Filing Pursuant to Rule 424(b)(2)
Registration Statement No. 333-76589
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 12, 1999)
480,824 SHARES
VALENCE TECHNOLOGY, INC.
COMMON STOCK
You should read this prospectus supplement and the accompanying prospectus
carefully before you invest. Both documents contain information you should
consider when making your investment decision.
SEE "RISK FACTORS" BEGINNING ON PAGE S-2 OF THE PROSPECTUS TO READ ABOUT
FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PLAN OF DISTRIBUTION
We are offering 480,824 of our common stock to an institutional investor
pursuant to this prospectus supplement. The common stock will be purchased at a
negotiated purchase price of $3,000,001. The $3,000,001 purchase price reflects
the average of recent trading prices of the common stock on the Nasdaq National
Market, net of an 8% discount. In addition, we will pay a finder's fee of 1.5%
of the gross proceeds of this offering to Caldwell Capital Corporation, New
York, NY. We will not pay any other compensation in conjunction with this sale
of our common stock.
USE OF PROCEEDS
The net proceeds to us from this offering will be $2,941,001. We plan to
use the net proceeds for general corporate purposes, including:
- acquiring raw materials and building inventory of finished goods;
- financing capital expenditures; and
- working capital.
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Pending use of the net proceeds for any of these purposes, we may invest the net
proceeds in short-term investment grade instruments, interest-bearing bank
accounts, certificates of deposit, money market securities, U.S. government
securities or mortgage-backed securities guaranteed by federal agencies.
MARKET FOR OUR COMMON STOCK
Since May 7, 1992, our common stock has been traded on the Nasdaq National
Market under the symbol "VLNC." A summary of the high and low closing sales
prices during each quarter for our common stock on the Nasdaq National Market
follows:
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
<S> <C> <C>
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 ended September 27, 1998 5-3/4 3-7/16
Quarter ended December 27, 1998 10-7/8 4-1/8
Quarter ending March 28, 1999 8-9/16 6-1/8
FISCAL 2000
Quarter ending June 27, 1999 8-7/16 6-1/2
</TABLE>
On June 25, 1999, the last reported sales price of our common shares on
the Nasdaq National Market was $7.375 per share. Our common stock is listed on
the Nasdaq National Market under the symbol "VLNC." The common stock sold under
this prospectus supplement will be listed on the Nasdaq National Market after we
notify the Nasdaq National Market that the shares have been issued.
As of June 11, 1999 and before the issuance of shares pursuant to this
prospectus supplement, we have 26,744,167 shares of common stock outstanding.
The approximate number of record holders of our common stock as of June
11, 1999 was 708.
LEGAL MATTERS
Certain legal matters with respect to the common stock offered hereby will
be passed upon for us by Troop Steuber Pasich Reddick & Tobey, LLP, Los Angeles,
California.
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GENERAL
You should rely only on the information provided or incorporated by
reference in this prospectus supplement and the prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus supplement is accurate as of any
date other than the date on the front of these documents.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD NOT MAKE SUCH 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 not obtained, would cause us to reduce
developmental efforts and impair or ability to commercialize our products. At
March 28, 1999, we had cash and cash equivalents of $2,454,000 and available
credit under a line of credit with a stockholder of $5,500,000. We expect that
our existing funds and available line, together with the interest earned
thereon, will be sufficient to fund our operations through the first quarter of
fiscal 2000. We anticipate that, after taking into account projected revenues
and receipt of funds from other sources, we will need to raise in either a debt
or equity financing a minimum of $25 million to fund planned capital
expenditures, research and product development, marketing and general and
administrative expenses and to pursue joint venture opportunities in fiscal
2000. 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.
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WE ARE A DEVELOPMENT STAGE COMPANY WITH NO 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, which we completed in May 1998. We presently have no commercially
developed and manufactured products available for sale, although we have
developed working prototypes of our batteries. 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
$154,436,000 as of March 28, 1999, the end of our fiscal year. 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 CAPITAL, 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, such advances are contingent on us
achieving cumulative revenues from the sale of batteries of $4 million. We may
not achieve such cumulative revenue over the short term, or at all.
Additionally, a lack of capital may require us to license to third parties
rights to commercialize products or technologies 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 have a material
adverse effect on 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
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a desirable partner, there is a chance that the partnership may not be
successful. The success of any strategic alliance is dependent upon, 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
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 risk that we will not receive adequate assistance from OEMs to
successfully commercialize our products. Furthermore, there is a risk that the
perceived safety risks associated with lithium, an element used in our
batteries, will 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 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 able to be manufactured
in commercial quantities to the performance specifications demanded by
customers. Even if our current research and development activities result in the
design of batteries with commercially desirable characteristics, we will still
have to be able to competitively manufacture these batteries. Our current
manufacturing technology must be further 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 on
our business, results of operations and financial condition.
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WE ARE IN THE EARLY STAGE OF MANUFACTURING, AND IF WE ARE UNABLE TO DEVELOP
MANUFACTURING CAPABILITY COST EFFECTIVELY, WE WILL NOT BE ABLE TO GENERATE
PROFITS; MANUFACTURING RISKS; POTENTIAL CAPACITY CONSTRAINTS AND RISKS OF
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 have been only 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, N.I. 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 be dependent 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
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 or 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 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,
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we expect that customers will require an extensive qualification period once the
customer receives its first commercial product off a production line.
WE ARE DEPENDENT ON OUR SUPPLIERS FOR CERTAIN KEY RAW MATERIALS TO DEVELOP AND
MANUFACTURE OUR BATTERIES. We are dependent 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 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.
UNCERTAINTY OF MARKET OF OUR BATTERIES; OUR REPUTATION. 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 which
incorporate our batteries, over which we have 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.
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 battery technologies, such as lead
acid and NiCd, 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.
DEPENDENCE UPON MANAGEMENT; ATTRACTION AND RETENTION OF KEY EMPLOYEES. Our
business 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 with respect to
any of our employees. We believe that our future success 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
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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 companies with significantly greater financial resources than us. We
have at times experienced difficulty in recruiting qualified personnel, and
there can be no assurance 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 those that we have.
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 our batteries. In addition, many of these
companies have name recognition, established positions in the market, and long
standing relationships with OEMs and other customers. While there is significant
development work being done by these competitors on various battery systems
(including electrochemistries such as NiCd, 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. Our primary competitors 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 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.
THERE IS A RISK THAT OUR PENDING PATENT APPLICATIONS WILL NOT RESULT IN ISSUED
PATENTS AND THAT ANY OF OUR ISSUED PATENTS WILL NOT AFFORD PROTECTION AGAINST A
COMPETITOR. 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 effectively
protect our intellectual property rights in certain countries. If existing or
future patents containing broad claims are upheld by the courts, the
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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, or 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. 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 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.
WE HAVE NOT COMPLETED SAFETY TESTING OUR BATTERIES AND WILL NOT BE ABLE TO
COMMERCIALLY SELL OUR BATTERIES UNTIL WE SUCCESSFULLY COMPLETE THE SAFETY TESTS.
We have conducted extensive safety testing of our batteries and will in the
short-term submit batteries to UL 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 DELAYS. We incorporate safety
policies designed to minimize safety risks in our research and development
activities and will 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.
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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 and delays in shipments and, if redesign were necessary, could result in
further delays in the introduction of our products. Because of the risks
generally associated with the use of lithium, we expect rigorous 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 WHICH 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 our violation of 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, and in which we have filed a counterclaim against the
manufacturer seeking damages to be determined at trial. The third is a contract
claim we instituted against several parties, in which one party filed a
counterclaim against us others claiming damages of approximately $900,000 based
on breach of a contract, and which is presently stayed pending settlement
discussions. These lawsuits are more fully described in "Item 3. Legal
Proceedings." 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 year "2000," some level of
modification or even possible replacement of such source code or applications
will be necessary. Given the 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.
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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 cause
delays in completing our manufacturing capability or in manufacturing our
batteries. Such delays could cause us to miss significant sales and marketing
opportunities, as such delays will force our potential customers to find other
vendors to meet their needs.
CONTROL BY EXISTING STOCKHOLDERS. As of June 11, 1999, our officers, directors
and their affiliates as a group beneficially owned approximately 23.88% 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 approval of significant corporate
transactions.
EFFECT OF ANTI-TAKEOVER PROVISIONS. Our Board of Directors has the authority to
issue up to 50,000,000 shares of undesignated preferred stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by the stockholders. The rights of the holders of our
capital stock are subject to the rights of the holders of the Series A and
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 Technology, Inc. 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 price of our common stock and Series A and Series B
Preferred Stock.
IF THE ISSUANCE OF OUR PREFERRED STOCK WAS IN VIOLATION OF NASDAQ'S LISTING
MAINTENANCE REQUIREMENTS, OR 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 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
Page S-11
<PAGE>
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 June 11, 1999 it would have acquired
approximately 3,484,087 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 will 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.
VOLATILITY OF STOCK PRICE; NO DIVIDENDS ON COMMON STOCK. The market price of the
shares of common stock has been and is likely 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, including litigation, developments in 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,
the Series B Preferred Stock may become convertible into more shares than
otherwise if our common stock trades at a price below $6.03 in six out of ten
consecutive trading days. For example, if on July 28, 1999 our common stock in
the previous ten trading days had been trading at or above $6.03, the 7,500
shares of Series B Preferred Stock would be convertible into approximately
1,289,000 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. The following table illustrates this effect:
<TABLE>
<CAPTION>
AVERAGE NUMBER OF SHARES INTO WHICH THE 7,500
PRICE SHARES OF SERIES B PREFERRED WOULD CONVERT
<S> <C>
$6.03 1,289,171
$5.00 1,554,740
$4.00 1,943,425
$3.00 2,591,233
</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.
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<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this prospectus supplement and in the prospectus
contains forward-looking statements that involve risks and uncertainties. Those
statements include words such as "anticipate," "estimate," "project," "intend,"
and similar expressions which we have used to identify these statements as
forward-looking statements. These statements appear throughout this prospectus
supplement and prospectus and are statements regarding our intent, belief, or
current expectations, primarily with respect to the operations of Valence or
related industry developments. You are cautioned that any such forward-looking
statements do not guarantee future performance and involve risks and
uncertainties, and that actual results could differ materially from those
discussed here, including under "Risk Factors," and in the documents
incorporated by reference in this prospectus supplement and in the prospectus.
DIVIDEND POLICY
Valence has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future. The terms of our
Series A preferred stock and Series B preferred stock prohibits the payment of
cash dividends without the prior consent of the holder.
EXPERTS
The consolidated balance sheets as of March 29, 1998 and March 30, 1997
and the consolidated statements of operations, stockholders' 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 the prospectus, have been
incorporated in reliance on the report, which includes an explanatory paragraph
regarding Valence'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.
The balance sheet as of March 31, 1998, and the statements of operations
and accumulated deficit and cash flows for the year ended March 31, 1998, and
incorporated by reference in the prospectus, have been incorporated in reliance
on the report, which includes an explanatory paragraph regarding Hanil Valence
Co., Ltd.'s ability to continue as a going concern, of Samil Accounting
Corporation, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
--------------------
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<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
SUPPLEMENT OR PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VALENCE.
THIS PROSPECTUS SUPPLEMENT OR 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 BY THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS, 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 SUPPLEMENT OR PROSPECTUS NOR ANY SALE MADE UNDER
THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF VALENCE SINCE THE
DATE OF THIS PROSPECTUS SUPPLEMENT OR IMPLY THAT INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
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<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Plan of Distribution.................................................S-1
Use of Proceeds......................................................S-1
Market for Our Common Stock..........................................S-2
Legal Matters........................................................S-2
General..............................................................S-3
Risk Factors.........................................................S-3
Disclosure Regarding Forward-looking Statements......................S-13
Dividend Policy......................................................S-13
Experts..............................................................S-13
PROSPECTUS
About this Prospectus................................................2
Where You Can Find More Information..................................2
About Valence........................................................4
Risk Factors.........................................................5
Use of Proceeds......................................................5
General Description of Securities....................................5
Description of Preferred Stock.......................................5
Description of Common Stock..........................................6
Description of Warrants..............................................7
Plan of Distribution.................................................8
Legal Matters........................................................9
Experts..............................................................9
--------------------
The date of this prospectus supplement is June 28, 1999.
Page S-15
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