Prospectus Supplement filed under rule 424(b)(3)
in connection with Registration No. 333-69309
PROSPECTUS SUPPLEMENT NO. 1 DATED DECEMBER 6, 1999
(To Prospectus Dated March 15, 1999)
VALENCE TECHNOLOGY, INC.
4,535,261 SHARES OF COMMON STOCK
This Prospectus Supplement (the "Prospectus Supplement") supplements information
contained in that certain Prospectus, dated March 15, 1999, as amended or
supplemented (the "Prospectus") relating to the offer and sale by certain
Selling Stockholders of up to 4,535,261 shares of common stock, $.001 par value
of Valence Technology, Inc. ("Valence"). This Prospectus Supplement is not
complete without, and may not be delivered or utilized except in connection
with, the Prospectus, including any amendments or supplements thereto.
Capitalized terms used herein but not defined have the meanings assigned to such
terms in the Prospectus. The Prospectus Supplement allocates the 4,535,261
shares of common stock previously included in the registration statement as
being offered by the Selling Shareholders under the Prospectus, as supplemented
hereby. The following table amends and supplements the information set forth in
the cover page of the Prospectus under the caption "Selling Stockholders" to
identify that the aggregate number of shares being offered by CC Investments,
LDC is 4,447,761. The information contained herein supersedes the information
contained in the Prospectus:
THE SELLING STOCKHOLDERS: CC Investments, LDC is selling 4,447,761 shares of
Valence common stock issuable to CC Investments upon the conversion of preferred
stock and exercise of a warrant issued to CC Investments in a private financing.
In addition, the information in the table appearing under the heading
"Selling Stockholders" in the Prospectus relating to the common stock being
offered by CC Investments is superseded in part by the information appearing in
the table below(1):
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK PERCENT OF OUTSTANDING
BENEFICIALLY OWNED BENEFICIALLY OWNED COMMON STOCK OWNED
NAME PRIOR TO OFFERING(1) COMMON STOCK OFFERED(1) AFTER OFFERING(1) AFTER OFFERING(1)
<S> <C> <C> <C> <C>
CC Investments, LDC 1,309,363 4,447,761 1,309,363 4.9%
- ---------------
<FN>
(1) This information is provided as of March 15, 1999, the date of the original
Prospectus. As of November 22, 1999, CC Investments beneficially owned
1,557,725 shares of common stock, representing 4.9% of the outstanding
shares of common stock, and will beneficially own after this offering
447,761 shares of common stock, representing 1.4% of the outstanding shares
of common stock.
</FN>
</TABLE>
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD NOT MAKE AN INVESTMENT IF YOU CANNOT AFFORD THE LOSS OF YOUR ENTIRE
INVESTMENT. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING FACTORS IN EVALUATING VALENCE AND ITS BUSINESS
BEFORE PURCHASING ANY SHARES OF OUR COMMON STOCK.
WE HAVE AN IMMEDIATE NEED FOR ADDITIONAL CAPITAL
We have an immediate need for additional capital, which if we don't obtain,
would cause us to reduce our developmental efforts and impair our ability to
commercialize our products. At September 26, 1999, we had cash and cash
equivalents of $3,212,000. Subsequent to September 26, 1999 and as of November
10, 1999, we obtained an additional $3 million of equity financing and $1.5
million of debt financing from a stockholder. We anticipate that, after taking
into account projected revenues and receipt of funds from other sources, we will
need to raise a minimum of $25 million in either a debt or equity financing to
fund planned capital expenditures, research and product development, marketing
and general and administrative expenses and to pursue joint venture
opportunities through the remainder of fiscal 2000 and through the first quarter
of fiscal 2001. Our cash requirements, however, may vary materially from those
now planned because of changes in our 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.
These factors raise substantial doubts about our ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty. The effects of such
adjustments, if necessary, could be material.
WE ARE A DEVELOPMENT STAGE COMPANY WITH A LIMITED QUANTITY OF PRODUCTS CURRENTLY
AVAILABLE FOR SALE
We are a development stage company and cannot anticipate when, or if, we will
ever have significant revenues from a product. We have derived our revenues
primarily from a research and development contract with Delphi Automotive
Systems Group,
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which we completed in May 1998. We presently have limited quantities of
commercially developed and manufactured products available for sale. These
factors raise substantial doubt about our ability to continue as a going
concern. Our financial statements do not include any adjustments that might
result from the outcome of this uncertainty, and such adjustments, if necessary,
could be substantial.
OUR CURRENT AVAILABLE CAPITAL AND FUTURE REVENUES, IF ANY, WILL NOT BE
SUFFICIENT TO MEET OUR FUTURE OPERATING NEEDS
We have generally incurred operating losses since inception in 1989 and had an
accumulated deficit of $171,959,000 as of September 26, 1999. We cannot assure
you that we will ever achieve or sustain significant revenues or profitability
in the future. We have negative working capital and have sustained recurring
losses related primarily to the research and development and marketing of our
products. We expect to incur significant losses in the future, as we continue
our product development, begin to build inventory and continue our marketing
efforts. We will need to secure additional financing in order to continue
operations past 1999 unless we begin to generate significant operating revenue.
We will have to continue to devote a significant amount of management time to
obtaining financing.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING, IN WHICH CASE WE WOULD NEED
TO REDUCE DEVELOPMENTAL EFFORTS AND MAY NOT BE ABLE TO COMMERCIALIZE OUR
PRODUCTS
If we are unable to achieve profitability or we are unable to secure additional
financing on acceptable terms, we will be unable to continue to fund our
operations. We are actively pursuing capital grant advances from the Northern
Ireland Industrial Development Board, and our success in these efforts depends
on our achieving cumulative revenues from the sale of batteries of $4 million.
We may not achieve such cumulative revenue over the short-term, if at all.
Additionally, a lack of capital may require us to license to third parties
rights to commercialize products or technologies that we might otherwise seek to
develop ourselves, and to scale back or eliminate our research and product
development programs. The unavailability of adequate funds would
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have a material adverse effecton our business, financial condition, and results
of operations.
WE NO LONGER HAVE A COLLABORATIVE PARTNER TO ASSIST US IN DEVELOPMENT OF OUR
BATTERIES, WHICH MAY LIMIT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS
We have received substantially all our revenues to date from a research and
development agreement with Delphi Automotive Systems Group, which we completed
in May 1998. The Delphi agreement was for joint development in the automotive
market. Although we have held discussions with original equipment manufacturers
(OEMs) in the portable consumer electronics and telecommunications markets about
possible strategic relationships as a means to accelerate introduction of our
batteries into these markets, we cannot assure you that we will be able to enter
into any such alliances. The use of alliances for our development, product
design, volume purchase and manufacturing and marketing expertise can reduce the
need for development and use of internal resources. Further, even if we could
collaborate with a desirable partner, there is a chance that the partnership may
not be successful. The success of any strategic alliance that we enter into
depends on, among other things, the general business condition of the partner,
its commitment to the strategic alliance and the skills and experience of its
employees.
BECAUSE OUR BATTERIES ARE ONLY SOLD WHEN INCORPORATED INTO OTHER PRODUCTS, WE
WILL NEED TO RELY ON ORIGINAL EQUIPMENT MANUFACTURERS TO COMMERCIALIZE OUR
PRODUCTS
To be successful, our batteries must gain broad market acceptance. In addition,
our success will depend significantly on our ability to meet OEM customer
requirements by developing and introducing on a timely basis new products and
enhanced or modified versions of its existing products. OEMs often require
unique configurations or custom designs for battery systems which must be
developed and integrated in the OEM's product well before the product is
launched by the OEM. Thus, there is often substantial lead-time between the
commencement of design efforts for a customized battery system and the
commencement of volume shipments of the battery system to the OEM (referred to
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as the "design in time"). If we are unable to design, develop and introduce
products that meet OEMs' and other customers' exacting requirements on a timely
basis, our business, results of operations and financial condition could be
materially adversely affected. To determine the requirements of each specific
application, we will be dependent upon OEMs and other intermediaries such as
battery pack designers into whose products our batteries will be incorporated.
There is a possibility that we will not receive adequate assistance from OEMs to
successfully commercialize our products. Furthermore, the perceived safety risks
associated with lithium, an element used in our batteries, may impede acceptance
of our batteries by OEMs or end users.
WE DO NOT YET HAVE THE SALES STAFF, SUPPORT CAPABILITIES AND DISTRIBUTION
CHANNELS TO DISTRIBUTE OUR PRODUCTS ON A COMMERCIAL SCALE
To implement our strategy successfully, we may have to develop a sizeable sales
staff and product support capabilities, as well as third party and direct
distribution channels. We cannot assure you that we will be able to establish
sales and product support capabilities, or be successful in our sales and
marketing efforts.
WE MAY NOT BE ABLE TO COST-EFFECTIVELY MANUFACTURE OUR BATTERIES
To be successful, we must manufacture commercial, high-quality quantities of our
products at competitive costs. We have produced prototype and production quality
products that we believe have performance characteristics that are suitable for
a broad market. However, additional development will be required to enable us to
consistently produce battery systems with these characteristics. In addition, to
achieve broad commercialization of our products, we will need to reduce
manufacturing costs of our battery systems. Our batteries may not be
manufacturable in long-run commercial quantities to the performance
specifications demanded by customers. We must still be able to competitively
manufacture these batteries. Our current manufacturing technology might need to
be more fully developed before we will be able to manufacture our batteries in
commercial quantities. Any failure to achieve acceptable yields of commercial
quality batteries in commercial quantities, and thereby reduce
unit-manufacturing costs, could have a material adverse effect
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on our business, results of operations and financial condition.
WE ARE IN THE EARLY STAGE OF MANUFACTURING, AND IF WE ARE UNABLE TO DEVELOP
MANUFACTURING CAPABILITIES IN A COST EFFECTIVE MANNER, WE WILL NOT BE ABLE TO
GENERATE PROFITS; OUR BUSINESS ALSO FACES CERTAIN MANUFACTURING RISKS, POTENTIAL
CAPACITY CONSTRAINTS AND RISKS RELATING TO PROPOSED EXPANSION
To date, we have not manufactured batteries on a commercial scale. Any failure
to achieve acceptable yields of commercial quality batteries in commercial
quantities, and thereby to reduce our unit manufacturing costs, could have a
material adverse effect on our business, results of operations and financial
condition. Until recently, our batteries only have been manufactured on our
pilot manufacturing line, which is able to produce prototype cells in quantities
sufficient to enable customer sampling and testing and product development. We
are currently in the early stages of transitioning production to an automated
high volume production line that will work with our newest battery technology in
our manufacturing facility in Mallusk, Northern Ireland. The redesign and
modification of the manufacturing facility, including its customized
manufacturing equipment, will continue to require substantial engineering work
and expenses and is subject to significant risks, including risks of cost
overruns and significant delays. In addition, in order to rapidly scale up the
manufacturing capacity, we will need to begin fabrication of a second automated
production line before completing full qualification of the first line. In
automating, redesigning and modifying the manufacturing processes, we have been,
and will continue to depend on, several developers of automated production
lines, which have limited experience in producing equipment for the manufacture
of batteries. A key determinant of our current and future production capacity
and profitability is the production yield of our manufacturing process. The
redesign and modification of our manufacturing facility and the development and
implementation of automated production lines will entail significant risks and
will require a substantial investment of our capital. As part of our
manufacturing ramp-up, we will need to hire and train a substantial number of
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new manufacturing workers. The availability of skilled and unskilled workers in
Northern Ireland, the site of our manufacturing facility, is limited due to a
relatively low unemployment rate. We may not successfully develop improved
processes, design required production equipment, enter into acceptable contracts
for the fabrication of such equipment, obtain timely delivery of such equipment,
implement multiple production lines or successfully operate the Mallusk
facility. We may not be able to successfully automate our production on a timely
basis, if at all, and such automation may not result in greater manufacturing
capacity or lower manufacturing costs than our pilot production line. Customer
relationships could be damaged if we fail to begin volume manufacturing on a
timely basis. Such failure could cause lost opportunities and have a material
adverse effect on our business, results of operations and financial condition.
WE ARE EXPERIENCING DELAYS IN QUALIFYING OUR MANUFACTURING FACILITIES
We have been unable to meet our prior schedules regarding delivery,
installation, de-bugging and qualification of the Northern Ireland facility
production equipment. As most of the production equipment is being specially
manufactured for us, further problems may develop and cause further delay in our
current schedules. We are improving and bringing many of the manufacturing
processes that we are implementing in this production equipment up to date for
the first time from our laboratory scale prototype work. We may need to further
refine the improved processes, which could cause substantial delays in the
qualification and use of this equipment. Furthermore, if we are able to refine
our process, we may not be able to produce the required amount of qualification
samples to potential customers. From our discussions with potential customers,
we expect that customers will require an extensive qualification period once the
customer receives its first commercial product off a production line.
WE DEPEND ON OUR SUPPLIERS FOR CERTAIN KEY RAW MATERIALS TO DEVELOP AND
MANUFACTURE OUR BATTERIES
We depend on sole or limited source suppliers for certain key raw materials used
in our products. We generally purchase sole or limited source raw materials
pursuant to purchase orders placed from time to time
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and have no long-term contracts or other guaranteed supply arrangements with our
sole or limited source suppliers. Our suppliers may not be able to meet our
requirements relative to specifications and volumes for key raw materials, and
we may not be able to locate alternative sources of supply. We may not be able
to purchase raw materials at an acceptable cost. In addition, the raw materials
which we utilize must be of a very high quality, and we have at times in the
past experienced delays in product development due to the delivery of
nonconforming raw materials from our suppliers.
OUR RECHARGEABLE BATTERIES MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN MARKET
ACCEPTANCE
To achieve market acceptance, our batteries must offer significant price and/or
performance advantages over other current and potential alternative battery
technologies in a broad range of applications. Our rechargeable batteries may
not be able to achieve or sustain any such advantages. Even if our rechargeable
batteries provide meaningful price or performance advantages, there is a risk
our batteries may not be able to achieve or maintain market acceptance in any
potential market application. The success of our products also will depend upon
the level of market acceptance of OEMs' and other customers' end products that
incorporate our batteries, a circumstance over which we have little or no
control. If our rechargeable batteries do not achieve and maintain significant
price and/or performance advantages over other technologies and achieve
significant and sustained market acceptance, or if customers' applications which
incorporate our products do not achieve lasting market acceptance, our business,
results of operations and financial condition could be materially adversely
affected. If we do manufacture our batteries in commercial quantities and they
fail to perform as expected, our reputation could be severely damaged, which
would have a material adverse effect on our ability to market our batteries even
if the defect were corrected.
THERE HAS BEEN, AND CONTINUES TO BE, A RAPID EVOLUTION OF BATTERY TECHNOLOGIES
The battery industry has experienced, and is expected to continue to experience,
rapid technological change. Various companies are seeking to enhance traditional
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battery technologies, such as lead acid and NiCad, and other companies have
recently introduced or are developing rechargeable batteries based on nickel
metal hydride ("NiMH"), lithium and other emerging and potential technologies.
Competing technologies that outperform our batteries could be developed and
successfully introduced and, as a result, there is a risk that our products may
not be able to compete effectively in our targeted market segments.
OUR SUCCESS DEPENDS HEAVILY ON OUR SENIOR MANAGEMENT PERSONNEL AND ON OUR
ABILITY TO ATTRACT AND RETAIN KEY EMPLOYEES
Our business success is highly dependent upon the active participation of our
senior management personnel. We do not have written employment contracts with
any key employees and do not maintain key man life insurance policies for any of
our employees. We believe that our future prosperity will depend in large part
on our ability to attract and retain highly skilled technical, managerial, and
marketing personnel who are familiar with and experienced in the battery
industry. Competition for such personnel, in particular for product development
and product implementation personnel, is intense, and we compete in the market
for such personnel against numerous companies, including larger, more
established competitors with significantly greater financial resources than us.
We have at times experienced difficulty in recruiting qualified personnel, and
we cannot be certain that we will be successful in attracting and retaining
skilled personnel. Our inability to attract and retain other qualified employees
could have a material adverse effect on our business.
OUR COMPETITORS MAY DEVELOP BATTERIES SIMILAR OR SUPERIOR TO OURS OR OTHERWISE
COMPETE MORE SUCCESSFULLY THAN WE DO
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 ours. Although we believe that our batteries will compete in most
segments of the rechargeable battery market, there is a risk that other
companies may develop batteries similar or superior to ours. In addition, many
of these companies have name recognition, established positions in the market,
and long standing relationships with OEMs and
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other customers. While these competitors are engaged in significant development
work on various battery systems (including electrochemistries such as NiCad,
NiMH and lithium), we believe that much of this effort is focused on achieving
higher energy densities for low power applications such as portable electronics.
One or more new, higher energy rechargeable battery technologies could be
introduced which could be directly competitive with, or be superior to, our
technology. We believe that our primary competitors are existing suppliers of
Lithium Ion, competing polymer and, in some cases, NiMH batteries. These include
Matsushita Industrial Co., Ltd., Sony, Toshiba, SAFT America, Inc. ("SAFT") and
PolyStor Corp. All of these companies are very large and have substantial
resources and market presence. We expect that we will compete against
manufacturers of other types of batteries in the targeted application segments
on the basis of performance, cost and ease of recycling, and there is a risk
that we may not be able to compete successfully against manufacturers of other
types of batteries in any of the targeted applications. In addition, in the
rechargeable battery market there are a variety of competing technologies. The
capabilities of many of these competing technologies have improved over the past
year, which has resulted in a customer perception that our technology may not
offer as many advantages as previously anticipated.
WE FACE A RISK THAT OUR PENDING PATENT APPLICATIONS WILL NOT RESULT IN ISSUED
PATENTS AND THAT OUR ISSUED PATENTS WILL NOT PROVIDE PROTECTION AGAINST
COMPETITORS
Our ability to compete successfully will depend on whether we can protect our
proprietary technology and manufacturing processes. We rely on a combination of
patent and trade secret protection, non-disclosure agreements, and
cross-licensing agreements. Nevertheless, such measures may not be adequate or
safeguard the proprietary technology underlying our batteries. In addition,
employees, consultants, and others who participate in the development of our
products may breach their non-disclosure agreements with us, and we may not have
adequate remedies for any such breach. Moreover, notwithstanding our efforts to
protect our intellectual property, our competitors may be able to develop
products that are equal or superior to our products without infringing on any of
our intellectual property rights. In addition, we may not be able to
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effectively protect our intellectual property rights in certain countries. 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 we are
found to be infringing third party patents, there is a risk that we may not be
able to obtain licenses to such products on reasonable terms, if at all. Our
failure to protect our proprietary technology may materially adversely affect
our financial condition and results of operations. 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, we cannot be certain that we were
the first creator of inventions covered by pending patent applications or the
first to file patent applications on such inventions. Therefore, our pending
patent applications may not result in issued patents and any of our issued
patents may not afford protection against a competitor.
OUR BATTERIES CONTAIN POTENTIALLY DANGEROUS MATERIAL, WHICH COULD EXPOSE US TO
LIABILITY
Battery technologies vary in relative safety as a result of their differing
chemical compositions. In the event of a short circuit or other physical damage
to the battery, a reaction may result with excess heat or a gas being released
and, if not properly released, may be explosive. We have designed our batteries
to avoid this risk, but if we are unsuccessful, we could be exposed to product
liability litigation. In addition, our products will incorporate potentially
dangerous materials, including lithium ions. While these materials are less
reactive than other potentially dangerous materials found in other types of
batteries such as metallic lithium, which is known in its metallic form to cause
explosions and fires if not properly handled, it is possible that these
materials will require special handling. It is possible that safety problems may
develop in the future. We are aware that if the amounts of active materials in
our batteries are not properly balanced and if the charge/discharge system is
not properly managed, a dangerous situation may result. Other battery
manufacturers using technology similar to ours include special safety circuitry
within the battery to prevent such a condition. We expect that our customers
will have to use such circuitry.
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WE HAVE NOT COMPLETED SAFETY TESTING OUR BATTERIES AND WILL NOT BE ABLE TO MAKE
COMMERCIAL SALES OF OUR BATTERIES UNTIL WE SUCCESSFULLY COMPLETE SUCH TESTS
We have conducted extensive safety testing of our batteries and are in the
process of submitting batteries to Underwriters Laboratories for certification.
As part of our 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 and have caught
fire. Such results were generally expected, and until we have completed testing
we cannot make a valid determination as to the conditions in which the battery
must be operated. Additionally, each new battery design requires new safety
testing. Therefore, safety problems may develop with respect to our battery
technology that could prevent or delay commercial introduction.
SAFETY RISKS IN OUR FACILITIES COULD CREATE PRODUCTION DELAYS
We incorporate safety policies designed to minimize safety risks in our research
and development activities and will also do so in our manufacturing processes.
There is a risk, however, that an accident in our facilities will occur. Any
accident, whether with the use of a battery or in our operations, could result
in significant delays or claims for damages resulting from injuries, which would
adversely affect our operations and financial condition.
THE STRICT REGULATORY ENVIRONMENT IN WHICH WE OPERATE MAY DELAY SHIPMENTS AND
IMPOSE ADDITIONAL COSTS ON US
Prior to the commercial introduction of our batteries into a number of markets,
we may need to seek approval of our products by one or more of the organizations
engaged in testing product safety and/or agencies regulating transportation.
There is a risk that such agencies would not permit our batteries to be shipped
or used by the general public, and that changes in regulations, or in their
enforcement, will impose costly requirements or otherwise impede the transport
of lithium. If we are able to obtain such approvals, they could require
significant time and resources from our technical staff, cause delays in
shipments and, if redesign
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were necessary, result in further delays in the introduction of our products.
Because of the risks generally associated with the use of lithium, we expect
rigorous agency enforcement. Federal, state and local regulations impose various
environmental and health and safety controls on the storage, use, and disposal
of certain chemicals and metals used in the manufacture of lithium polymer
batteries. Although we believe our activities conform to current environmental
regulations, there is a risk that changes in such environmental regulations will
impose costly equipment or other requirements. Any failure by us to adequately
control the discharge of hazardous wastes could also subject us to future
liabilities.
WE ARE INVOLVED IN LAWSUITS THAT COULD NEGATIVELY IMPACT OUR BUSINESS
We are subject to litigation arising from time to time in the course of our
business. We currently have three substantial lawsuits in which we are involved.
The first is a class action lawsuit by a class of persons who purchased our
common stock between May 7, 1992 and August 10, 1994, alleging that we violated
federal securities laws and seeking unspecified damages. The second involves a
claim by a manufacturer of one of our pieces of manufacturing equipment that we
owe it approximately $2,500,000; in this action, we have filed a counterclaim
against the manufacturer seeking damages to be determined at trial. The third is
a contract claim that we instituted against several parties; one party has filed
a counterclaim against us and third parties claiming damages of approximately
$900,000 based on breach of a contract, and this matter is presently stayed
pending settlement discussions. Although we believe that we have meritorious
defenses to these suits, if any of them is resolved unfavorably to us it could
have a material adverse effect on our financial condition.
THE FAILURE OF OUR KEY SUPPLIERS AND CUSTOMERS TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS
We use a number of computer software programs and operating systems in our
internal operations, including applications used in financial business systems
and various administration functions. To the extent that these software
applications contain source code that is unable to appropriately interpret the
upcoming calendar
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year "2000," some level of modification or even possible replacement of such
source code or applications will be necessary. Given our current information, we
currently do not anticipate that such "Year 2000" costs will have a material
impact upon us. We have requested information regarding "Year 2000" compliance
from suppliers and providers of all of our mission critical software systems and
have obtained some responses. Based on the information we currently have, all
mission critical systems appear to be "Year 2000" compliant. We are currently
contacting major vendors and customers to obtain "Year 2000" compliance
certificates. The failure of any of our key suppliers or customers to be "Year
2000" compliant could have a material adverse effect on our business, financial
condition and results of operations.
POLITICAL INSTABILITY IN NORTHERN IRELAND MAY DELAY PROGRESS IN OUR NORTHERN
IRELAND FACILITY
The current political instability in Northern Ireland, which to date has had no
negative impact on our manufacturing plant, could delay our manufacturing of
batteries. Such delays could also cause us to lose significant sales and
marketing opportunities, as they would force our potential customers to find
other vendors to meet their needs.
CORPORATE INSIDERS OR AFFILIATES WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL
OVER MATTERS REQUIRING STOCKHOLDER APPROVAL
As of September 26, 1999, our officers, directors, and their affiliates as a
group beneficially owned approximately 22.99% of the outstanding common stock.
As a result, these stockholders will be able to exercise significant control
over all matters requiring stockholder approval, including the election of
directors and the approval of significant corporate transactions.
ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE CHARTER OR THOSE WHICH APPLY TO US BY
VIRTUE OF THE APPLICATION OF DELAWARE GENERAL CORPORATION LAW WILL MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE A MAJORITY INTEREST OF OUR OUTSTANDING
VOTING STOCK
Our Board of Directors has the authority to issue up to 50,000,000 shares of
undesignated preferred stock and to
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determine the price, rights, preferences, and privileges of those shares without
any further vote or action by the stockholders. As of October 31, 1999, holders
of the Series A Preferred Stock had converted all outstanding shares of the
Series A Preferred Stock. The rights of the holders of our capital stock are
subject to the rights of the holders of the Series B Preferred Stock and will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. While we have no present
intention to issue any additional shares of preferred stock, such issuance,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of our outstanding voting stock. In
addition, we are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of Valence. Furthermore, our classified Board of
Directors and certain other provisions of our Certificate of Incorporation may
have the effect of delaying or preventing changes in control or management,
which could adversely affect the market prices of our common stock and Series A
and Series B Preferred Stock.
IF THE ISSUANCE OF OUR PREFERRED STOCK VIOLATED NASDAQ'S LISTING MAINTENANCE
REQUIREMENTS, OR IF WE OTHERWISE FAIL TO CONTINUE TO MEET NASDAQ'S LISTING
MAINTENANCE REQUIREMENTS, NASDAQ MAY DELIST OUR COMMON STOCK
In late January 1999, NASDAQ released its guidance on "future priced securities"
and the necessity of the issuer to comply with NASDAQ's listing maintenance
requirements in issuing these securities. We believe that the issuances of our
Series A Preferred Stock and Series B Preferred Stock do not violate these
criteria, and that we are in compliance with NASDAQ's listing maintenance
criteria. However, in the event that NASDAQ were to determine that the issuance
of our Series A Preferred Stock and/or Series B Preferred Stock
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was in violation of the NASDAQ listing maintenance requirements, or if we are
otherwise unable to continue to meet NASDAQ's listing maintenance requirements,
NASDAQ may delist us. Such delisting could have a material adverse effect on the
price of our common stock and on the levels of liquidity currently available to
our stockholders. We may not be able to satisfy these requirements on an ongoing
basis.
CONVERSION OF PREFERRED STOCK AND SALES OF COMMON STOCK BY CC INVESTMENTS MAY
DEPRESS THE PRICE OF OUR COMMON STOCK AND SUBSTANTIALLY DILUTE YOUR STOCK
If CC Investments were to exercise all of the warrants it holds and convert all
of the shares of preferred stock it owns, as of November 29, 1999 it would have
acquired approximately 1,508,966 shares of our common stock. The number of
shares into which the preferred stock converts increases at 6% per year. If CC
Investments exercises the warrants or converts our preferred stock into shares
of common stock and sells the shares into the market, such sales could have a
negative effect on the market price of our common stock and would dilute your
holdings in our common stock. Additionally, dilution or the potential for
dilution could materially impair our ability to raise capital through the future
sale of equity securities.
OUR STOCK PRICE IS VOLATILE, AND WE DO NOT PAY, OR EXPECT TO PAY, DIVIDENDS TO
THE HOLDERS OF OUR COMMON STOCK
The market price of the shares of our common stock has been and is likely to
continue to be highly volatile. Factors such as the fluctuation in our operating
results, announcements of technological innovations or new commercial products
by us or our competitors, governmental regulation, developments in our patent or
other proprietary rights or our competitors' developments, our relationships
with current or future collaborative partners, and general market conditions may
have a significant effect on the market price of the common stock. We have never
paid any cash dividends and do not anticipate paying cash dividends on the
common stock in the foreseeable future.
POSSIBLE VARIABLE CONVERSION OF SERIES B PREFERRED STOCK
After July 27, 1999, our Series B Preferred Stock will be convertible into
a larger amount of shares where our
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<PAGE>
common stock trades at a price below $6.03 in six out of ten consecutive trading
days. For example, if on November 29, 1999 our common stock in the previous ten
trading days had been trading at or above $6.03, the remaining 3,500 shares of
Series B Preferred Stock would have been convertible into approximately 613,444
shares of our common stock. If, however, on that date the average of the lowest
six closing bid prices of our common stock over the previous ten trading days
(referred in the table below as the "average price") had been a lower price,
then the Series B Preferred Stock would have converted into a greater number of
shares. As of November 29, 1999, CC Investments had converted all of its Series
A Preferred Stock and $4 million of its Series B Preferred Stock.
The following table illustrates this effect:
<TABLE>
<CAPTION>
NUMBER OF SHARES INTO WHICH 3,500 SHARES
AVERAGE PRICE OF SERIES B PREFERRED WOULD CONVERT
If common stock trades at a price below $6.03
in six out of ten consecutive trading days
<S> <C>
$ 6.03 613,444
$ 5.00 739,814
$ 4.00 924,767
$ 3.00 1,233,023
</TABLE>
The effect of this variable conversion rate, if it becomes applicable, will be
to depress further the market price of our common stock and to dilute further
stockholder holdings in our common stock.
