<PAGE>
As filed with the Securities and Exchange
Commission on August 26, 1998 Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VALENCE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0214673
(State of Incorporation) (I.R.S. Employer Identification No.)
301 Conestoga Way
Henderson, NV 89015
(702) 558-1000
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
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Lev M. Dawson
Chairman of the Board, Chief Executive Officer and President
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
(702) 558-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Andrei M. Manoliu, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
(650) 843-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Class of Offering Aggregate Amount of
Securities to be Registered Amount to be Registered Price per Share (1) Offering Price (1) Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 5,756,428 shares $3.71875 $21,406,717 $6,315
$.001 per share
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933 based upon the
average of the high and low prices of the Registrant's Common Stock as
reported by the Nasdaq National Market on August 21, 1998.
(2) Includes (i) up to 5,071,913 shares of Common Stock issuable upon
conversion of shares of the Registrant's Series A Preferred Stock and
(ii) up to 684,515 shares of Common Stock issuable upon exercise of
outstanding warrants.
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Pursuant to Rule 416, this Registration Statement also registers an
indeterminate number of shares of Common Stock as may be issued or become
issuable upon conversion of Series A Preferred Stock and exercise of warrants
in accordance with their respective terms to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 26, 1998
PROSPECTUS
5,756,428 SHARES
VALENCE TECHNOLOGY, INC.
COMMON STOCK
This prospectus relates to the offer and resale by the persons listed
herein under "Selling Securityholders" of a total of 5,756,428 shares of
Common Stock (the "Shares"), with a par value of $0.001 per share, of which
(i) up to 5,071,913 shares are issuable upon conversion of shares of Series A
Preferred Stock of Valence Technology, Inc. ("Valence" or the "Company"),
(ii) up to 535,261 are issuable upon exercise of warrants issued by the
Company pursuant to the Private Placement, and (iii) up to 149,254 shares
issuable upon exercise of warrants issued by the Company in connection with
an amendment to a loan agreement entered into concurrently with the Private
Placement. The holders of the Series A Preferred Stock and the warrants to
purchase Common Stock are collectively referred to herein as the "Selling
Securityholders."
Each share of Series A Preferred Stock is convertible into a number of
shares of Common Stock equal to (i) $1,000 (ii) divided by a conversion price
which is $6.03 per share until January 27, 1999 (or July 28, 1999 in the
event the Company has not signed and announced a material contract or
contracts for the sale of batteries by January 27, 1999). After the
applicable date, the conversion price will be the lower of $6.03 and 101% of
the average of the two (2) lowest of the closing bid prices of the Common
Stock for a period of 10-15 consecutive trading days ending on the trading
day immediately preceding the conversion date (the "Variable Conversion
Price"). When the variable Conversion Price is applicable, the number of
shares of Common Stock issuable upon conversion will be inversely
proportional to the market price of the Common Shares at the time of
conversion at any time when the market price is less than $6.03 (i.e., the
number of shares will increase as the market price of the Common Shares
decreases); and, except with respect to certain redemption rights of the
Company for the Series A Preferred Stock and the limitation under Nasdaq
SmallCap regulations which limit the aggregate amount of Common Shares which
the Company may issue at a discount from market price upon conversion of the
Series A Preferred Stock and exercise of Warrants without stockholder
approval (which stockholder approval the Company has agreed to request),
there is no cap on the number of shares of Common Stock which may be issued.
In addition, the number of Common Shares issuable upon the conversion of the
Series A Preferred Stock and the exercise of Warrants is subject to
adjustment upon the occurrence of certain dilutive events.
The Selling Securityholders, directly or through agents, broker-dealers
or underwriters, may sell the Shares offered hereby from time to time on
terms to be determined at the time of sale. Such Shares may be sold at
market prices prevailing at the time of sale or at negotiated prices. The
Selling Securityholders and any agents, broker-dealers or underwriters that
participate with the Selling Securityholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the
Securities Act and any commission received by them and any profit on the
resale of the Common Stock purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act. Each of the
Selling Securityholders reserves the right to accept and, together with their
agents from time to time to reject, in whole or in part, any proposed
purchase of Shares to be made directly or through agents. The Company will
not receive any proceeds from the sale of Shares by the Selling
Securityholders. See "Selling Securityholders" and "Plan of Distribution."
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
The Common Stock is traded on the Nasdaq National Market under the
symbol "VLNC." The last reported sales price of the Common Stock on the
Nasdaq National Market on August 25, 1998 was $3.50.
The aggregate proceeds to the Selling Securityholders from the sale of
the Shares will be the purchase price of such Shares sold less the aggregate
agents' commissions and underwriters' discounts. The Selling Securityholders
are entitled to registration of their Shares pursuant to a Registration
Rights Agreement dated July 27, 1998 (the "Registration Rights Agreement")
and this offering is intended to satisfy the rights granted by the
Registration Rights Agreement. The Company has agreed to pay substantially
all of the expenses of the offering of the Shares by holders thereof other
than underwriting discounts and commissions, if any. The Company has agreed
to indemnify the Selling Securityholders and certain other persons against
certain liabilities, including liabilities under the Securities Act. See
"Plan of Distribution."
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
____________________
THE DATE OF THIS PROSPECTUS IS
2.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange
Act, and in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information
may be inspected and copied by the Commission's Public Reference Section, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission's Internet address is
http:/www.sec.gov. The Commission's Web site also contains reports, proxy
and information statements, and other information regarding the Company that
has been filed electronically with the Commission. The Common Stock of the
Company is quoted on the Nasdaq National Market. Reports and other
information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W. Washington,
D.C. 20006.
ADDITIONAL INFORMATION
A registration statement on Form S-3 with respect to the Shares offered
hereby (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") has been filed with the Commission under the
Securities Act. This Prospectus does not contain all of the information
contained in such Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. For further
information with respect to the Company and the Notes and Conversions Shares
offered hereby, reference is made to the Registration Statement. Statements
contained in this Prospectus regarding the contents of any contract or any
other documents are not necessarily complete and, in each instance, reference
is hereby made to the copy of such contract or document filed as an exhibit
to the Registration Statement. The Registration Statement may be inspected
without charge at the Securities and Exchange Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained
form the Public Reference Section, Securities and Exchange Commission,
Washington, D.C., 20549, upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission under the Exchange
Act (File No. 0-20815) are hereby incorporated by reference into this
Prospectus:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
March 29, 1998, filed June 29, 1998, including all materials
incorporated by reference therein;
(b) the Company's Current Report on Form 8-K, dated July 27, 1998 and
filed August 4, 1998; and
(c) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 28, 1998, filed August 11, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statements contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been
incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or
into such documents). Such request may be directed to: Investor Relations,
Valence Technology, Inc., 301 Conestoga Way, Henderson, Nevada 89015.
3.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of
the Exchange Act that involve risks and uncertainties. Those statements
include words such as "anticipate," "estimate," "project," "intend," and
similar expressions which are intended to identify forward-looking statements
and appear throughout this Prospectus and include statements regarding the
intent, belief, or current expectations of the Company, primarily with
respect to the operations of the Company or related industry developments.
Prospective purchasers of the Shares are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results could differ
materially from those discussed here and in the documents incorporated by
reference herein.
4.
<PAGE>
SUMMARY
Valence Technology, Inc. was incorporated in Delaware in March 1989
under the name Ultracell, Inc. and changed its name to Valence Technology,
Inc. in March 1992. The Company's executive offices are currently located
at 301 Conestoga Way, Henderson, Nevada 89015 and the telephone number is
(702) 558-1000.
Valence is engaged in research and development to produce advanced
rechargeable batteries based upon lithium ion and polymer technologies. The
Company's objective is to become a leading provider of rechargeable
batteries. In July 1995, the Company announced that it had a license to a
plastic lithium battery technology from Bell Communications Research, Inc.
("Bellcore"). Since that time, the Company has been working to integrate the
Bellcore technology with its own lithium polymer battery technology. At the
same time, the Company has continued the redesign and modifications to its
manufacturing equipment in Northern Ireland to support the potential future
commercial introduction of this new battery design.
Widespread use of a variety of portable consumer electronics such as
portable computers, cellular telephones, camcorders and handheld power tools,
as well as continued demand from conventional applications such as
automobiles, have resulted in large markets for rechargeable batteries.
These new and conventional applications are placing growing demands on
existing battery technologies to deliver increasing amounts of electricity
through smaller and lighter batteries. In some cases, current battery
capabilities are a major limitation to the introduction of enhanced
electronic products.
Valence is a development stage company whose primary activities to date
have been acquiring and developing technology, implementing a production
line, manufacturing limited quantities of prototype batteries, recruiting
personnel and obtaining capital. However, its current research prototype
batteries meet some of the exacting specifications demanded by the
marketplace. Except for insubstantial revenues from limited sales of
prototype lithium polymer batteries, substantially all of the Company's
revenues to date have been derived from a completed research and development
contract with the Delphi Automotive Systems Group of General Motors
Corporation ("Delphi"), and the Company presently has no products available
for sale. The Company's agreement with Delphi was completed in March 1998,
and no further revenues from the Delphi collaboration are expected after
August 1998. Prior to commencing volume production, the Company does not
expect to receive any significant revenues from the sale of its products. To
achieve profitable operations, the Company must successfully develop,
manufacture and market its products. There can be no assurance that any
products can be developed or manufactured at an acceptable cost and with
appropriate performance characteristics, or that such products will be
successfully marketed or achieved market acceptance.
The Company has negative working capital and has sustained recurring
losses related primarily to the development and marketing of its products. A
significant amount of management time in fiscal 1999 has been and will
continue to be devoted to obtaining financing. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. The effects of any such adjustments,
if necessary, could be substantial.
In July 1998, the Company raised $10,000,000 in the first installment of a
debt and equity financing which ultimately may raise up to $25,000,000, subject
to the achievement by the Company of certain milestones. The first installment
comprised the sale of $7,500,000 of Series A Preferred Stock to a single
institutional investor (the "Investor"), and a loan of $2,500,000 from Baccarat
Electronics, an affiliate of a Director of the Company ("Baccarat"). The
Investor has agreed to purchase an additional $2,500,000 of Series A Preferred
Stock if all of the following conditions are met: (a) the Company has publicly
announced that a potential customer has confirmed in writing that any of the
Company's batteries has been tested for performance and safety and meets such
customer's specifications; (b) the Company has either obtained financing from
the Northern Ireland Industrial Development Board ("IDB") of at least $8,000,000
or has borrowed an additional $7,500,000 from Baccarat; (c) the Company's Common
Stock is trading on Nasdaq for a price of at least $3.00 per share; and (d) the
Company has met certain legal conditions, including certain conditions with
respect to representations and warranties and the effectiveness of a resale
registration statement. Baccarat's loan agreement with the Company requires it
to loan the Company an additional $7,500,000 if the other conditions to the
second investment have been met and the Company has not yet obtained IDB
financing. Assuming the second investment has been made, the Investor has
agreed to purchase an
5.
<PAGE>
additional $5 million of Series A Preferred Stock if, in addition to meeting
the conditions to the second investment, the Company has announced a material
contract for the sale of batteries. There can be no assurance that the
Company can achieve the foregoing milestones, or that any alternate debt or
equity financings can be completed on satisfactory terms, or at all.
Management has implemented certain capital equipment reductions and is
actively pursuing capital grant advances from the IDB. IDB financing is
contingent on the Company's achieving cumulative revenues from sale of
batteries of $4 million. There can be no assurance that the Company can
achieve this level of revenues over the short term, or at all.
6.
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk and should not be made by any investor who cannot afford
the loss of his entire investment. In addition to the other information in
this Prospectus, prospective investors should consider carefully the
following factors in evaluating the Company and its business before
purchasing any shares of the Common Stock offered hereby.
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY; GOING CONCERN
Valence commenced operations in 1989 and is a development stage company.
The Company's revenues to date have been derived solely from a research and
development contract with Delphi, which was completed in May 1998. The
Company has generally incurred operating losses since inception and had an
accumulated deficit as of June 29, 1998, the end of its first fiscal quarter,
of $133,327,000. The Company presently has no products available for sale,
although it has developed working prototypes of its lithium polymer
batteries, and the Company cannot anticipate when, or if, it will generate
significant revenues in the future. There can be no assurance that the
Company will achieve or sustain significant revenues or profitability in the
future. A significant amount of management time in fiscal 1999 has been and
will continue to be devoted to obtaining financing. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. The effects of any such adjustments,
if necessary, could be substantial.
ADDITIONAL FINANCING NEEDS; ACCESS TO CAPITAL
The Company has negative working capital and has sustained recurring
losses related primarily to the development and marketing of its products.
In July 1998, the Company raised $10,000,000 in a debt and equity financing.
The Company will need to secure additional financing in order to continue
operations through fiscal 1999. Both the investor and the lender involved in
the July 1998 financing transaction have made commitments to purchase
additional equity securities or make additional loans to the Company, but
these commitments are subject to the achievement by the Company of certain
milestones including the announcement of a material contract with a battery
purchaser. There can be no assurance that the Company can achieve the
milestones, or that any alternate debt or equity financings can be completed
on satisfactory terms, or at all. Moreover, even if the specified milestones
are achieved and the Company obtains another $15 million in combined debt and
equity financing, the Company will not be able to continue operations past
1999 unless it begins to generate significant operating revenue, or secures
additional financing. Management has implemented certain capital equipment
reductions and is actively pursuing capital grant advances from the Northern
Ireland Industrial Development Board ("IDB"). IDB financing is contingent on
the Company's achieving cumulative revenues from sale of batteries of $4
million. There can be no assurance that the Company can achieve this level of
revenue over the short term, or at all. If the Company is unable to achieve
the milestones specified under its current financing arrangements, and is
unable to secure additional alternative financing on acceptable terms, the
Company will be unable to continue to fund its operations. Moreover, the
Company will be unable to implement its business strategy and will be
required to further delay, scale back or eliminate certain of its research
and product development programs, or to license to third parties rights to
commercialize products or technologies that the Company would otherwise seek
to develop itself. The unavailability of adequate funds in the near future
would have a material adverse effect on the Company's business, financial
condition and results of operations.
DILUTION AS A RESULT OF CONVERSION OF PREFERRED STOCK AND EXERCISE OF WARRANTS
One of the Selling Securityholders holds $7,500,000 face amount of
Series A Preferred Stock of the Company, which are convertible into Common
Shares. See "Selling Securityholders." Each share of Series A Preferred Stock
is convertible into a number of shares of Common Stock equal to (i) $1,000
(ii) divided by a conversion price which is $6.03 per share until January 27,
1999 (or July 28, 1999 in the event the Company has not signed and announced
a material contract or contracts for the sale of batteries by January 27,
1999). After the applicable date, the conversion price will be the lower of
$6.03 and 101% of the average of the two (2) lowest of the closing bid prices
of the Common Stock for a period of 10-15 consecutive trading days ending on
the trading day immediately preceding the conversion date. Therefore, not
later than July 28, 1999 the number of shares of Common Stock issuable upon
conversion of the Convertible Debentures will be inversely proportional to
the market price of the Common Stock at the time of conversion at any time
when the market price is less than $6.03 (i.e., the number or shares will
increase as the market price of the Common Stock decreases); and except with
respect to certain redemption rights of the Company for the Series A
Preferred Stock and the limitation under Nasdaq National Market regulations
which limit the aggregate number of shares of Common Stock which the Company
may issue at a discount from market price upon conversion of the Series A
Preferred Stock and exercise of the Warrants without stockholder approval
(which stockholder approval the Company has agreed to request), there is no
cap on the number of shares of Common Stock which may be issued. In addition,
the number of shares of Common Stock issuable upon the conversion of the
Series A Preferred Stock and the exercise of the Warrants is subject to
adjustment upon the occurrence of certain dilutive events. For a further
description of the rights of holders of Series A Preferred Stock see the
Certificate of Designation of Preferences of Series A Convertible Preferred
Stock of Valence Technology, Inc. filed as an exhibit to the Company's
Current Report on Form 8-K, File No. 0-20028, dated July 27, 1998 and filed
August 4, 1998. The Selling Securityholders also hold outstanding warrants to
acquire 684,250 shares of Common Stock. All of such shares of Common Stock
are covered by the registration statement containing this Prospectus or will
be covered by subsequent registration statements filed by the Company, if
necessary. At the Company's option, provided certain business goals are met,
one of the Selling Securityholders would be obligated to purchase up to an
additional $7,500,000 face amount of Series A Preferred Stock and additional
Warrants. The exercise of such warrants and conversion of the Series A
Preferred Stock and the sale of such Common Stock could have a significant
negative effect on the market price of the Common Stock and could materially
impair the Company's ability to raise capital through the future sale of
equity securities.
DEPENDENCE ON OUTSIDE PARTIES
The Company expects to rely on a limited number of alliances for
development funds, products design and development, volume purchase orders
and manufacturing and marketing expertise. The Company has received
substantially all its revenues to date from a research and development
agreement with Delphi, which was completed in May 1998. Although the Company
has held discussions with OEMs in the portable consumer electronics and
telecommunications markets about possible strategic relationships as a means
to accelerate introduction of its batteries into these markets, no assurance
can be given that the Company will be able to enter into any such alliances.
Even if the Company successfully initiates alliances, there can be no
assurance that the strategic alliances will achieve their goals. The success
of any strategic alliance is dependent upon the general business condition of
the partner, its commitment to the strategic alliance and the skills and
experience of its employees responsible for the strategic alliance.
7.
<PAGE>
UNCERTAINTY OF MARKET ACCEPTANCE
To be successful, the Company's batteries must gain broad market
acceptance. There can be no assurance that such market acceptance will be
achieved. In addition, the Company's lithium polymer batteries must be
configured to the requirements of each application. To determine such
requirements, the Company will be dependent upon OEMs into whose products the
Company's batteries will be incorporated. No assurance can be given that the
Company will receive adequate assistance from OEMs to successfully
commercialize its products. Furthermore, no assurances can be given that the
perceived safety risks associated with lithium will not impede acceptance of
the Company's batteries by OEMs or end users. In addition, to implement
successfully the Company's strategy, the Company will have to develop a
sizeable sales staff and product support capabilities, as well as third party
and direct distribution channels. There can be no assurance that the Company
will be able to establish sales and product support capabilities, or be
successful in its sales and marketing efforts.
MANUFACTURING
To be successful, the Company must manufacture commercial quantities of
high quality products at competitive costs. The Company's research prototype
battery is produced using thin film laminate technology. The cathode and
anode ("electrodes") matrix layers, and separator matrix layer are
manufactured utilizing coating techniques. These matrix layers may be either
cut or stamped out into various engineered configurations, which are then
laminated together to form cells. These cells can then be stacked and
connected to form a functional battery, which is finally packaged and tested.
Even if the Company's current research and development activities result
in the design of batteries with commercially desirable characteristics, to be
successful, the Company will have to manufacture in commercial quantities
products with appropriate performance characteristics at competitive costs.
At present, the Company has, at its Henderson, Nevada facility, manual and
semi-automated coating, laminating, assembly and packaging lines that produce
small quantities of prototype batteries for internal testing and customer
sampling. For coating the matrix layers, the Company is adapting existing
manufacturing technologies and processes. However, further development of
manufacturing technology may be delayed pending further research and
development activities by the Company and the definition of manufacturable
specifications with OEM customers.
In September 1993, the Company signed an agreement to open an automated
manufacturing plant in Mallusk, Northern Ireland. The Company currently
occupies 80,000 square feet, and may add 50,000 square feet at some point in
the future. The Company, with its equipment suppliers, has designed and
constructed a high volume, automated assembly and packaging lines for the
Northern Ireland facility. The Company's high volume manufacturing equipment
was specifically designed for use with the Company's prior metallic lithium
anode technology. The Company is working with its equipment suppliers to
redesign and modify this equipment to work with the Company's newest battery
technology. The amount of redesign and modification that is required is
substantial and there can be no assurance that such redesign and
modifications will work or will be cost effective. If all or some of the
equipment in Northern Ireland cannot be effectively redesigned and modified,
the Company will have to procure new equipment at considerable expense and
loss of time.
The first automated assembly lines have been delivered to the Northern
Ireland facility. De-bugging of the lines has proceeded more slowly than
expected. The lines' reliability and yield are predictably low, although the
Company believes that it will eventually reach its production goals. The
Company expects this line to be qualified in the second half of calendar
1998, but there can be no assurance as to the timing or even the success of
this qualification process. Upon qualification of the lines, product samples
are expected to be sent to potential customers for evaluation. The first
line is initially slated to produce the Company's larger portable-computer
cell format (approximately four inches by four inches) battery.
The Company has been unable to meet its prior schedules regarding
delivery, installation, de-bugging and qualification of the Northern Ireland
production equipment, due to unforeseen problems. As most of the production
equipment is being custom manufactured for the Company, it is possible that
further unforeseen problems will develop and cause delay in the Company's
current schedules. Many of the manufacturing processes that are being
implemented in this production equipment are being scaled up for the first
time from the Company's laboratory scale prototype work. It is likely that
some of these scaled up processes will require refinement, adjustment or
8.
<PAGE>
redesign. Any of these possibilities could cause substantial delay in the
qualification and/or production start-up of this equipment. In addition, the
current political instability in Northern Ireland, which to date has had no
negative impact on the Company's manufacturing plant, could cause unforeseen
delays in the future. Such delays could cause the Company to miss significant
sales and marketing opportunities, as potential lithium polymer battery
customers are forced to find other vendors to meet their needs. Additionally,
even if the Company is able to qualify production equipment in this calendar
year, the reliability and/or production yields may not allow the Company to
provide sufficient qualification samples to potential customers.
From its discussion with potential customers, the Company expects that
customers will require an extensive qualification period once the customer
receives its first commercial product off a production line. To date, the
Company has not provided any such commercial product to any potential
customer, and therefore, has not started any product qualification period.
COMPETITION
Competition in the battery industry is intense. The industry consists
of major domestic and international companies, most of which have financial,
technical, marketing, sales, manufacturing, distribution and other resources
substantially greater than those of the Company. The Company believes that
its lithium polymer batteries will compete in most segments of the
rechargeable battery market.
In the rechargeable battery market, the principal competitive
technologies currently marketing are NiCad batteries, lead acid batteries,
nickel metal hydride batteries and liquid electrolyte lithium ion batteries.
Eveready, Sanyo Electric Co., Ltd., and Matsushita Industrial Co., Ltd.,
among others, currently manufacture NiCad batteries. Major lead acid
manufacturers include Delphi, Johnson Controls, Exide Corp., Portable Energy
Products, Inc., Hawker Energy Products and Yuasa Battery Co.., Ltd.
Manufacturers of nickel metal hydride batteries include Matsushita Industrial
Co., Ltd, Toshiba, Eveready, Sanyo Electric Co. and Sony. Sony produces a
liquid electrolyte lithium ion battery used in Sony's products and sold to
OEMs. Toshiba has a joint venture with Asahi Chemical Industry Company to
manufacture liquid electrolyte lithium ion batteries. In addition, Saft
American Inc., Ray O Vac, PolyStor Corp., Matsushita Industrial Co., Ltd.,
Moli Energy and Sanyo Electric Co., Ltd. have developed liquid electrolyte
lithium ion batteries. The capabilities of many of these competing
technologies have improved over the past year, which has resulted in a
customer perception that the Company's lithium polymer technology may not
offer as many advantages as previously anticipated. Sony has consistently
been improving the energy density of its lithium ion battery over the last
several years.
Liquid electrolyte lithium ion batteries offer significant advantages in
energy density and cycle life over the principal rechargeable battery
technologies currently in use and are expected by the Company to be the
emerging technology most competitive to the Company's technology. Sony or
other manufacturers are offering liquid electrolyte lithium ion batteries in
the marketplace and to OEMs in substantial volumes prior to the Company's
commencement of volume production. As OEMs frequently require extensive lead
times to design new batteries into their products, the availability of liquid
electrolyte lithium ion batteries could materially adversely affect the
demand for, and market acceptance and penetration of, the Company's products.
In addition to currently marketed technologies, a number of companies
are undertaking research in rechargeable battery technologies, including work
on lithium polymer technology. Reportedly, as many as eleven other companies
have taken licenses to Bellcore's battery technology, although their
identities have not been announced. Ultralife Batteries, Inc., which
acquired Dowty Battery Company in the United Kingdom in 1994, has announced
shipment of prototype lithium ion polymer batteries, and has announced plans
to begin commercial shipments in 1998. Hydro-Quebec in Canada has signed an
agreement with Yuasa Battery Co., Ltd., of Japan for technology transfer and
the manufacture of lithium ion polymer batteries. Recently, Hydro-Quebec and
Yuasa have announced the introduction of such a rechargeable lithium polymer
battery. The Company believes that other research and development activities
on lithium polymer batteries are taking place at W. R. Grace & Co., 3M, and
Ray O Vac in the U.S. and at other companies in Japan and Malaysia. In May
1995, Moltech Corp. announced that it expected to begin production shipments
of its lithium polymer batteries in mid-to-late 1996. This was subsequently
modified to 1998. In October 1992, the United States Advanced Battery
Consortium ("USABC") awarded the first $6,300,000 of a three-year $24,500,000
contract to a group consisting of W. R. Grace & Co., Johnson Controls and
affiliated laboratories to develop a thin-film lithium polymer bipolar
battery utilizing solid polymer electrolytes. At that time, the USABC also
awarded a three-year $17,300,000 contract to Saft America Inc. to pursue a
bipolar form of the lithium iron
9.
<PAGE>
disulfide battery first developed at the Argonne National Laboratory. In
December 1993, the USABC announced the grant of a two-year $33,000,000
contract to a partnership formed by 3M, Hydro-Quebec and Argonne for the
development of lithium polymer batteries for electric vehicles, for which a
second phase was announced in February 1996, for $27,400,000. The Company
also believes that research is underway on zinc air, aluminum air, sodium
sulfur, zinc bromine and nickel zinc battery technology. No assurance can be
given that such companies are not developing batteries similar or superior to
the Company's lithium polymer batteries.
PATENTS AND TRADE SECRETS
The Company's ability to compete effectively will depend in part on its
ability to maintain the proprietary nature of its technology and
manufacturing processes through a combination of patent and trade secret
protection, non-disclosure agreements and cross-licensing agreements.
As of March 29, 1998, the Company held 180 United States patents and had
48 patent applications pending in the United States. The Company was
preparing 94 additional patent applications for filing in the United States.
The Company also actively pursuing foreign patent protection in countries of
interest to the Company. As of March 29, 1998, the Company has been granted
19 foreign patents and had 91 patent applications pending in foreign
countries.
Patent applications in the United States are maintained in secrecy until
patents issue, and since publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries by several months,
the Company cannot be certain that it was the first creator of inventions
covered by pending patent applications or the first to file patent
applications on such inventions. There can be no assurance that the Company's
pending patent applications will result in issued patents or that any of its
issued patents will afford protection against a competitor. In addition,
patent applications filed in foreign countries are subject to laws, rules and
procedures which differ from those of the United States, and thus there can
be no assurance that foreign patent applications related to issue United
States patents will issue. Furthermore, if these patent applications issue,
some foreign countries provide significantly less patent protection than the
United States.
The status of patents involves complex legal and factual questions and
the breadth of claims allowed is uncertain. Accordingly, there can be no
assurance that patent applications filed by the Company will result in
patents being issued or that its patents, and any patents that may be issued
to it in the future, will afford protection against competitors with similar
technology. In addition, no assurances can be given that patents issued to
the Company will not be infringed upon or designed around by others or that
others will not obtain patents that the Company would need to license or
design around. If existing or future patents containing broad claims are
upheld by the courts, the holders of such patents could require companies to
obtain licenses. If the Company is found to be infringing third party
patents, there can be no assurance that licenses that might be required for
the Company's products would be available on reasonable terms, if at all.
In addition to potential patent protection, the Company relies on the
laws of unfair competition and trade secrets to protect its proprietary
rights. The Company attempts to protect its trade secrets and other
proprietary information through agreements with customers and suppliers,
proprietary information agreements with employees and consultants and other
security measures. Although the Company intends to protect its rights
vigorously, there can be no assurance that these measures will be successful.
SAFETY ISSUES
Battery technologies vary in relative safety as a result of their
differing chemical compositions. Most battery technologies incorporate a
liquid electrolyte which, if leaked, may be dangerous. In addition, in the
event of a short circuit or other physical damage to the battery, the liquid
electrolyte may be free to flow to the reaction site and produce a continuous
chemical reaction. This reaction may result in excess heat or a gas release
and, if not properly released, may be explosive. The Company's lithium
polymer battery technology appears to avoid these risks, because the liquid
electrolyte in the Company's current research prototypes is held in the solid
polymer matrix and should not be free to leak or freely flow to a reaction
site.
10.
<PAGE>
The Company has not fully completed safety testing and does not know
whether the advantages inherent in the Company's technology will make the
battery as safe or safer than other battery technology. As part of the
Company's safety testing program, prototype batteries of various sizes,
designs and chemical formulations are subject to abuse testing, where the
battery is subjected to conditions outside the expected normal operating
conditions of the battery. While some prototype batteries have survived
these tests, others have vented gases containing vaporized solvents from the
electrolyte, which have caught fire. Such results were generally expected
and, until the testing is completed, the Company cannot make a valid
determination as to the safety envelope in which the battery must be
operated. Additionally, each new battery design requires new safety testing.
There can, therefore, be no assurance that safety problems will not develop
with respect to the Company's battery technology, that would prevent
commercial introduction.
The Company's products will incorporate materials containing lithium
ions. While these materials are less reactive than metallic lithium, which is
known in its metallic form to cause explosions and fires if not properly
handled, it is possible that special handling will be required. Although the
Company believes that its research prototype batteries designed for portable
electronics applications do not present safety risks substantially different
from those inherent in currently marketed non-lithium batteries or other
liquid electrolyte lithium ion batteries, there can be no assurance that
safety problems will not develop in the future. The Company is aware that if
the amounts of active materials in the anode and cathode are not properly
balanced and the charge/discharge regime is not properly managed, metallic
lithium may be plated within the battery packaging. The plating of lithium
in a lithium ion battery is a dangerous situation, and other lithium ion
battery manufacturers include special safety circuitry within the battery to
prevent such a condition. The Company expects that such circuitry will have
to be used by its customers.
The Company is currently conducting research to determine whether its
lithium polymer battery technology poses increased risks when used in larger
sized batteries because of the greater amount of ionic lithium contained in
the battery and the increased amount of energy stored in the battery.
The Company incorporates safety policies in its research and development
activities and will do so in its manufacturing processes, designed to
minimize safety risks, although there can be no assurance that an accident in
its facilities will not occur. Any accident, whether occasioned by the use
of a battery or in the Company's operations, could result in significant
delays or claims for damages resulting from injuries, which would adversely
affect the Company's operations and financial condition.
REGULATION
Prior to the commercial introduction of the Company's batteries into a
number of markets, the Company may seek to obtain approval of its products by
one or more of the organizations engaged in testing product safety. Such
approvals could require significant time and resources from the Company's
technical staff and, if redesign were necessary, could result in a delay in
the introduction of the Company's products.
Pursuant to the regulations of the United States Department of
Transportation ("DOT"), a permit is required to transport lithium across
state lines. The International Air Transport Association ("IATA") similarly
regulates the international shipment of lithium. At this time, lithium ion
batteries, because they contain no metallic lithium, are not subject to these
regulations and are being freely shipped. However, due to recent safety
incidents, including fires, with the shipment of lithium-ion batteries
produced by other manufacturers, the DOT has indicated that it is reviewing
this position, and there can be no assurance that DOT or IATA will not decide
to regulate the shipment of lithium ion batteries in the future. While, in
such an event, the Company believes that DOT has granted permits for, and
IATA has allowed, the transport of rechargeable lithium-based batteries in
the past, there can be no assurance that DOT and IATA would permit the
Company's batteries to be shipped or used by the general public, or that
changes in such regulations, or in their enforcement, will not impose costly
requirements or otherwise impede the transport of lithium. In addition, the
DOT and IATA approval processes would require significant time and resources
from the Company's technical staff and if redesign were necessary, could
delay the introduction of the Company's products.
The Nevada Occupational Safety and Health Administration and other
regulatory agencies have jurisdiction over the operation of the Company's
Henderson, Nevada manufacturing facilities, and similar regulatory agencies
11.
<PAGE>
have jurisdiction over the Company's Mallusk, Northern Ireland manufacturing
facilities. Because of the risks generally associated with the use of
lithium, the Company expects rigorous enforcement. No assurance can be given
that the Company will not encounter any difficulties in complying with
applicable health and safety regulations. Historically, lithium battery
manufacturers have suffered significant damage and losses to equipment,
facilities and production from fires and other industrial accidents. There
can be no assurance that the Company will not sustain such damage and losses.
Federal, state and local regulations impose various environmental
controls on the storage, use and disposal of certain chemicals and metals
used in the manufacture of lithium polymer batteries. Although the Company
believes its activities conform to current environmental regulations, there
can be no assurance that changes in such regulations will not impose costly
equipment or other requirements. Any failure by the Company to adequately
control the discharge of hazardous wastes could also subject it to future
liabilities.
LEGAL PROCEEDINGS
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 officers and directors. These
lawsuits were consolidated, and in September 1994 the plaintiffs filed a
consolidated and amended class action compliant. 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. In December 1996,
the Company and the individual defendants filed motions for summary
judgement, which the plaintiffs opposed. In November 1997, the Court granted
the Company's motion for summary judgment and entered a judgment in favor of
all defendants. Plaintiffs have appealed and the case is pending before the
United States Court of Appeals for the Ninth Circuit.
12.
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Securityholders.
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY
Since May 7, 1992, Valence's stock, par value $0.001, has been traded on
the National Association of Securities Dealers Automated Quotation National
Market Systems (Nasdaq/NMS) under the symbol "VLNC." A summary of the high
and low closing sales prices during each quarter for Valence Common Stock on
Nasdaq/NMS for fiscal years 1997 and 1998 follows:
<TABLE>
<S> <C> <C>
FISCAL 1997 HIGH LOW
Quarter ended June 30, 1996 $7-5/15 $ 4-1/8
Quarter ended September 29, 1996 6-1/6 3-5/8
Quarter ended December 29, 1996 5-7/8 4-1/8
Quarter ended March 30, 1997 7 4-3/16
FISCAL 1998
Quarter ended June 29, 1997 $ 10 $ 5-3/4
Quarter ended September 28, 1997 9-1/8 6-7/8
Quarter ended December 28, 1997 9 4-1/4
Quarter ended March 29, 1998 6-1/2 4-1/4
FISCAL 1999
Quarter ended June 28, 1998 6-1/8 4-21/32
Quarter ending September 27, 1998
(through August 25, 1998) 5-11/16 3-1/2
</TABLE>
The approximate number of record holders of the Company's Common stock as of
June 5, 1998, was 729.
Valence has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future.
13.
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the names of the Selling Securityholders,
the number of shares of Common stock owned by each of them as of the date of
this Prospectus and the number of Shares which may be offered pursuant to
this Prospectus. The information is based up information provided by or on
behalf of the Selling Securityholders. The Selling Securityholders may offer
all, some or none of their Shares.
<TABLE>
<CAPTION> Common Stock
Common Stock Beneficially Common Stock Beneficially Owned
Name Owned Prior to Offering (1) Offered Hereby After Offering (2) Percent (2)
- ------------------------ --------------------------- -------------- ------------------- -----------
<S> <C> <C> <C> <C>
CC Investments, LDC (3) 0 5,519,674 0 0
Gemini Capital LLC (4) 0 87,500 0 0
Baccarat Electronics, Inc. (5) 4,252,634 149,254 4,103,380 16.1%(6)
</TABLE>
- -----------------------
(1) Beneficial ownership is determined in accordance with the Rules of the
SEC and generally includes voting or investment power with respect to
securities. Except as otherwise indicated by footnote, and subject to
community property laws where applicable, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Assumes the sale of all Shares offered hereby.
(3) Includes warrants to purchase 71,129 shares of Common Stock at a price
of $6.03 per share and 1,243,781 shares issuable upon conversion of shares of
Series A Preferred Stock. Pursuant to the terms of the Series A Preferred
Stock and such warrants, no holder thereof can convert or exercise any
portion of such Series A Preferred Stock or the warrants if such conversion
would increase such holder's beneficial ownership of Common Stock to in
excess of 4.9%. Absent such limitation, the number of shares of Common stock
issuable upon exercise of the warrants would have been 447,761, which,
together with the shares issuable upon conversion of Series A Preferred Stock
held by CC Investments, LDC, would constitute 6.2% of the outstanding shares
of Common Stock. Pursuant to the regulations of the National Association of
Securities Dealers, in the absence of stockholder approval, the aggregate
number of shares of Common Stock issuable at a discount from market price
upon conversion of the Series A Preferred Stock may not exceed 19.99% of the
outstanding shares of Common Stock. Unless stockholder approval is obtained
to issue Common Stock in excess of the maximum amount set forth above, the
holder of the Series A Preferred Stock will not be entitled to acquire more
than its proportionate share of such maximum amount. Any Series A Preferred
Stock which may not be converted because of such limitation must be redeemed
by the Company. The number of shares of Common Stock registered pursuant to
this Registration Statement on behalf of CC Investments, LDC and the number
of shares of Common Stock offered hereby by such holder have been determined
by agreement between the Company and such Selling Securityholder. Because the
number of shares of Common Stock that will ultimately be issued upon
conversion of the Series A Preferred Stock is dependent, subject to certain
limitations, upon the average of certain closing bid prices of the Common
Stock prior to conversion, as described above, and certain antidilution
adjustments, such number of shares of Common Stock (and therefore the number
of shares of Common Stock offered hereby) cannot be determined at this time.
(4) Gemini Capital LLC acted as placement agent in the private placement of
Series A Preferred Stock of the Company, for which it received a commission of
$375,000 and a warrant to purchase 87,500 shares of Common Stock at an exercise
price of $4.9375 per share.
(5) Represents shares issuable to Baccarat Electronics, Inc. upon exercise
of warrants to purchase up to 149,254 shares of Common Stock at an exercise
price of $6.7838 per share. Baccarat Electronics is a corporation of which
Carl Berg, a director of the Company, is President and principal stockholder.
The number of shares owned prior to the offering compromises 1,333,825 shares
held by Baccarat Electronics, Inc.; 150,000 shares held directly by Mr. Berg,
62,224 shares issuable upon exercise of options held by Mr. Berg exercisable
within 60 days of August 17, 1998; 2,499,997 shares held by Baccarat
Development Partnership, for which Mr. Berg serves as the President of the
corporate general partner; 105,000 shares held by Berg & Berg Enterprises,
Inc.; and 70,000 shares held by Berg & Berg Profit Sharing Trust. The warrants
were issued in connection with Amendment No. 5 to a Promissory Note and Loan
Agreement between Baccarat Electronics and the Company, dated as of July 27,
1998.
(6) Based on 26,662,367 shares of Common Stock outstanding on June 5, 1998,
adjusted as required by rules promulgated by the Commission.
14.
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time by the Selling
Securityholder to purchasers directly by any of the Selling Security holders
in one or more transactions at a fixed price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the holders of such securities or by agreement
between such holders and underwriters or dealers who may receive fees of
commissions in connection therewith.
Any of the Selling Securityholders may from time to time offer the
Shares beneficially owned by them through underwriters, dealers or agents,
who may receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Securityholders and the
purchasers of the Shares for whom they may act as agent. Each Selling
Securityholder will be responsible for payment of commissions, concessions
and discounts of underwriters, dealers or agents. The aggregate proceeds to
the Selling Securityholders from the sale of the Shares offered by them
hereby will be the purchase price of such Shares less discounts and
commissions, if any. Each of the Selling Securityholders reserves the right
to accept and, together with their agents from time to time to reject, in
whole or in part, any proposed purchase of Shares to be made directly or
through agents. The Company will not receive any of the proceeds from this
offering. Alternatively, the Selling Securityholders may sell all or a
portion of the Shares beneficially owned by them and offered hereby from time
to time on any exchange on which the securities are listed on terms to be
determined at the times of such sales. The Selling Securityholders may also
make private sales directly or through a broker or brokers. Transactions
through broker-dealers may, including block trades in which brokers or
dealers will attempt to sell the Shares as agent but may position and resell
the block as principal to facilitate the transaction, or one or more
underwritten offerings on a firm commitment or best effort basis.
From time to time, the Selling Securityholders may transfer, pledge,
donate or assign Shares to lenders or others and each of such persons will be
deemed to be a "Selling Securityholder" for purposes of the Prospectus. The
number of the Selling Securityholders' Shares beneficially owned by a Selling
Securityholder who transfers, pledges, donates or assigns Shares will
decrease as and when they take such actions. The plan of distribution for
Selling Securityholders' Shares sold hereunder will otherwise remain
unchanged, except that the transferees, pledgees, donees or other successors
will be Selling Securityholders hereunder.
A Selling Securityholder may enter into hedging transactions with
broker-dealers, and the broker-dealers may engage in short sales of the
Shares in the course of hedging the positions they assume with such Selling
Securityholder, including, without limitation, in connection with
distribution of the Shares by such broker-dealers. In addition, the Selling
Securityholder may, from time to time, sell short the Shares of the Company,
and in such instances, this Prospectus may be delivered in connection with
such short sales and the Shares offered hereby may be used to cover such
short sales. The Selling Securityholders may also enter into option or other
transactions with broker-dealers that involve the delivery of the Shares to
the broker-dealers, who may then resell or otherwise transfer such Shares.
The Selling Securityholders may also loan or pledge the Shares to a
broker-dealer and the broker-dealer may sell the Shares as loaned or upon a
default may sell or otherwise transfer the pledge Shares.
Shares to be sold hereunder may be issued upon conversion of the Series
A Preferred Stock in accordance with its terms, or in other transactions with
the Company involving the Series A Preferred Stock, including, without
limitation, issuance of Shares of Common Stock in exchange for shares of
Series A Preferred Stock and issuance of Shares of Common Stock, or in
settlement of claims with respect to rights of holders of Series A Preferred
Stock.
The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of the Shares offered hereby may be deemed to
be underwriters within the meaning of the Securities Act, and any discounts,
commissions or concessions received by them and any provided pursuant to the
sale of shares by them might be deemed to be underwriting discounts and
commissions under the Securities Act.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this Prospectus. There
is no assurance that any Selling Securityholder will sell any or all of the
Shares described herein, and any Selling Securityholder may transfer, devise
or gift such securities by other means not described herein.
To the extent required, the specific Shares to be sold, the names of the
Selling Securityholders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth
in an accompanying Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus is a part.
The Company entered into a Registration Rights Agreement in connection with
the Private Placement which required it to register Shares under applicable
federal and state securities laws under certain circumstances and at certain
times. The Registration Rights Agreement provides for cross-indemnification
of the Selling Securityholders and the Company and their respective
directors, officers and controlling persons against certain liabilities in
connection with the offer and sale of the Shares, including liabilities under
the Securities Act of 1933, as amended, and to contribute to payments the
parties may be required to make in respect thereof.
The Company will pay substantially all of the expenses incurred by the
Selling Securityholders and the Company incident to the offering and sale of
the Shares excluding any underwriting discounts or commissions.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of March 29, 1998 and March 30, 1997
and the consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the period from March 3, 1989 (date of inception) to March
29, 1998 and for each of the years ending March 29, 1998, March 30, 1997 and
March 31, 1996 incorporated by reference in this registration statement, have
been incorporated herein in the reliance on the report, which includes an
explanatory paragraph regarding the Company's ability to continue as a going
concern, of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
15.
<PAGE>
Such financial statements are incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
16.
<PAGE>
No dealer, sales person or other person has been authorized to give any
information or to make any representations not contained in this prospectus,
and, if given or made, such other information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
security other than the notes or conversion shares offered hereby, nor does
it constitute an offer to sell or a solicitation of an offer to buy any of
the notes or conversion shares to anyone in any jurisdiction where, or to any
person to whom, it would be unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall
under any circumstances, create an implication that there has been no change
in the affairs of the Company since the date hereof or imply that information
contained herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain Documents by Reference. . . . . . . . . . . . . . 3
Disclosure Regarding Forward-Looking Statements. . . . . . . . . . . . . . 4
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Price Range of Common Stock; Dividend Policy . . . . . . . . . . . . . . . 13
Selling Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
17.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All the amounts shown are
estimates except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee. . . . . . . . . . . . . . . . . . . . . . . . . $6,315
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . -
Nasdaq listing fee. . . . . . . . . . . . . . . . . . . . . . . . 17,500
Blue sky qualification fees and expenses. . . . . . . . . . . . . -
Printing and engraving expenses . . . . . . . . . . . . . . . . . -
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . 5,000
Accounting fees and expenses. . . . . . . . . . . . . . . . . . . 5,000
Transfer agent and registrar fees . . . . . . . . . . . . . . . . -
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 2,185
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,000
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended ("Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive
officers and may indemnify its other officers, employees and other agents to
the fullest extent permitted by Delaware law.
The Registrant's Restated Certificate of Incorporation ("Restated
Certificate") provides that the liability of its directors for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law. Pursuant to Delaware law, this includes elimination of liability for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for act or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends
or approval of stock repurchases or redemptions that are unlawful under
Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Registrant has entered into agreements with its directors and
officers that require the Company to indemnify such persons to the fullest
extent authorized or permitted by the provisions of the Restated Certificate
and Delaware law against expenses, judgements, fines, settlements and other
amounts actually and responsibly incurred (including expenses of a derivative
action) in connection with any proceeding, whether actual or threatened, to
which any such person may be made a party by reason of the fact that such
person is or was a director, officer, employee or other agent of the
Registrant or any of its affiliated enterprise. Delaware law permits such
indemnification, provided such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interest
of the Registrant and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The
indemnification agreements also set forth certain procedures that will apply
in the event of a claim for indemnification thereunder. In addition, the
Registrant maintains director and officer liability insurance which, subject
to certain exceptions and limitations, insures directors and officers for any
alleged breach of duty, neglect, error, misstatement, misleading statement,
omission or act in their respective capacities as directors and officer of
the Registrant.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.
18.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
4.1 Securities Purchase Agreement, dated July 27, 1998. (9)
4.2 Registration Rights Agreement, dated July 27, 1998. (9)
4.3 Certificate of Designation of Series A Convertible Preferred Stock, as
filed with the Delaware Secretary of State on July 27, 1998. (9)
4.4 Form of Warrant to CC Investments LLC. (9)
4.5 Form of Warrant to Gemini Capital LLC. (9)
4.6 Form of Warrant to Baccarat Electronics, Inc. (9)
5.1 Opinion of Cooley Godward LLP.
10.1 Form of Indemnification Agreement entered into between the Registrant
and its Directors and Officers. (1)
10.2 (+) 1990 Employee Stock Option Plan and related form of Incentive Stock
Option Grant and Supplemental Stock Option Grant. (1)
10.20 Indemnification Agreement by and between the Company and Carl E. Berg,
dated March 21, 1992. (1)
10.30 (*) Joint Development and License Agreement between Eveready Battery
Company, Inc., the Company and Valence Technology Cayman Islands Inc.,
dated as of May 20, 1994. (2)
10.34 (*) Technology Transfer Agreement between the Company and Bell
Communications Research, Inc., dated as of June 29, 1995. (3)
10.35 (*) Joint Venture Agreement between the Company, through its Dutch
subsidiary, and Hanil Telecom Co., Ltd., dated as of July 10, 1996.
(4)
10.36 (*) License and Support Agreement between the Company, through its Dutch
subsidiary, and Hanil Valence Co., Ltd. (4)
10.37 (*) Battery Laminate Supply Agreement between the Company, through its
Dutch subsidiary, and Hanil Valence Co., Ltd. (4)
10.38 (*) Letter Agreement from the Company, through its Dutch subsidiary, to
Hanil Telecom Co., Ltd. (4)
10.39 (*) Joint Venture Agreement between the Company and Alliant Techsystems.
(5)
10.40 (*) License and Support Agreement between the Company and Alliant /
Valence, L.L.C. (5)
10.41 (*) Battery Laminate Supply Agreement between the Company and Alliant /
Valence, L.L.C. (5)
10.42 1990 Stock Option Plan as amended on October 3, 1997. (6)
10.43 1996 Non-Employee Directors' Stock Option Plan as amended on
October 3, 1997.(6)
10.44 (+) Early Exercise Stock Purchase Agreement dated March 5, 1998 between
Valence Technology, Inc. and Lev M. Dawson regarding option to
purchase 660,494 shares, including exhibits. (7)
10.45 (+) Promissory Note issued by Lev M. Dawson to Valence Technology, Inc. in
the amount of $3,343,750.88 (included as Exhibit D to Exhibit 10.45).
(7)
10.46 (+) Early Exercise Stock Purchase Agreement dated March 5, 1998 between
Valence Technology, Inc. and Lev M. Dawson regarding option to
purchase 300,000 shares, including exhibits. (7)
10.47 (+) Promissory Note issued by Lev M. Dawson to Valence Technology, Inc. in
the amount of $1,518,750 (included as Exhibit D to Exhibit 10.47). (7)
10.48 (+) Stock Pledge Agreement dated March 5, 1998 by Lev M. Dawson (included
as Exhibit E to Exhibit 10.45 and Exhibit 10.47). (7)
10.49 Hanil Valence Co., Ltd. Report on Audit of Financial Statements for
the Year Ended March 31, 1998. (8)
10.50 Amendment No. 5 to Loan Agreement and Promissory Note between the
Company and Baccarat Electronics, Inc., dated July 27, 1998 (9)
10.51(**) Termination Agreement between the Company, Valence Technology Cayman
Islands, Inc. and the Delphi Energy and Engine and Energy Management
Systems Group of the General Motors Corporation, dated as of May 14,
1998. (10)
23.1 Consent of PricewaterhouseCoopers, LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. See signature page.
</TABLE>
- -------------------------------------------------------------------------------
19.
<PAGE>
(1) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (File No. 33-46765), as amended.
(2) Incorporated by reference to the indicated exhibit in the Company's
Form 10-K filed for fiscal year ended March 27, 1994.
(3) Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q filed for fiscal quarter ended June 25, 1995.
(4) Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q filed for fiscal quarter ended June 30, 1996.
(5) Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q filed for fiscal quarter ended September 29, 1996.
(6) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-8 (File No. 333-43203) filed on
December 24, 1997.
(7) Incorporated by reference to the indicated exhibit in the Schedule 13d
filed by Lev M. Dawson on March 16, 1998.
(8) Incorporated by reference to the indicated exhibit in the Company's
Form 10-K filed for the fiscal year ended March 29, 1998.
(9) Incorporated by reference to the indicated exhibit to the Company's
Current Report on Form 8-K, File No. 0-20028, dated July 27, 1998 and
filed August 4, 1998.
(10) Incorporated by reference to the indicated exhibit to the Form 10-Q
for the quarter ended June 28, 1998.
(+) Executive compensation plans and arrangements.
(*) Confidential treatment has been granted for portions of this document.
(**) Portions of the document have been omitted. A separate filing of such
omitted text has been made with the Commission as part of registrant's
application for confidential treatment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of periodic
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") containing information required to be
included in a post-effective amendment that is incorporated by reference in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
Registration Statement to include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
The undersigned Registrant hereby undertakes to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suite or
proceeding)
20.
<PAGE>
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus as filed as part of the registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of the registration statement as of the time
it was declared effective; and (2) for the purpose of determining any
liability under the Securities Act, each post-effective amendment that
contained a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
21.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Henderson, State of Nevada on
August 25, 1998.
VALENCE TECHNOLOGY, INC.
By: /s/ Lev M. Dawson
-------------------------------------
Lev M. Dawson
Chairman of the Board, Chief
Executive Officer and President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Lev
M. Dawson his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form S-3, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Lev M. Dawson
- ----------------------------- Chairman of the Board, Chief August 25, 1998
Lev M. Dawson Executive Officer and President
/s/ David P. Archibald
- ----------------------------- Vice President and Chief Financial August 25, 1998
David P. Archibald Officer
- ----------------------------- Director
Carl E. Berg
/s/ Alan F. Shugart
- ----------------------------- Director August 25, 1998
Alan F. Shugart
</TABLE>
22.
<PAGE>
[LETTERHEAD]
August 25, 1998
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Valence Technology, Inc. (the "Company") of a Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission, including a prospectus (the "Prospectus"), covering the
offering of 5,756,428 shares of the Company's Common Stock, with a par value
of $0.001 (the "Shares"), to be sold by certain stockholders as described in
the Registration Statement. Of such Shares, all were issued by the Company
pursuant to a Securities Purchase Agreement by and between the Company and CC
Investments, LDC, dated July 27, 1998, a Letter Agreement between the Company
and Gemini Capital LLC dated June 18, 1998, and Amendment No. 5 to a Loan
Agreement and Promissory Note between the Company and Baccarat Electronics,
Inc. dated July 27, 1998. Defined terms used herein shall have the meanings
attributed to such terms in the Registration Statement unless otherwise
stated herein.
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation, as amended, the Company's By-laws, as amended, and the
originals or copies certified to our satisfaction of such documents, records,
certificates, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
We have assumed the genuineness and authenticity of all documents submitted
to us as originals, the conformity to originals of all documents submitted to
us as copies thereof, and the due execution and delivery of all documents
where due execution and delivery are a prerequisite to the effectiveness
thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, are validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Andrei M. Manoliu
-----------------------------
Andrei M. Manoliu
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Valence Technology, Inc. and subsidiaries (companies in the development
stage) (the "Company") on Form S-3 of our report, which includes an
explanatory paragraph regarding the Company's ability to continue as a going
concern, dated May 8, 1998, on our audits of the consolidated financial
statements of the Company as of March 29, 1998 and March 30, 1997, and for
the period from March 3, 1989 (date of inception) to March 29, 1998 and for
each of the years ending March 29, 1998, March 30, 1997 and March 31, 1996,
which report is included in this annual report on Form 10-K.
PricewaterhouseCoopers LLP
San Jose, California
August 25, 1998
