsidiary, signed an
agreement with the Northern Ireland Industrial Development Board (IDB) to open
an automated manufacturing plant in Northern Ireland in exchange for capital and
revenue grants from the IDB. The Company has also received offers from the IDB
to receive additional grants. The grants available under the agreement and
offers, for an aggregate of up to L27,555,000, generally become available over a
five year period through October 31, 1998. As of September 29, 1996, the
Company had received grants aggregating L3,978,050 reducing remaining grants
available to L23,576,950 (US. $36,851,000 as of September 29, 1996).
As a condition to receiving funding from the IDB, the subsidiary must maintain a
minimum of L12,000,000 in debt or equity financing from the Company. Aggregate
funding under the grants is limited to L4,035,000 until the Company has
recognized $4,000,000 in aggregate revenue from the sale of its batteries
produced in Northern Ireland. Given that the Company has no agreements to
supply batteries using its current technology, there are no assurances that the
Company will be able to meet the agreement's revenue test.
The amount of the grants available under the agreement and offers is primarily
dependent on the level of capital expenditures made by the Company.
Substantially all of the funding received under the grants is repayable to the
IDB if the subsidiary is in default under the agreement and offers, which
includes the permanent cessation of business in Northern Ireland. Funding
received under the grants to offset capital expenditures is repayable if related
equipment is sold, transferred or otherwise disposed of during a four year
period after the date of grant. In addition, a portion of funding received
under the grants may also be repayable if the subsidiary fails to maintain
9
<PAGE>
specified employment levels for the two year period immediately after the end
of the five year grant period. The Company has guaranteed the subsidiary's
obligations to the IDB under the agreement.
There can be no assurance that the Company will be able to meet the
requirements necessary for it to receive and retain grants under the IDB
agreement and offers.
The Company expects that its existing funds as of September 29, 1996,
together with the interest earned thereon, will be sufficient to fund the
Company's operations through the end of fiscal year 1997. The Company
anticipates that it may need substantial additional funds in the future for
capital expenditures, research and product development, marketing and general
and administrative expenses and to pursue joint venture opportunities. The
Company's cash requirements, however, may vary materially from those now
planned because of changes in the Company's operations, including changes in
OEM relationships or market conditions. There can be no assurance that funds
for these purposes, whether from equity or debt financing agreements with
strategic partners or other sources, will be available on favorable terms, if
at all.
Forward looking statements involve a number of risks and uncertainties
including, but not limited to, market acceptance, changing economic
conditions, risks in product and technology development, effect of the
Company's accounting policies and other risk factors detailed in the
Company's Securities and Exchange Commission filings.
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires the Company to review
for impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
certain situations, an impairment loss would be recognized. It will be
effective for the Company's fiscal year 1997. The Company has studied the
implications of the statement, and based on its initial evaluation, does not
expect it to have a material impact on the Company's financial condition or
results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of
APB Opinion No. 25, "Accounting for Stock Issued to Employees" while it
studies the implications of SFAS No. 123 and evaluates the effect, if any, on
the financial condition and results of operations of the Company. SFAS No.
123 will be effective for the Company's fiscal year 1997.
OTHER DEVELOPMENTS
In July, 1996, the Company, through its Dutch subsidiary, and Hanil Telecom
Co., Ltd. ("Hanil Telecom") signed an agreement to establish a joint venture
company in Korea to manufacture, package and distribute advanced rechargeable
solid polymer electrolyte batteries utilizing the Company's solid polymer
technologies for the Korean markets. Hanil Telecom is a subsidiary of Hanil
Cement Mfg. Co., Ltd., a major conglomerate in Korea producing a wide variety
of products for the Korean market. Hanil Valence Co., Ltd. ("Hanil Valence
Co."), the joint venture company, will be located in a Korean facility and
has an initial capitalization of $5 million, to be increased to $10 million
within one year. All funds are to be provided to the joint venture by Hanil
Telecom. Hanil Telecom and the company, through its Dutch subsidiary, each
hold a 50% stake of the company. Additionally, Hanil Telecom will provide $40
million in loan guarantees to Hanil Valence Co. It is anticipated that the
Company will supply Hanil Valence Co. with its proprietary laminates, from
which Hanil Valence Co. will manufacture batteries for the Korean market.
Additionally, Valence will supply the technology, initial equipment and
product designs and technical support out of its Northern Ireland facility.
The Company and Alliant Techsystems ("Alliant") signed an agreement on
October 7, 1996 to establish a joint venture company utilizing the Company's
battery technology and technology obtained under the Company's Bellcore
license to develop and manufacture batteries for its military customers in
the United States and international military markets. Alliant / Valence,
L.L.C. ("Alliant / Valence"), the joint venture company, will operate a
battery fabrication facility at Alliant's Power Sources Center in Horsham,
Pennsylvania. The Company is expected to supply the electrode laminate
materials that are key to manufacturing high performance batteries.
Alliant's Power Sources Center is a major producer of military and aerospace
batteries.
10
<PAGE>
PART II - OTHER INFORMATION
The discussion and analysis below, and throughout this report, contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Actual results
could differ materially from those projected or suggested in the forward-looking
statements as a result of the risk factors set forth herein and in the Company's
Annual Report on Form 10-K as of and for the year ended March 31, 1996.
ITEM 5. OTHER INFORMATION
The Company and Alliant Techsystems ("Alliant") signed an agreement on October
7, 1996 to establish a joint venture company utilizing the Company's battery
technology and technology obtained under the Company's Bellcore license to
develop and manufacture batteries for its military customers in the United
States and international military markets. Alliant / Valence, L.L.C. ("Alliant
/ Valence"), the joint venture company, will operate a battery fabrication
facility at Alliant's Power Sources Center in Horsham, Pennsylvania. The
Company is expected to supply the electrode laminate materials that are key to
manufacturing high performance batteries. Alliant's Power Sources Center is a
major producer of military and aerospace batteries.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 11.1 Statement of Calculation of Net Loss Per Share
Exhibit 10.39 Joint Venture Agreement between the Company and Alliant
Techsystems.
Exhibit 10.40 License and Support Agreement between the Company and
Alliant / Valence, L.L.C.
Exhibit 10.41 Battery Laminate Supply Agreement between the Company
and Alliant / Valence, L.L.C.
b. REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 29, 1996.
11
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EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE NUMBER
- --------------------------------------------------------------------------------
11.1 Statement of Calculation of Net Loss Per Share 14
10.39(*) Joint Venture Agreement between the Company and
Alliant Techsystems. 15
10.40(*) License and Support Agreement between the Company and
Alliant / Valence, L.L.C. 26
10.41(*) Battery Laminate Supply Agreement between the Company
and Alliant / Valence, L.L.C. 36
- --------------------------------------------------------------------------------
(*) PORTIONS OF THE TEXT HAVE BEEN OMITTED. A SEPARATE FILING OF THE OMITTED
TEXT HAS BEEN MADE WITH THE COMMISSION AS PART OF REGISTRANT'S APPLICATION FOR
CONFIDENTIAL TREATMENT.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
VALENCE TECHNOLOGY, INC.
(Registrant)
Date: November 13, 1996 By: /s/ David Archibald
------------------------------------
David Archibald
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
Exhibit 11.1
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
STATEMENT OF CALCULATION OF NET LOSS PER SHARE
(in thousands, except per share amounts)
-------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -----------------------------
September 29, September 24, September 29, September 24,
1996 1995 1996 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Actual weighted average shares of common
stock outstanding for the period 21,672 20,128 21,671 20,120
Net loss for period $(3,429) $(8,678) $(6,623) $(11,821)
Net loss per share for period $ (0.16) $ (0.43) $ (0.31) $ (0.59)
</TABLE>
Dilutive common stock warrants and stock options have not been included in the
calculations of common and common equivalent shares to calculate net loss per
share, as their inclusion would be antidilutive.
14
<PAGE>
EXHIBIT 10.39
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
JOINT VENTURE AGREEMENT
- --------------------------------------------------------------------------------
between
ALLIANT TECHSYSTEMS INC.
and
VALENCE TECHNOLOGY, INC.
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.
on
OCTOBER 7, 1996
ALLIANT / VALENCE CONFIDENTIAL
<PAGE>
THIS AGREEMENT, entered into as of October 7, 1996 ("Effective Date") by and
between Valence Technology, Inc. with offices at 301 Conestoga Way, Henderson,
Nevada ("Valence US") and its wholly-owned subsidiary Valence Technology Cayman
Islands Inc. with offices at P.O. Box 309, Grand Cayman, Cayman Islands,
British West Indies ("Valence Cayman") (collectively "Valence") and Alliant
Techsystems Inc., with offices at Power Sources Center, 104 Rock Road, Horsham,
Pennsylvania 19044 ("Alliant").
WHEREAS, Valence has the knowledge, expertise and technology to design,
develop, manufacture and sell solid polymer electrolyte batteries, and Valence
owns or has rights to certain patents, trademarks, know-how, technology and
other intellectual property related to the design, manufacture, and sell such
batteries, and the laminates that are used in such batteries;
WHEREAS, Alliant has the knowledge, expertise and technology to design,
develop, manufacture and sell battery products that can incorporate solid
polymer electrolyte batteries in the United States military, foreign military
sales, and United States government specialized markets;
WHEREAS, the parties desire to form a Joint Venture Company for the purpose of
carrying on the business of designing, manufacturing, marketing, selling,
repairing, installing, maintaining, exploiting, applying, distributing and
dealing in battery products that use such batteries;
WHEREAS, the parties hereto in order to give effect to the aforesaid have
agreed to enter into this Agreement and accordingly are desirous of regulating
their relationship inter se as shareholders of the joint venture Joint Venture
Company and the activities of the joint venture Joint Venture Company in the
manner hereinafter described.
NOW, THEREFORE, In consideration of the mutual covenants and promises herein
set forth, Alliant and Valence agree as follows:
1. DEFINITIONS
1.1 AFFILIATED COMPANIES shall mean all subsidiaries, parent
companies, and subsidiaries of parent companies, where the party or parent owns
at least fifty percent (50%) of the subsidiary, or where the party's parent
owns at least fifty percent (50%) of the party.
1.2 APPLICATIONS shall mean applications for use in the Joint
Venture Markets, except for those applications for which Valence has already
granted an exclusive license to another party, such as automotive, traction and
utility load leveling markets licensed to General Motors, personalized lighting
systems and uninterruptable power supplies licensed to Goldtron Ltd., and any
applications in Korea licensed to Hanil Telecom Co., Ltd.
1.3 BATTERIES (or BATTERY, singular) shall mean the advanced
rechargeable solid polymer electrolyte batteries manufactured by the Joint
Venture Company utilizing Laminates based on the solid polymer electrolyte
technology owned and licensed by Valence.
1.4 BATTERY LAMINATE SUPPLY AGREEMENT shall mean the agreement to be
entered into between the Joint Venture Company and Valence.
1.5 BOARD shall mean the board of directors of the Joint Venture
Company.
1.6 BUSINESS shall mean the business described in Section 2.3.
1.7 JOINT VENTURE COMPANY shall mean the joint venture Joint Venture
Company referred to in Section 2.
1.8 JOINT VENTURE MARKETS shall mean United States Military, foreign
military sales and United States government specialized markets, not including
Valence standard product sales into such markets.
Page 2
<PAGE>
1.9 LAMINATES shall mean cathode, separator and anode laminates, or
films, of the Battery, produced exclusively by Valence.
1.10 LICENSE AND SUPPORT AGREEMENTS shall mean both the agreement to
be entered into between the Joint Venture Company and Valence ("Valence License
and Support Agreement"), and the agreement to be entered into between the Joint
Venture Company and Alliant ("Alliant License and Support Agreement").
1.11 SPACE BASED APPLICATIONS shall mean Batteries intended for use
on deployment in products in space.
1.12 TRANSACTION DOCUMENTS shall mean this Agreement, the Battery
Laminate Supply Agreement, the License and Support Agreements and any other
document contemplated in this Agreement or entered into by the parties or
between each party and the Joint Venture Company in connection with this
Agreement.
1.13 VALENCE shall mean Valence US and Valence Cayman jointly and
separately, provided that Valence US shall accept any rights or obligations
that arise under this agreement in the United States, Canada or Mexico, and
Valence Cayman shall accept any rights or obligations that arise under this
agreement in the remainder of the world.
2. FORMATION
2.1 The parties shall form a joint limited liability company, to be
formed in the state of Delaware, which shall be governed by the terms of this
Joint Venture Agreement.
2.2 The joint venture company shall be named Alliant / Valence, LLC
("Joint Venture Company"), or as otherwise agreed to by the parties.
3. SHARE CAPITAL
3.1 Upon the completion of the share purchase, the Joint Venture
Company shall have an authorized capital of an amount equivalent two million
United States Dollars (US$2,000,000.00) divided into one thousand (1,000)
ordinary shares of par value one United States Dollar (US$1.00) each.
3.2 Each of Alliant and Valence shall have five hundred (500) member
shares, and each will thus have fifty percent (50%) ownership of the Joint
Venture Company.
3.2.1 Valence shall pay for its shares by contributing
polymer lithium ion battery technology and know how required
for manufacturing of batteries under its License and Support
Agreement.
3.2.2 Alliant shall pay for its shares by contributing the
flexible battery manufacturing know how, market and product
knowledge and technology for high performance military
applications under its License and Support Agreement.
Additionally, Alliant shall contribute all cash necessary to
operate Joint Venture Company for at least one (1) year,
including for salaries, operating costs, materials costs,
subcontract costs, and any necessary services and facilities.
Page 3
<PAGE>
4. BOARD OF DIRECTORS
4.1 Unless otherwise agreed by the parties hereto, the number of
directors in the Board shall be four (4), comprising two (2) directors
appointed by Alliant and Valence, each. The Board shall be headed by a
Chairman, to be appointed from one of the directors.
4.2 The right of appointment conferred on a party hereto under
Section 4.1 shall include the right by that party to remove and replace at any
time from office, and to determine the period during which such person shall
hold the office of director.
4.3 The quorum for all meetings of the directors shall be three (3)
directors. Both parties shall use their best efforts to ensure that the minimum
number of directors necessary for a quorum be available on at least forty-eight
(48) hours notice. The Articles of Association of the Joint Venture Company
shall allow board meetings to be conducted by telephone conferencing, and
adoption of resolutions without a board meeting by unanimous written consent.
4.4 All decisions of the Board shall be decided by a simple majority
vote of those present and voting, except that at least one Board member
appointed by each party must vote in favor of any matter being passed by the
Board.
4.5 The Board shall meet at least four (4) times a year, with the
location of the meeting alternating between Horsham, Pennsylvania and
Henderson, Nevada. All expenses incurred by Board members in attending the
meetings shall be paid by the party that appointed that Board member, and shall
not be charged to Joint Venture Company.
5. SHAREHOLDER MEETING
5.1 No business shall be transacted at any general meeting of the
Joint Venture Company unless a quorum is present. Two (2) shareholders, with
at least one Alliant and one Valence shareholder, shall form a quorum. The
word "shareholder" in the context of this section includes a person attending
by proxy, attorney or representative.
5.2 All matters raised at any general meeting of the Joint Venture
Company shall, save as required by law or as otherwise provided herein, be
decided by ordinary resolution of the shareholders present at the meeting. All
resolutions must be passed by a simple majority vote of those shares voted at
the meeting, save as required by law or as otherwise provided herein.
6. INDEBTEDNESS AND ADDITIONAL CAPITALIZATION
The parties hereto agree that in the event any additional working capital is
required by the Joint Venture Company, such working capital shall be met, to
the extent possible, through the use of credit. Such credit shall be from such
financial institutions as the Board may from time to time agree. Such credit
shall be secured by all or such assets of the Joint Venture Company as the
Board shall determine. The parties hereto agree to use their best reasonable
efforts to secure appropriate credit facilities for the Joint Venture Company
on favorable terms.
7. DIVIDEND POLICY
The dividends of the Joint Venture Company shall be such as shall be
recommended by the Board from time to time who shall act in the best interests
of the Joint Venture Company when making any recommendations therefor it being
the intention of the parties to distribute profits by way of dividends subject
to commercial necessity for reinvestment in the Joint Venture Company and
subject to such method of distribution being to the mutual advantage of the
shareholders.
Page 4
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
8. TRANSFER OF SHARES
Except for a sale, transfer or assignment as described in section 17.1, or a
sale, transfer or assignment to their subsidiaries or their divisions, the
parties hereto shall not sell, transfer, part with or otherwise dispose of its
ownership of any shares in the Joint Venture Company without the agreement of
the other party, and then only upon mutually agreeable terms.
9. TERMINATION
9.1 This Agreement shall renew automatically on each anniversary of
the Effective Date unless earlier terminated in accordance with this section 9.
9.2 This Agreement shall terminate:
9.2.1 upon mutual agreement of the parties;
9.2.2 upon failure of the Joint Venture Company to meet
the financial goals as described in section 10.15; or
9.2.3 upon failure of the Joint Venture Company to develop
the Joint Venture Market as described in section 10.9.
9.3 A party shall be deemed to have breached or defaulted if:
9.3.1 any representation, warranty or statement by such
party in any Transaction Document or in any document delivered
under any of them is not complied with or is or proves to have
been incorrect in any material respect when made; or
9.3.2 such party does not perform or comply with any one
or more of its material obligations under any Transaction
Document and such party in breach shall fail to rectify that
breach within sixty (60) days of written notice of breach
being given to that party in the terms of this Section.
9.4 In the event a party commits a breach or default, as described
above in Section 9.1, the other party hereto shall, without prejudice to any
other rights and remedies such party may have, be entitled by notice in writing
to the party in breach or default to terminate this Agreement forthwith as
against such party and thereupon such defaulting party shall transfer all of
its shares in the Joint Venture Company to the other party and shall cause any
directors appointed by such party to resign from office.
9.5 Save as hereinafter provided, Alliant shall be entitled to
forthwith terminate this Agreement if the Valence License and Support
Agreement, or Laminate Supply Agreement, is terminated or ceases to be in full
force and effect for any reason whatsoever and without prejudice to any other
rights and remedies. Save as hereinafter provided, Valence shall be entitled
to forthwith terminate this Agreement if the Alliant License and Support
Agreement is terminated or ceases to be in full force and effect for any reason
whatsoever and without prejudice to any other rights and remedies. [
]
9.6 In the event that a party becomes insolvent, dissolves, or other
wise ceases to exist, this Agreement shall immediately terminate. Further, in
such an event, the Joint Venture Company shall be immediately and automatically
liquidated and dissolved, with its surplus assets (if any) upon such
liquidation distributed to the shareholders.
Page 5
<PAGE>
9.7 The termination of this Agreement from any cause shall not
release any party hereto from any liability which at the time of termination
has already accrued to any party hereto, or which thereafter may accrue in
respect of any act or omission prior to such termination.
9.8 In the event of any termination of this Agreement, regardless of
cause or breach by either party, the License and Support Agreements and
Laminate Supply Agreement shall immediately be terminated.
10. VARIOUS CORPORATE MATTERS
10.1 The registered office of the Joint Venture Company shall be at
such location as the Board may from time to time decide.
10.2 The Secretary of the Joint Venture Company shall be appointed by
the Board.
10.3 The auditors of the Joint Venture Company shall be mutually
agreed upon by the parties.
10.4 The financial year of the Joint Venture Company shall end on 31
December in each calendar year.
10.5 The Joint Venture Company shall maintain accurate and complete
accounting records, which shall be in accordance with Generally Accepted
Account Principles (GAAP) and each party or its appointed representatives shall
have full access to all accounting and other records of the Joint Venture
Company at all reasonable times. Each party shall have the right to audit the
records of the Joint Venture Company, at its own expense. The Joint Venture
Company shall provide to each of the parties financial information of the Joint
Venture Company necessary for each party to meet their financial reporting
obligations, including reconciliation between the Joint Venture Company's
general accepted accounting policies and those of each party, on a quarterly
basis.
10.6 Each party shall have veto power over major decisions in the
management of the Joint Venture Company.
10.7 The Board shall have the exclusive right to select, hire and
discharge the most senior level position that is responsible for:
10.7.1 the Joint Venture Company management (i.e.
President, Chief Executive Officer);
10.7.2 manufacturing, operations (i.e. Chief Operating
Officer, Vice President of Manufacturing);
10.7.3 finance (i.e. Chief Financial Officer);
10.7.4 engineering, research and development (i.e. Chief
Technical Officer, Vice President of Engineering, Vice
President of Research and Development); and
10.7.5 sales, marketing (i.e. Vice President of Marketing
and Sales).
10.8 Joint Venture Company general manager shall be a full time
employee of Joint Venture Company reporting to Joint Venture Company Board.
10.9 Joint Venture Company shall not own any plant, property or
equipment. All manufacturing shall be subcontracted, primarily to Alliant.
Alliant shall invest in the necessary production tooling and manufacturing
equipment required to support the subcontracted manufacturing. Alliant's
investment in such tooling and equipment shall be triggered upon acceptance by
the Joint Venture Company of a production contract.
Page 6
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
10.10 Joint Venture Company may rent office and fabrication space from
Alliant at its Power Sources Center located in Horsham, Pennsylvania.
10.11 Joint Venture Company shall only use laminate materials supplied
by Valence [ ] All other components may
be procured from other sources. Joint Venture Company may purchase services
for fabrication and packaging from the Alliant Power Sources Center.
10.11.1 Joint Venture Company shall purchase laminates from
Valence at Valence's Fully-Liquidated Manufacturing Cost (as
defined in the Battery Laminate Supply Agreement) plus [
]
10.11.2 Joint Venture Company shall purchase administrative
services from Alliant at Alliant's cost plus [ ]
10.11.3 Joint Venture Company shall purchase manufacturing
services from Alliant at Alliant's cost plus [ ]
10.11.4 Joint Venture Company shall purchase marketing
services from Alliant at Alliant's cost plus [ ]
10.11.5 Joint Venture Company shall purchase distribution
services from Alliant at Alliant's cost plus [ ]
10.12 While all sales shall be between Joint Venture Company and its
customers, Alliant shall be exclusively responsible for the marketing and
distribution of Joint Venture Company products on behalf of Joint Venture
Company.
10.13 The prices for Joint Venture Company products shall be set by
the board of directors of Joint Venture Company. Joint Venture Company shall
be responsible for all royalties due on the sale of its products.
10.14 Joint Venture Company shall have exclusive rights to the Joint
Venture Markets in the United States and non-exclusive rights to the Joint
Venture Markets elsewhere. Neither Valence nor Alliant shall enter into any
joint venture, distribution arrangement or partnership in competition with
Joint Venture Company in these markets.
10.15 Joint Venture Company must meet a gross sales and profitability
goal of [ ]
respectively, by the [ ] year and must increase the gross sales amount by
[ ] each year and maintain the profitability margin each year
thereafter. Should Joint Venture Company fail to meet this measure of success,
then either party may terminate the Agreement in accordance with section 9, and
cause the dissolution of Joint Venture Company, and distribution of its assets.
10.16 Alliant shall be able to purchase products from Joint Venture
Company for its own use (in systems and subsystems manufactured by Alliant) at
a [ ] discount over the market pricing. However, it shall be
noted that Joint Venture Company shall have to pay royalties based on the fair
market value of such sales. Alliant shall not use its right to purchase
products at a discount directly from Joint Venture Company as a way to
circumvent direct sales by Joint Venture Company to customers.
10.17 Valence shall grant Joint Venture Company a right of first
refusal to the Space Based Applications market for Valence's battery technology.
Page 7
<PAGE>
11. GOOD FAITH AND RELATIONSHIP BETWEEN PARTIES
11.1 In entering into this Agreement the parties hereto recognize
that it is impracticable to make provisions for every contingency that may
arise in the course of the performance thereof. If by reason of any unforeseen
occurrence or development the operation of this Agreement is likely to cause
any inequitable hardship to any of the parties hereto, the parties hereto shall
negotiate immediately in good faith as to what manner the terms and conditions
of this Agreement may be modified in order to provide an equitable solution in
so far as such is possible within the spirit of this Agreement for such
unforeseen occurrence or development.
11.2 The parties hereto hereby agree and declare that they will
execute and do all such acts and things as are necessary and within their power
and authority for the time being to carry into effect and/or to comply with the
provisions of this Agreement, including voting by Board members and the voting
of shares.
11.3 Nothing in this Agreement shall be construed to imply the
existence of a partnership between the parties hereto other than as
shareholders in the Joint Venture Company in accordance with the terms of this
Agreement. Valence and Alliant each represent and warrant to the other that
they have entered into no contracts, nor are subject to any obligations, which
prevent them from entering into and performing this Agreement. It is
understood and agreed that Valence and Alliant are, and at all times shall
remain, independent contractors. At no time shall either Party represent to
any third party that it is the agent of the other for any reason whatsoever.
Valence and Alliant further covenant that no authorization shall be given to
any employee to act for the other Party to this Agreement. In no event shall
either Party at any time have authority to make any contracts or commitments on
behalf of or as an agent of the other or otherwise make use of its relationship
with the other, without the other's express consent in each instance.
12. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special, incidental
or consequential damages resulting from its performance or failure to perform
under this Agreement, whether due to a breach of contract, breach of warranty,
or such party's negligence.
13. CONFIDENTIALITY AND PUBLIC DISCLOSURE
13.1 "Confidential Information" shall mean that information of either
party which is disclosed to the other party or the Joint Venture Company
("Recipient") by reason of the parties' relationship under the Joint Venture
Agreement, either directly or indirectly in any written or recorded form,
orally, or by drawings or inspection of parts or equipment, and, either in
writing and marked as confidential or proprietary, or if oral, reduced to
writing similarly marked within thirty (30) days of disclosure.
13.2 Recipient shall receive and use the Confidential Information
only for performance of Recipient's obligations under the Joint Venture
Agreement, and will not use Confidential Information for any other purpose, and
shall not disclose such Confidential Information to any person or persons who
do not need to have knowledge of such Confidential Information in the course of
their employment.
13.3 It is expressly understood that Recipient shall not be liable
for disclosure of any Confidential Information if the same was in the public
domain at the time it was disclosed; was known to Recipient at the time of
disclosure; is disclosed with the prior written approval of the other party
hereto; is disclosed after five (5) years from the termination of the Joint
Venture Agreement; was independently developed by Recipient; or becomes known
to Recipient, on a non-confidential basis, from a source other than the other
party hereto, without breach of the Joint Venture Agreement or this letter by
Recipient.
13.4 Each party hereto shall not, except as authorized by the Board,
or required by any applicable law or regulation of the Cayman Islands or the
United States of America, reveal to any
Page 8
<PAGE>
person, firm or Joint Venture Company any of the trade secrets, secret or
confidential operations, processes or dealings or confidential information of
the Joint Venture Company or any information concerning the organization,
business, finances, transitions or affairs of the Joint Venture Company which
may come to his knowledge under the Joint Venture Agreement and shall keep with
complete secrecy all trade secrets and other confidential information entrusted
to it and shall not use or attempt to use any such information in any manner
which may injure or cause loss either directly or indirectly to the Joint
Venture Company or its business or may be likely to do so.
13.5 Valence and Alliant agree that the terms and conditions of the
Joint Venture Agreement and this letter shall not be disclosed to any other
party without the prior written consent of the other, which consent should not
be unreasonably withheld. Neither Valence nor Alliant shall publish or use any
advertising, sales promotion, press release or publicity matters relating to
the Joint Venture Agreement or this letter, without the prior written approval
of the other, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, either party may make such disclosures and press
releases as are necessary to meet its disclosure requirements under the laws,
regulation and rules of the Cayman Islands or the United States of America.
13.6 Joint Venture Company shall not enter into any agreement that
would require it to disclose or encumber any Valence or Joint Venture Company
confidential information or intellectual property rights.
14. TRADEMARKS AND ADVERTISING, AND SAFETY
14.1 The joint venture Joint Venture Company shall market and sell
the Batteries for Applications in the Joint Venture Markets under names, trade
marks, trade names, designs, logos and get-up and all other trademark rights
relating to the marketing and sale of the Batteries for Applications in the
Joint Venture Markets shall belong to and be the absolute property of the Joint
Venture Company.
14.2 Valence may require Solid Polymer Electrolyte Batteries to be
marked with the Valence logo and name in a reasonable size so as to be noticed
by a consumer of such Solid Polymer Electrolyte Batteries. Any promotional
material produced by Alliant that specifically references any Solid Polymer
Electrolyte Battery performance specifications or promotes the additional value
of such Solid Polymer Electrolyte Batteries, shall also include a reference to
Valence and an appropriate promotional copy supplied by Valence, upon Valence's
request. Valence must approve any specifications regarding Batteries prior to
publication, or distribution, outside the Joint Venture Company, Alliant or
Valence.
14.3 Because Valence's logo and/or name will be on the Batteries,
Valence shall have right to stop manufacturing, sales and/or distribution of
Batteries, if, in Valence's sole judgement, there is any safety defect.
Additionally, Valence shall have the right to cause the joint venture Joint
Venture Company to conduct a recall of Batteries, if such a defect is
discovered in Batteries already distributed outside Joint Venture Company. The
Joint Venture Company shall install and maintain a lot tracking system adequate
to allow an effective and timely recall. Further, Valence shall review design
and quality of products to assure such products meet Valence's design and
quality standards.
14.4 Each party recognizes the right, title, and interest of the
other party and its affiliates in and to all service marks, trademarks, and
trade names used by the other and agrees not to use any of the other party's
service marks, trademarks, and trade names without the other party's express
written permission.
15. PERSONNEL
Alliant shall use its best endeavors to procure the relevant personnel required
by the Joint Venture Company in respect of the management, administration and
operations of the Joint Venture Company as well as the marketing of the Joint
Venture Company's products.
Page 9
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
16. INTELLECTUAL PROPERTY LICENSES
16.1 Valence and Alliant, and their Affiliated Companies, shall each
grant the Joint Venture Company a world-wide, royalty-free, non-transferable,
non-sublicensable, personal license to all intellectual property created by
Valence or Alliant, or their Affiliated Companies, prior to, or during, the
term of this Agreement necessary to design, manufacture, use, sell, and
distribute Batteries, using Laminate supplied exclusively by Valence, [
] for Applications in the Joint Venture
Markets, specifically not including intellectual property related to the
composition or manufacturing of Laminates. These licenses shall be exclusive
in the United States and non-exclusive elsewhere.
16.2 The Joint Venture Company shall grant Valence and Alliant, and
their Affiliated Companies, a non-exclusive, world-wide, royalty-free,
non-transferable, non-sublicensable, personal license to all intellectual
property created by the Joint Venture Company during the term of this Agreement.
17. GENERAL
17.1 Neither party may assign its rights or obligations under this
Agreement without the prior consent of the other, and any purported assignment
without such consent shall have no force or effect, except that a party may
assign this Agreement incident to the transfer of all or substantially all of
its business. Subject to the foregoing, this Agreement shall bind and inure to
the benefit of the respective parties hereto and their successors and assigns.
17.2 No failure or delay by either party to enforce or take advantage
of any provision or right under this Agreement shall constitute a subsequent
waiver of that provision or right, nor shall it be deemed to be a waiver of any
of the other terms and conditions of this Agreement.
17.3 Neither party to this Agreement shall be liable for its failure
to perform any of its obligations hereunder during any period in which such
performance is prevented by any cause beyond its reasonable control. In the
event of any such delay the date of delivery or performance hereunder shall be
extended by a period equal to the time lost by reason of such delay.
17.4 The validity, performance and construction of this Agreement
shall be governed by the laws of the state of Delaware (excluding its conflict
of laws provisions).
17.5 Each party hereto shall bear its own costs and expenses in
respect of the preparation, negotiation, finalize and execution of this
Agreement and the other agreements or documents contemplated herein.
17.6 Each party shall comply with all applicable laws in performing
under this Agreement.
17.7 All notices or communications to be given under this Agreement
shall be in writing and shall be deemed delivered upon hand delivery, upon
acknowledged telex or facsimile communication, or seven (7) days after deposit
in the mail, postage prepaid, by certified, registered or first class mail,
addressed to the parties at their addresses set forth above.
17.8 In the event that any provision of this Agreement is prohibited
by any law governing its construction, performance or enforcement, such
provision shall be ineffective to the extent of such prohibition without
invalidating thereby any of the remaining provisions of the Agreement.
17.9 The terms and conditions of this Agreement may not be
superseded, modified, or amended except in writing which states that it is such
a modification, and is signed by an authorized representative of each party
hereto. This Agreement shall not be modified, supplemented, qualified, or
interpreted by any trade usage or prior course of dealing not made a part of
the order by its express terms.
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<PAGE>
17.10 Section titles used herein are for reference only and shall not
be for purposes of interpretation.
17.11 This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
17.12 This Agreement, including exhibits, and the other Transaction
Documents, constitutes the entire Agreement between the parties as to the
subject matter hereof, and supersedes and replaces all prior or contemporaneous
agreements, written or oral, regarding such subject matter, and shall take
precedence over any additional or conflicting terms which may be contained in
either party's purchase orders or order acknowledgment forms. In the event of
any conflict between the provisions of this Agreement and the Articles of
Incorporation / By-Laws of the Joint Venture Company, the provisions of this
Agreement shall prevail over Articles of Incorporation / By-Laws.
ACCEPTED AND AGREED:
VALENCE TECHNOLOGY, INC. ALLIANT TECHSYSTEMS INC.
By: /s/ Calvin L. Reed By: /s/ Richard Schwartz
----------------------------------- -----------------------------------
signature of authorized representative signature of authorized representative
Calvin L. Reed Richard Schwartz
- -------------------------------------- --------------------------------------
printed name printed name
President President and CEO
- -------------------------------------- --------------------------------------
title title
10-7-96 10-7-96
- -------------------------------------- --------------------------------------
date date
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.
By: /s/ Melvern Slates
- --------------------------------------
signature of authorized representative
Melvern Slates
- --------------------------------------
printed name
General Manager
- --------------------------------------
title
10-7-96
- --------------------------------------
date
Page 11
<PAGE>
EXHIBIT 10.40
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
LICENSE AND SUPPORT AGREEMENT
- --------------------------------------------------------------------------------
between
ALLIANT/VALENCE, LLC
and
VALENCE TECHNOLOGY, INC.
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.
on
OCTOBER 7, 1996
ALLIANT/VALENCE / VALENCE CONFIDENTIAL
<PAGE>
THIS AGREEMENT, entered into as of October 7, 1996 ("Effective Date") by and
between Valence Technology, Inc. with offices at 301 Conestoga Way, Henderson,
Nevada ("Valence US") and its wholly-owned subsidiary Valence Technology Cayman
Islands Inc. with offices at P.O. Box 309, Grand Cayman, Cayman Islands,
British West Indies ("Valence Cayman") (collectively "Valence") and
Alliant/Valence, LLC, with offices at Power Sources Center, 104 Rock Road,
Horsham, Pennsylvania 19044 ("Alliant/Valence").
WHEREAS, Valence has the knowledge, expertise and technology to design,
develop, manufacture and sell solid polymer electrolyte batteries, and Valence
owns or has rights to certain patents, trademarks, know-how, technology and
other intellectual property related to the design, manufacture, and sell such
batteries, and the laminates that are used in such batteries;
WHEREAS, Alliant/Valence desires to enter the business of designing,
manufacturing, marketing, selling, repairing, installing, maintaining,
exploiting, applying, distributing and dealing in products that use such
batteries;
WHEREAS, Alliant/Valence, initially having no technology or know-how of its own
on solid polymer electrolyte battery technology, desires to license from
Valence the certain technology and know-how, and obtain from Valence certain
support.
NOW, THEREFORE, In consideration of the mutual covenants and promises herein
set forth, Joint Venture Alliant/Valence and Valence agree as follows:
1. DEFINITIONS
1.1 AFFILIATED COMPANIES shall mean all subsidiaries, parent
companies, and subsidiaries of parent companies, where the party or parent owns
at least fifty percent (50%) of the subsidiary, or where the party's parent
owns at least fifty percent (50%) of the party.
1.2 APPLICATIONS shall mean applications for use in the Joint
Venture Markets, except for those applications for which Valence has already
granted an exclusive license to another party, such as automotive, traction and
utility load leveling markets licensed to General Motors, personalized lighting
systems and uninterruptable power supplies licensed to Goldtron Ltd., and any
applications in Korea licensed to Hanil Telecom Co., Ltd.
1.3 BATTERIES (or BATTERY, singular) shall mean the advanced
rechargeable solid polymer electrolyte batteries manufactured by
Alliant/Valence utilizing Laminates based on the solid polymer electrolyte
technology owned and licensed by Valence.
1.4 JOINT VENTURE AGREEMENT shall mean the agreement entered into
between Alliant Techsystems Inc. and Valence on October 7, 1996.
1.5 JOINT VENTURE MARKETS shall mean United States Military, foreign
military sales and United States government specialized markets, not including
Valence standard product sales into such markets.
1.6 INTELLECTUAL PROPERTY RIGHTS shall mean all copyright, patent
rights, trademark rights and all common law rights connected therewith and all
other intellectual property rights, and shall include rights to new inventions,
discoveries, works of authorship and improvements existing during the term of
this Agreement.
1.7 LAMINATES shall mean cathode, separator and anode laminates, or
films, of the Battery, produced exclusively by Valence.
1.8 SPACE BASED APPLICATIONS shall mean Batteries intended for use
on deployment in products in space.
Page 2
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
1.9 VALENCE shall mean Valence US and Valence Cayman jointly and
separately, provided that Valence US shall accept any rights or obligations
that arise under this agreement in the United States, Canada or Mexico, and
Valence Cayman shall accept any rights or obligations that arise under this
agreement in the remainder of the world.
2. LICENSES
2.1 Valence hereby grants to Alliant/Valence a personal,
non-transferable, non-sublicensable license to all of Valence's Intellectual
Property Rights necessary to design, manufacture, use, sell, and distribute
Batteries, using Laminate supplied exclusively by Valence, [
] for
Applications in the Joint Venture Markets, but specifically excluding
Intellectual Property Rights relating to the composition or manufacturing of
Laminates. This license shall be exclusive in the United States and
non-exclusive elsewhere.
2.2 Valence hereby grants to Alliant/Valence the right to
manufacture, assemble, fabricate and package Batteries, using Valence supplied
Laminates, for Valence as a sub-contractor of Valence, upon terms and
conditions to be agreed between Alliant/Valence and Valence.
2.3 Alliant/Valence hereby grants to Valence, and its Affiliated
Companies, a non-exclusive, world-wide, royalty-free, non-transferable,
non-sublicensable, personal license to all intellectual property created by
Alliant/Valence during the term of this Agreement, except for Joint Venture
Markets. Notwithstanding the forgoing, such license shall be assignable
incident to the transfer of all or substantially all of Valence's, or its
Affiliated Companies', business.
2.4 Patents arising out of inventions made jointly by employees of
Valence and Alliant/Valence shall be jointly owned by the parties. The parties
shall mutually agree as to which party shall file any resulting patent
applications. The cost for such applications shall be equally shared.
2.5 Valence hereby grants to Alliant/Valence a non-exclusive,
personal, non-transferable, non-sublicensable license to Valence's Trademarks
necessary to market, sell, and distribute Batteries for Applications in the
Joint Venture Market. Alliant/Valence's use of the Valence trademarks shall
inure to the benefit of Valence, and Alliant/Valence shall not register nor
attempt to register such trademarks in its own name. Other than the rights
granted herein, each party recognizes the right, title, and interest of the
other party and its affiliates in and to all service marks, trademarks, and
trade names used by the other and agrees not to use any of the other party's
service marks, trademarks, and trade names without the other party's express
written permission, other than provided herein. Any promotional material
produced by Alliant/Valence that specifically references any Battery
performance specifications or promotes the additional value of such Batteries,
shall also include a reference to Valence and an appropriate promotional copy
supplied by Valence. Valence must approve any specifications prior to
publication or distribution.
2.6 Alliant/Valence shall mark all its Batteries with the Valence
logo and/or name under the license provided above. Because Valence's logo
and/or name will be on the Batteries, Valence shall have right to stop
manufacturing, sales and/or distribution of Batteries, if, in Valence's sole
judgement, there is any safety defect. Additionally, Valence shall have the
right to cause Alliant/Valence to conduct a recall of Batteries, if such a
defect is discovered in Batteries already distributed outside Alliant/Valence.
Alliant/Valence shall install and maintain a lot tracking system adequate to
allow an effective and timely recall. Further, Valence shall review design and
quality of products to assure such products meet Valence design and quality
standards. Alliant/Valence shall provide representative samples of Batteries
prior to their first sale, and upon incorporation of any material change.
2.7 Alliant/Valence shall market and sell the Batteries for the
Applications under names, trade marks, trade names, designs, logos and get-up
and all other trademark rights relating to the marketing and sale of the
Batteries for the Applications. Such Alliant/Valence created trademarks,
except for any marks derived from, identical with or similar to Valence's
trademarks or trade name, shall belong to and be the absolute property of
Alliant/Valence.
Page 3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
2.8 Valence hereby grants Alliant/Valence a right of first refusal
to the Space Based Applications market for Valence's battery technology. Prior
to granting any license for Spaced Based Applications, Valence shall offer such
an offer, on the same terms as are being offered to a third, to
Alliant/Valence. Alliant/Valence shall have ten (10) days to accept such an
offer.
3. EXCLUSIVE USE OF VALENCE SUPPLIED LAMINATE
3.1 Alliant/Valence shall only design, manufacture, use, sell, and
distribute Batteries, using Laminate supplied by Valence, [
]
3.2 Alliant/Valence hereby covenants and warrants that it will not
design, develop, manufacture Laminate or any replacement or substitute for
Laminate. Alliant/Valence further warrants that it will not decompose or
reverse engineer Laminate.
4. VALENCE PERSONNEL SUPPORT
4.1 Initially, Valence will provide one hundred sixty (160) hours of
consulting time to Alliant/Valence, through such personnel as it deems
appropriate. Following this initial consulting, Valence, at its discretion,
shall supply consulting services as it deems necessary to support
Alliant/Valence.
4.2 Valence may fulfil this obligation by providing a variety of
qualified Valence engineers, depending on the needs of Alliant/Valence, and
their availability from Valence. Alliant/Valence shall establish, within a
reasonable amount of time, a complete battery design and test laboratory.
Alliant/Valence may, if it so desires, direct these engineers to assist
Alliant/Valence in setting up the complete battery design and test laboratory.
4.3 Valence employees at Alliant/Valence, shall at all times remain
employees of Valence. Alliant/Valence shall not be liable for any expenses of
such visiting Valence employees.
5. MANUFACTURING EQUIPMENT
5.1 Valence grants Alliant/Valence the rights to use battery
manufacturing equipment designed by or for Valence, and manufactured by Valence
or its authorized equipment suppliers. These rights include the rights to the
designs of the battery manufacturing equipment designed by or for Valence
listed in the Manufacturing Equipment Exhibit.
5.2 Valence shall use its best efforts to either sell, upon terms
and conditions acceptable to Valence and Alliant/Valence, or assist
Alliant/Valence in procuring from Valence's equipment vendors, Battery
manufacturing equipment. However, Alliant/Valence may also purchase Battery
manufacturing equipment from vendors other than Valence or its vendors.
6. COVENANTS AND WARRANTIES
6.1 The parties each covenants to the other that it shall fully
comply with any legislative and regulatory requirements (including any
regulations, statutory or otherwise, relating to environmental controls)
directly or indirectly applicable to the performance of its obligations
hereunder. Because the rights licensed under this Agreement are in part
based on some technology of United States origin, Alliant/Valence shall comply
with all current and future United States export regulations, including export
embargoes and export licensing provisions. Valence shall use its best efforts
to notify Alliant/Valence of such regulations, and any changes thereto.
Page 4
<PAGE>
6.2 Valence warrants to Alliant/Valence that it is the legal and
beneficial owner or licensee of the technology, Intellectual Property Rights,
knowledge and expertise granted to Alliant/Valence pursuant to this Agreement
and has the power and capacity to enter into this Agreement.
6.3 Each party ("Indemnitor") shall, at its own expense, defend any
suit that is instituted against the other ("Indemnitee") to the extent such
suit alleges that any goods, information, designs, or any part, of Indemnitee,
thereof sold hereunder infringe any patent, trademark, copyright, or trade
secret. Indemnitor shall not be liable to Indemnitee if such alleged
infringement arises from any modification or addition made by anyone other than
the Indemnitor, or the use as a part of or in combination with any other
devices or parts or from the use to practice any method or process, if there
would have been no infringement but for such acts. Indemnitee shall give the
Indemnitor immediate notice in writing of any such suit and permits the
Indemnitor, through counsel of its choice, to answer the charge of infringement
and defend such suit. Indemnitee shall give the Indemnitor all the needed
information, assistance and authority, at the Indemnitor's expense, to enable
the Indemnitor to defend or settle such suit. In the case of a final award of
damages in any suit the Indemnitor, shall pay such award, but shall not be
responsible for any settlement made without its prior written consent. In the
event the use, lease or sale of the goods is enjoined, the Indemnitor may at
its own option and expense (i) procure for the Indemnitee the right to use,
lease or sell such goods, (ii) replace such goods, (iii) modify such goods, or
(iv) remove such goods and refund the aggregate payments made by the
Indemnitee, less a reasonable sum for use, damage and obsolescence. THIS ABOVE
STATES THE INDEMNITOR'S TOTAL RESPONSIBILITY AND LIABILITY, AND THE
INDEMNITEE'S SOLE REMEDY, FOR ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT BY ANY GOODS DELIVERED HEREUNDER OR ANY PART
THEREOF. THIS SECTION IS IN LIEU OF AND REPLACES ANY OTHER EXPRESS, IMPLIED OR
STATUTORY WARRANTY AGAINST INFRINGEMENT.
6.4 The above indemnity obligation with regard intellectual property
rights is the sole and only indemnity obligation owed by each party to the
other party under this Agreement.
7. TERMINATION
7.1 A party shall be deemed to have breached or defaulted if:
7.1.1 any representation, warranty or statement by such
party in this Agreement or in any document delivered under
this Agreement is not complied with or is or proves to have
been incorrect in any material respect when made;
7.1.2 such party does not perform or comply with any one
or more of its material obligations under the Agreement and
such party in breach shall fail to rectify that breach within
sixty (60) days of written notice of breach being given to
that party in the terms of this Section; or
7.1.4 a winding up or bankruptcy petition is presented, an
order is made, an effective resolution passed or legislation
enacted for the winding-up other than for the purpose of
reconstruction or amalgamation of such party or if a receiver
and/or manager is appointed of the undertaking or part thereof
of such party; or
7.1.5 such party is unable to pay its debts as they fall
due or stops payment of its debts generally or commences
negotiations with its creditors with a view to readjustment or
re-scheduling of its debts or compounds or enters into any
arrangement with or makes any assignment for the benefit of
its creditors generally or attempts to do any of the foregoing
(except as part of or pursuant to a scheme for reconstruction
or amalgamation);
7.2 In the event a party commits a breach or default, as described
above in Section 7.1, the other party hereto shall, without prejudice to any
other rights and remedies such party may have, be entitled by notice in writing
to the party in breach or default to terminate this Agreement forthwith as
against such party.
Page 5
<PAGE>
7.3 In the event of a termination of this Agreement because of the
breach or default a party, all licenses granted to the other party, and its
Affiliated Companies, under this Agreement shall terminate.
7.4 The provisions of this Agreement with regard to confidential
information and intellectual property rights indemnity shall survive the
termination of this Agreement.
7.5 This Agreement shall immediately and automatically terminate
upon the termination of the Joint Venture Agreement
8. TAXES
8.1 Each party hereto shall be responsible for its own taxes,
whether present or future including income tax payable in respect of any sum
received by it, levies, goods and services tax, value added tax, impost,
deductions or withholding imposed, assessed or collected by any political
subdivision or taxing authority of any country in respect of this Agreement,
any transaction or any documents contemplated herein. In no circumstances
shall either party be obliged to gross up the amount of any payment which it is
otherwise obliged to make pursuant to this Agreement so as to ensure that the
net amount received by the recipient equals that amount which the recipient
would have been entitled to receive in the absence of any applicable
withholding tax.
8.2 Where Alliant/Valence is obliged to withhold any tax or other
charge from payments otherwise due by Alliant/Valence under this Agreement,
Alliant/Valence shall promptly forward to Valence the original tax payment
certificates evidencing that such withholding taxes or other charges have been
paid.
9. CONFIDENTIALITY AND PUBLIC DISCLOSURE
9.1 "Confidential Information" shall mean that information of
either party which is disclosed to the other party ("Recipient") by reason of
the parties' relationship hereunder, either directly or indirectly in any
written or recorded form, orally, or by drawings or inspection of parts or
equipment, and, either in writing and marked as confidential or proprietary, or
if oral, reduced to writing similarly marked within thirty (30) days of
disclosure.
9.2 Recipient shall receive and use the Confidential Information
only for performance of Recipient's obligations hereunder, and will not use
Confidential Information for any other purpose, and shall not disclose such
Confidential Information to any person or persons who do not need to have
knowledge of such Confidential Information in the course of their employment.
Recipient further agrees that except as authorized by the Export Administration
Regulations of the U. S. Department of Commerce it will not transmit, directly
or indirectly, any "technical data" acquired from the other party hereto or any
"Q, S, W, Y or Z" country as those terms are defined in the Regulations.
9.3 It is expressly understood that Recipient shall not be liable
for disclosure of any Confidential Information if the same:
9.3.1 was in the public domain at the time it was disclosed;
9.3.2 was known to Recipient at the time of disclosure;
9.3.3 is disclosed with the prior written approval of the
other party hereto;
9.3.4 is disclosed after five (5) years from the termination
of this Agreement;
9.3.5 was independently developed by Recipient; or
Page 6
<PAGE>
9.3.6 becomes known to Recipient, on a non-confidential
basis, from a source other than the other party hereto,
without breach of this Agreement by Recipient.
9.4 Each party hereto shall not except as authorized by the Board of
Directors of Alliant/Valence, or required by any applicable law or regulation
of the Cayman Islands or the United States of America, reveal to any person,
firm or Alliant/Valence any of the trade secrets, secret or confidential
operations, processes or dealings or confidential information of
Alliant/Valence or any information concerning the organization, business,
finances, transitions or affairs of Alliant/Valence which may come to his
knowledge hereunder and shall keep with complete secrecy all trade secrets and
other confidential information entrusted to him and shall not use or attempt to
use any such information in any manner which may injure or cause loss either
directly or indirectly to Alliant/Valence or its Business or may be likely to
do so.
9.5 Valence and Alliant/Valence agree that the terms and conditions
of this Agreement shall not be disclosed to any other party without the prior
written consent of the other, which consent should not be unreasonably
withheld. Neither Valence nor Alliant/Valence shall publish or use any
advertising, sales promotion, press release or publicity matters relating to
this Agreement, without the prior written approval of the other, which approval
shall not be unreasonably withheld. Notwithstanding the forgoing, either party
may make such disclosures and press releases as are necessary to meet its
disclosure requirements under the laws, regulation and rules of the Cayman
Islands or the United States of America.
9.6 Alliant/Valence shall not enter into any agreement that would
require it to disclose or encumber any Valence or Alliant/Valence confidential
information or Intellectual Property Rights.
10. GOOD FAITH AND RELATIONSHIP BETWEEN PARTIES
10.1 In entering into this Agreement the parties hereto recognize
that it is impracticable to make provisions for every contingency that may
arise in the course of the performance thereof. If by reason of any unforeseen
occurrence or development the operation of this Agreement is likely to cause
any inequitable hardship to any of the parties hereto, the parties hereto shall
negotiate immediately in good faith as to what manner the terms and conditions
of this Agreement may be modified in order to provide an equitable solution in
so far as such is possible within the spirit of this Agreement for such
unforeseen occurrence or development.
10.2 The parties hereto hereby agree and declare that they will
execute and do all such acts and things as are necessary and within their power
and authority for the time being to carry into effect and/or to comply with the
provisions of this Agreement.
10.3 Nothing in this Agreement shall be construed to imply the
existence of a partnership between the parties hereto. Valence and
Alliant/Valence each represent and warrant to the other that they have entered
into no contracts, nor are subject to any obligations, which prevent them from
entering into and performing this Agreement. It is understood and agreed that
Valence and Alliant/Valence are, and at all times shall remain, independent
contractors. At no time shall either Party represent to any third party that
it is the agent of the other for any reason whatsoever. Valence and
Alliant/Valence further covenant that no authorization shall be given to any
employee to act for the other Party to this Agreement. In no event shall
either Party at any time have authority to make any contracts or commitments on
behalf of or as an agent of the other or otherwise make use of its relationship
with the other, without the other's express consent in each instance.
11. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special, incidental
or consequential damages resulting from its performance or failure to perform
under this Agreement, whether due to a breach of contract, breach of warranty,
or such party's negligence. Neither parties' liability hereunder shall exceed
the amounts paid hereunder.
Page 7
<PAGE>
12. GENERAL
12.1 Neither party may assign its rights or obligations under this
Agreement without the prior consent of the other, and any purported assignment
without such consent shall have no force or effect, except that a party may
assign this Agreement incident to the transfer of all or substantially all of
its business. Subject to the foregoing, this Agreement shall bind and inure to
the benefit of the respective parties hereto and their successors and assigns.
12.2 No failure or delay by either party to enforce or take advantage
of any provision or right under this Agreement shall constitute a subsequent
waiver of that provision or right, nor shall it be deemed to be a waiver of any
of the other terms and conditions of this Agreement.
12.3 Neither party to this Agreement shall be liable for its failure
to perform any of its obligations hereunder during any period in which such
performance is prevented by any cause beyond its reasonable control. In the
event of any such delay the date of delivery or performance hereunder shall be
extended by a period equal to the time lost by reason of such delay. In the
event Valence's production is curtailed, Valence may allocate its available
production, as reasonably equitable, among its various customers.
12.4 The validity, performance and construction of this Agreement
shall be governed by the laws of the state of Delaware (excluding its conflict
of laws provisions).
12.5 Each party hereto shall bear its own costs and expenses in
respect of the preparation, negotiation, finalize and execution of this
Agreement and the other agreements or documents contemplated herein.
12.6 All notices or communications to be given under this Agreement
shall be in writing and shall be deemed delivered upon hand delivery, upon
acknowledged telex or facsimile communication, or seven (7) days after deposit
in the mail, postage prepaid, by certified, registered or first class mail,
addressed to the parties at their addresses set forth above.
12.7 In the event that any provision of this Agreement is prohibited
by any law governing its construction, performance or enforcement, such
provision shall be ineffective to the extent of such prohibition without
invalidating thereby any of the remaining provisions of the Agreement.
12.8 The terms and conditions of this Agreement may not be
superseded, modified, or amended except in writing which states that it is such
a modification, and is signed by an authorized representative of each party
hereto. This Agreement shall not be modified, supplemented, qualified, or
interpreted by any trade usage or prior course of dealing not made a part of
the order by its express terms.
12.9 Section titles used herein are for reference only and shall not
be for purposes of interpretation.
12.10 This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
Page 8
<PAGE>
12.11 This Agreement, including exhibits, constitutes the entire
Agreement between the parties as to the subject matter hereof, and supersedes
and replaces all prior or contemporaneous agreements, written or oral,
regarding such subject matter, and shall take precedence over any additional or
conflicting terms which may be contained in either party's purchase orders or
order acknowledgment forms.
ACCEPTED AND AGREED:
VALENCE TECHNOLOGY, INC. ALLIANT/VALENCE, LLC
By: By:
----------------------------------- -----------------------------------
signature of authorized representative signature of authorized representative
Calvin L. Reed
- -------------------------------------- --------------------------------------
printed name printed name
President
- -------------------------------------- --------------------------------------
title title
- -------------------------------------- --------------------------------------
date date
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.
By:
- --------------------------------------
signature of authorized representative
Melvern Slates
- --------------------------------------
printed name
General Manager
- --------------------------------------
title
- --------------------------------------
date
Page 9
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Manufacturing Equipment Exhibit
1. [
]
2. [
]
3. [
]
4. [
]
5. [
]
6. [
]
7. Miscellaneous equipment
a. Battery testing equipment
b. Battery tester network and database systems
c. Battery safety test equipment and test chambers
d. Specialized laboratory equipment for component testing
Page 10
<PAGE>
EXHIBIT 10.41
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
BATTERY LAMINATE SUPPLY AGREEMENT
- --------------------------------------------------------------------------------
between
ALLIANT/VALENCE, LLC
and
VALENCE TECHNOLOGY, INC.
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.
on
OCTOBER 7, 1996
ALLIANT/VALENCE / VALENCE CONFIDENTIAL
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
THIS AGREEMENT, entered into as of October 7, 1996 ("Effective Date") by and
between Valence Technology, Inc. with offices at 301 Conestoga Way, Henderson,
Nevada ("Valence US") and its wholly-owned subsidiary Valence Technology Cayman
Islands Inc. with offices at P.O. Box 309, Grand Cayman, Cayman Islands, British
West Indies ("Valence Cayman") (collectively "Valence") and Alliant/Valence,
LLC, with offices at Power Sources Center, 104 Rock Road, Horsham, Pennsylvania
19044 ("Alliant/Valence").
WHEREAS, Valence has the knowledge, expertise and technology to design, develop,
manufacture and sell solid polymer electrolyte batteries and the components
thereof, such as battery laminate, and Valence owns or has rights to all
patents, trademarks, know-how, technology and other intellectual property
necessary to design, manufacture, and sell the laminates that are used in such
batteries;
WHEREAS, Alliant/Valence desires to obtain battery laminate from Valence.
NOW, THEREFORE, In consideration of the mutual covenants and promises herein set
forth, Alliant/Valence and Valence agree as follows:
1. DEFINITIONS
1.1 APPLICATIONS shall mean applications for use in the Joint
Venture Markets, except for those applications for which Valence has already
granted an exclusive license to another party, such as automotive, traction and
utility load leveling markets licensed to General Motors, personalized lighting
systems and uninterruptable power supplies licensed to Goldtron Ltd., and any
applications in Korea licensed to Hanil Telecom Co., Ltd.
1.2 BATTERIES (or BATTERY, singular) shall mean the advanced
rechargeable solid polymer electrolyte batteries manufactured by Alliant/Valence
utilizing Laminates based on the solid polymer electrolyte technology owned and
licensed by Valence.
1.3 FULLY-LIQUIDATED MANUFACTURING COSTS shall mean the sum of
direct material, direct labor and fully absorbed factory overhead based on an
annual average cost derived from the current year's operating plan at the
relevant range of activity. Fully-absorbed factory overhead includes the
[
] Specifically excluded from
factory overhead costs are [
]
1.4 JOINT VENTURE AGREEMENT shall mean the agreement entered into
between Alliant Techsystems Inc. and Valence on October 7 1996.
1.5 JOINT VENTURE MARKETS shall mean United States Military, foreign
military sales and United States government specialized markets, not including
Valence standard product sales into such markets.
1.6 LAMINATES shall mean cathode, separator and anode laminates, or
films, of the Battery, produced exclusively by Valence.
1.7 VALENCE shall mean Valence US and Valence Cayman jointly and
separately, provided that Valence US shall accept any rights or obligations
that arise under this agreement in the United States, Canada or Mexico, and
Valence Cayman shall accept any rights or obligations that arise under this
agreement in the remainder of the world.
Page 2
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
2. LAMINATE SUPPLY
2.1 Valence shall sell, to Alliant/Valence, Laminate at a cost of
Valence's Fully-Liquidated Manufacturing Cost plus [ ]. This
cost may be verified or certified by an accountant nominated by both parties.
Valence shall supply laminate at a cost no higher than the cost for other
similar joint ventures.
2.2 Valence shall sell the Laminate to Alliant/Valence according to
Valence's standard Terms and Conditions of Sale, attached as the Terms and
Conditions of Sale Exhibit. Alliant/Valence shall place purchase orders with
Valence to purchase laminate. Preprinted terms on Alliant/Valence's purchase
orders and Valence's order acknowledgment forms shall have no effect and shall
not be considered part of this Agreement. In the event of any conflict between
the Terms and Conditions of Sale Exhibit and this Agreement, the terms of this
Agreement shall prevail.
2.3 Alliant/Valence may only use Laminate to manufacture Batteries
for use in Applications for Joint Venture Markets.
2.4 Alliant/Valence shall only design, manufacture, use, sell, and
distribute Batteries, using Laminate supplied by Valence,[
]
2.5 Alliant/Valence hereby covenants and warrants that it will not
design, develop, manufacture Laminate or any replacement or substitute for
Laminate. Alliant/Valence further warrants that it will not decompose or
reverse engineer Laminate.
3. COVENANTS AND WARRANTIES
3.1 The parties each covenants to the other that it shall fully
comply with any legislative and regulatory requirements (including any
regulations, statutory or otherwise, relating to environmental controls)
directly or indirectly applicable to the performance of its obligations
hereunder. Because Laminate is in part based on some technology of United
States origin, Alliant/Valence shall comply with all current and future United
States export regulations, including export embargoes and export licensing
provisions. Valence shall use its best efforts to notify Alliant/Valence of
such regulations, and any changes thereto.
3.2 Each party ("Indemnitor") shall, at its own expense, defend any
suit that is instituted against the other ("Indemnitee") to the extent such
suit alleges that any goods, information, designs, or any part thereof sold
hereunder infringe any patent, trademark, copyright, or trade secret.
Indemnitor shall not be liable to Indemnitee if such alleged infringement
arises from any modification or addition made by anyone other than the
Indemnitor, or the use as a part of or in combination with any other devices or
parts or from the use to practice any method or process, if there would have
been no infringement but for such acts. Indemnitee shall give the Indemnitor
immediate notice in writing of any such suit and permits the Indemnitor,
through counsel of its choice, to answer the charge of infringement and defend
such suit. Indemnitee shall give the Indemnitor all the needed information,
assistance and authority, at the Indemnitor's expense, to enable the Indemnitor
to defend or settle such suit. In the case of a final award of damages in any
suit the Indemnitor, shall pay such award, but shall not be responsible for any
settlement made without its prior written consent. In the event the use, lease
or sale of the goods is enjoined, the Indemnitor may at its own option and
expense (i) procure for the Indemnitee the right to use, lease or sell such
goods, (ii) replace such goods, (iii) modify such goods, or (iv) remove such
goods and refund the aggregate payments made by the Indemnitee, less a
reasonable sum for use, damage and obsolescence. THIS ABOVE STATES THE
INDEMNITOR'S TOTAL RESPONSIBILITY AND LIABILITY, AND THE INDEMNITEE'S SOLE
REMEDY, FOR ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHT
Page 3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
BY ANY GOODS DELIVERED HEREUNDER OR ANY PART THEREOF. THIS SECTION IS IN
LIEU OF AND REPLACES ANY OTHER EXPRESS, IMPLIED OR STATUTORY WARRANTY AGAINST
INFRINGEMENT.
3.3 The above indemnity obligation with regard intellectual property
rights is the sole and only indemnity obligation owed by each party to the
other party under this Agreement.
4. TERMINATION
4.1 A party shall be deemed to have breached or defaulted if:
4.1.1 any representation, warranty or statement by such
party in this Agreement or in any document delivered under
this Agreement is not complied with or is or proves to have
been incorrect in any material respect when made;
4.1.2 such party does not perform or comply with any one
or more of its material obligations under the Agreement and
such party in breach shall fail to rectify that breach within
sixty (60) days of written notice of breach being given to
that party in the terms of this Section; or
4.1.4 a winding up or bankruptcy petition is presented, an
order is made, an effective resolution passed or legislation
enacted for the winding-up other than for the purpose of
reconstruction or amalgamation of such party or if a receiver
and/or manager is appointed of the undertaking or part thereof
of such party; or
4.1.5 such party is unable to pay its debts as they fall
due or stops payment of its debts generally or commences
negotiations with its creditors with a view to readjustment or
re-scheduling of its debts or compounds or enters into any
arrangement with or makes any assignment for the benefit of
its creditors generally or attempts to do any of the foregoing
(except as part of or pursuant to a scheme for reconstruction
or amalgamation);
4.2 In the event a party commits a breach or default, as described
above in Section 4.1, the other party hereto shall, without prejudice to any
other rights and remedies such party may have, be entitled by notice in writing
to the party in breach or default to terminate this Agreement forthwith as
against such party.
4.3 [
]
4.4 The provisions of this Agreement with regard to confidential
information and intellectual property rights indemnity shall survive the
termination of this Agreement.
4.5 This Agreement shall immediately and automatically terminate
upon the termination of the Joint Venture Agreement
5. TAXES
5.1 Each party hereto shall be responsible for its own taxes,
whether present or future including income tax payable in respect of any sum
received by it, levies, goods and services tax, value added tax, impost,
deductions or withholding imposed, assessed or collected by any political
subdivision or taxing authority of any country in respect of this Agreement,
any transaction or any documents contemplated herein. In no circumstances
shall either party be obliged to gross up the amount of any payment which it is
otherwise obliged to make pursuant to this Agreement so as to ensure that the
net amount received by the recipient equals that amount which the recipient
would have been entitled to receive in the absence of any applicable
withholding tax.
Page 4
<PAGE>
5.2 Where Alliant/Valence is obliged to withhold any tax or other
charge from payments otherwise due by Alliant/Valence under this Agreement,
Alliant/Valence shall promptly forward to Valence the original tax payment
certificates evidencing that such withholding taxes or other charges have been
paid.
6. CONFIDENTIALITY AND PUBLIC DISCLOSURE
6.1 "Confidential Information" shall mean that information of
either party which is disclosed to the other party ("Recipient") by reason of
the parties' relationship hereunder, either directly or indirectly in any
written or recorded form, orally, or by drawings or inspection of parts or
equipment, and, either in writing and marked as confidential or proprietary, or
if oral, reduced to writing similarly marked within thirty (30) days of
disclosure.
6.2 Recipient shall receive and use the Confidential Information
only for performance of Recipient's obligations hereunder, and will not use
Confidential Information for any other purpose, and shall not disclose such
Confidential Information to any person or persons who do not need to have
knowledge of such Confidential Information in the course of their employment.
6.3 It is expressly understood that Recipient shall not be liable
for disclosure of any Confidential Information if the same:
6.3.1 was in the public domain at the time it was disclosed;
6.3.2 was known to Recipient at the time of disclosure;
6.3.3 is disclosed with the prior written approval of the
other party hereto;
6.3.4 is disclosed after five (5) years from the termination
of this Agreement;
6.3.5 was independently developed by Recipient; or
6.3.6 becomes known to Recipient, on a non-confidential
basis, from a source other than the other party hereto,
without breach of this Agreement by Recipient.
6.4 Each party hereto shall not, except as authorized by the Board
of Directors of Alliant/Valence, or required by any applicable law or
regulation of the Cayman Islands or the United States of America, reveal to any
person, firm or Alliant/Valence any of the trade secrets, secret or
confidential operations, processes or dealings or confidential information of
Alliant/Valence or any information concerning the organization, business,
finances, transitions or affairs of Alliant/Valence which may come to his
knowledge hereunder and shall keep with complete secrecy all trade secrets and
other confidential information entrusted to him and shall not use or attempt to
use any such information in any manner which may injure or cause loss either
directly or indirectly to Alliant/Valence or its Business or may be likely to
do so.
6.5 Valence and Alliant/Valence agree that the terms and conditions
of this Agreement shall not be disclosed to any other party without the prior
written consent of the other, which consent should not be unreasonably
withheld. Neither Valence nor Alliant/Valence shall publish or use any
advertising, sales promotion, press release or publicity matters relating to
this Agreement, without the prior written approval of the other, which approval
shall not be unreasonably withheld. Notwithstanding the forgoing, either party
may make such disclosures and press releases as are necessary to meet its
disclosure requirements under the laws, regulation and rules of the Cayman
Islands or the United States of America.
6.6 Alliant/Valence shall not enter into any agreement that would
require it to disclose or encumber any Valence or Alliant/Valence confidential
information or intellectual property rights.
7. RELATIONSHIP BETWEEN THE PARTIES
Page 5
<PAGE>
Nothing in this Agreement shall be construed to imply the existence of a
partnership between the parties hereto. Valence and Alliant/Valence each
represent and warrant to the other that they have entered into no contracts,
nor are subject to any obligations, which prevent them from entering into and
performing this Agreement. It is understood and agreed that Valence and
Alliant/Valence are, and at all times shall remain, independent contractors.
At no time shall either party represent to any third party that it is the agent
of the other for any reason whatsoever. Valence and Alliant/Valence further
covenant that no authorization shall be given to any employee to act for the
other party to this Agreement. In no event shall either party at any time have
authority to make any contracts or commitments on behalf of or as an agent of
the other or otherwise make use of its relationship with the other, without the
other's express consent in each instance.
8. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special, incidental
or consequential damages resulting from its performance or failure to perform
under this Agreement, whether due to a breach of contract, breach of warranty,
or such party's negligence. Neither parties' liability hereunder shall exceed
the amounts paid hereunder.
9. GENERAL
9.1 Neither party may assign its rights or obligations under this
Agreement without the prior consent of the other, and any purported assignment
without such consent shall have no force or effect, except that a party may
assign this Agreement incident to the transfer of all or substantially all of
its business. Subject to the foregoing, this Agreement shall bind and inure to
the benefit of the respective parties hereto and their successors and assigns.
9.2 No failure or delay by either party to enforce or take advantage
of any provision or right under this Agreement shall constitute a subsequent
waiver of that provision or right, nor shall it be deemed to be a waiver of any
of the other terms and conditions of this Agreement.
9.3 Neither party to this Agreement shall be liable for its failure
to perform any of its obligations hereunder during any period in which such
performance is prevented by any cause beyond its reasonable control. In the
event of any such delay the date of delivery or performance hereunder shall be
extended by a period equal to the time lost by reason of such delay. In the
event Valence's production is curtailed, Valence may allocate its available
production, as reasonably equitable, among its various customers.
9.4 The validity, performance and construction of this Agreement
shall be governed by the laws of the state of Delaware (excluding its
conflict of laws provisions).
9.5 Each party hereto shall bear its own costs and expenses in
respect of the preparation, negotiation, finalize and execution of this
Agreement and the other agreements or documents contemplated herein.
9.6 All notices or communications to be given under this Agreement
shall be in writing and shall be deemed delivered upon hand delivery, upon
acknowledged telex or facsimile communication, or seven (7) days after deposit
in the mail, postage prepaid, by certified, registered or first class mail,
addressed to the parties at their addresses set forth above.
9.7 In the event that any provision of this Agreement is prohibited
by any law governing its construction, performance or enforcement, such
provision shall be ineffective to the extent of such prohibition without
invalidating thereby any of the remaining provisions of the Agreement. The
captions of sections herein are intended for convenience only, and the same
shall not be interpretive of the content of such section.
Page 6
<PAGE>
9.8 The terms and conditions of this Agreement may not be
superseded, modified, or amended except in writing which states that it is such
a modification, and is signed by an authorized representative of each party
hereto. This Agreement shall not be modified, supplemented, qualified, or
interpreted by any trade usage or prior course of dealing not made a part of
the order by its express terms.
9.9 Section titles used herein are for reference only and shall not
be for purposes of interpretation.
9.10 This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
9.11 This Agreement, including exhibits, constitutes the entire
Agreement between the parties as to the subject matter hereof, and supersedes
and replaces all prior or contemporaneous agreements, written or oral,
regarding such subject matter, and shall take precedence over any additional or
conflicting terms which may be contained in either party's purchase orders or
order acknowledgment forms.
ACCEPTED AND AGREED:
VALENCE TECHNOLOGY, INC. ALLIANT/VALENCE, LLC
By: By:
----------------------------------- -----------------------------------
signature of authorized representative signature of authorized representative
Calvin L. Reed
- -------------------------------------- --------------------------------------
printed name printed name
President
- -------------------------------------- --------------------------------------
title title
- -------------------------------------- --------------------------------------
date date
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.
By:
-----------------------------------
signature of authorized representative
Melvern Slates
- --------------------------------------
printed name
General Manager
- --------------------------------------
title
- --------------------------------------
date
Page 7
<PAGE>
Terms and Conditions of Sale Exhibit
1. ACCEPTANCE
This acknowledgment is an acceptance of the Customer's purchase order only for
those goods and services with a Valence scheduled date attached hereto.
Acceptance is conditional upon the Customer's consent to the terms and
conditions set forth herein which will be in lieu of and replace any and all
terms and conditions set forth on Customer's purchase order if they are in
conflict with any terms and conditions set forth in this Terms and Conditions
of Sale Exhibit, or the Agreement itself. No waiver or amendment of any of the
provisions hereof shall be binding on Valence unless made in a writing
expressly stating that it is such a waiver or amendment and signed by an
authorized representative of Valence.
2 . TERMS OF PAYMENT
Unless otherwise stated on the face hereof (or otherwise agreed upon as, for
instance, a letter of credit) all payments are due and payable forty-five (45)
days from the date of invoice. All payments shall be made to Valence at 301
Conestoga Way, Henderson, Nevada or such other address as Valence may request.
If all the goods or services covered hereby are not delivered or performed at
one time, the Customer shall pay the unit prices considered applicable to the
goods delivered or services performed. Each shipment shall be considered a
separate and independent transaction. All shipments, deliveries and
performance of work covered hereby shall at all times be subject to the credit
approval of Valence, and Valence may at any time decline to make any shipments
or deliveries, or perform any work, except upon receipt of payment or upon
terms and conditions or security arrangement satisfactory to Valence.
3. PRICES
The prices for the goods covered hereby shall be those shown on the face
hereof, provided, however, that if such prices are based on the purchase of a
particular quantity of goods and Customer fails to purchase such quantity,
Valence shall have the right (in addition to any other rights and remedies
Valence may have) to collect from Customer the difference between the price
paid by Customer for the goods purchased and Valence's standard price for such
goods in the quantity purchased by Customer. Unless otherwise stated on the
face thereof, the prices for the goods covered hereby do not include costs of
special packaging or shipping.
4. TAXES
Unless otherwise stated on the face hereof, the prices for the goods covered
hereby do not include customs duties or sales, use, excise, or other similar
taxes. The Customer shall pay, in addition to the prices quoted, the amount of
any present or future customs duties or sales, use, excise or other similar tax
applicable to the sale of goods or performance of services covered by this
acknowledgment, or in lieu thereof the Customer shall supply Valence with an
appropriate tax exemption certificate.
5. DELIVERY
Delivery shall be F.O.B. Valence's factory. The delivery dates set forth on
this acknowledgment are approximate only, and Valence shall not be liable for,
nor shall Valence be in breach of its obligations to the Customer because of,
any delivery made within a reasonable time before or after the stated delivery
date. Valence may, by written notice to Customer, change any delivery date, and
such date shall become the agreed upon delivery date unless Customer objects to
such date in writing delivered to Valence within ten (10) days of receipt of
Valence's notice.
6. INSPECTION AND ACCEPTANCE
All Material ordered by Buyer hereunder shall be subject to inspection and
acceptance of Buyer at its facility. Material which fails to conform to the
mutually agreed upon specifications and/or descriptions provided or
incorporated herein, may be rejected by Buyer and returned to Valence for
credit, rebate of purchase price or replacement at Valence's option. Valence
shall bear all cost of transportation for the return of all non-conforming
Material. Valence shall issue a Return Material Authorization (RMA) number on
defective Material that has been dispositioned to be returned to Valence.
Buyer shall accept Material included in each shipment within thirty (30) days
from Buyer's receipt of such shipment. If Buyer fails to notify Valence in
writing of its rejection and the reasons therefor within such time period,
Buyer will be deemed to have accepted such Material. Valence shall notify Buyer
of major process changes (as defined by Valence) incurred by Valence in the
manufacturing of Material to be purchased under this Agreement, if such changes
affect form, fit, or function of Material. If deemed necessary by Buyer,
requalification procedures for said Material may then be required. Valence may
implement manufacturing improvements which do not affect form, fit or function
of Material. Any such improvements shall be implemented only upon the
successful completion of reasonable qualification testing. Additionally,
Valence shall determine which of it's qualified manufacturing sites shall be
used to manufacture Material. Valence shall have no obligation to notify Buyer
of such manufacturing improvements or manufacturing site selection.
7. WARRANTY
Valence warrants that goods delivered hereunder shall be free from defects in
material and workmanship under normal use and service for a period of one (1)
year from the date of shipment from Valence's facility. If during such one
year period: (i) Valence is notified promptly in writing upon discovery of any
defect in the goods, including a detailed description of such defect; (ii) such
goods are returned to Valence, F.O.B. Valence's facility; and (iii) Valence's
examination of such goods discloses to Valence's satisfaction that such goods
are defective and such defects are not caused by accident, abuse, misuse,
neglect, alteration, improper installation, repair or alteration by someone
other than Valence, improper testing, or use contrary to any instructions
issued by
Page 8
<PAGE>
Valence; then within a reasonable time Valence shall (at its sole option)
either repair, replace, or credit the Customer for, such goods. Valence shall
return any goods repaired or replaced under this warranty to customer
transportation prepaid, and reimburse Customer for the transportation charges
paid by Customer for such goods. The performance of this warranty does not
extend the warranty period for any goods beyond the period applicable to the
goods originally delivered. Prior to any return of goods by the Customer
pursuant to this Section, the Customer shall afford Valence the opportunity to
inspect such goods at the Customer's location at the cost of the default party,
or on a cost-sharing basis if no fault is found with either party, and any such
goods so inspected shall not be returned to Valence without its prior written
consent. The foregoing warranty constitutes Valence's exclusive liability, and
the exclusive remedy of the Customer, for any breach of any warranty or other
nonconformity of the goods covered by this acknowledgment. THIS WARRANTY IS
EXCLUSIVE, AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED.
8. BREACH
Any one of the following acts by Customer shall constitute a breach of
Customer's obligation hereunder: (i) failure to make payment for any goods or
services from Valence when due; (ii) failure to accept conforming goods or
services supplied hereunder; (iii) the return of any goods shipped to Customer
hereunder without the prior written consent of Valence; (iv) the filing of a
voluntary or involuntary petition in bankruptcy against Customer, the
institution of any proceedings in insolvency or bankruptcy (including
reorganization) against Customer, the appointment of a trustee or receiver of
Customer, or an assignment for the benefit of creditors of Customer; or (v) any
other act by Customer in violation of any of the provisions hereof. In the
event that Customer breaches in any manner set forth above, Valence may, by
written notice to Customer, terminate the order covered hereby, or any part
thereof, without any liability whatsoever. Customer shall pay all costs,
including reasonable attorney's fees, incurred by Valence in any action brought
by Valence to collect payments owing or otherwise enforces its rights hereunder.
9. CUSTOM PRODUCT ORDER CANCELLATION
If an order for any design unique to Customer ("Custom Products") is cancelled,
in addition to the actual cost of any buyer specific materials, Customer shall
pay the following charges for orders scheduled for delivery within ninety (90)
days of Valence's receipt of cancellation notice: (i) for finished laminate at
time of receipt of cancellation - full purchase price; (ii) for partially
coated at time of receipt of cancellation - fifty percent of full purchase
price; or (iii) for custom current collector material at time of receipt of
cancellation - fifty percent of full purchase price.
10. USE IN LIFE SUPPORT APPLICATIONS
Buyer is not authorized to use any goods supplied under this Agreement in any
Life Support Application without the express written consent of Valence. Life
Support Applications include: (i) a device to be implanted in a human body; or
(ii) a system or device which supports or monitors a human life, such that its
failure could cause serious injury or death.
Page 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 31,808
<SECURITIES> 14,229
<RECEIVABLES> 635
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,189
<PP&E> 25,251
<DEPRECIATION> (14,630)
<TOTAL-ASSETS> 61,012
<CURRENT-LIABILITIES> 9,488
<BONDS> 5,372
0
0
<COMMON> 140,334
<OTHER-SE> (94,261)
<TOTAL-LIABILITY-AND-EQUITY> 61,012
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (3,429)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (161)
<INCOME-PRETAX> (3,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,429)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
