Registration Statement

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 MAY HAVE A NEED FOR ADDITIONAL CAPITAL. At December 26, 1999, we had cash and cash equivalents of $31,422,000. After taking into account our cash and cash equivalents, projected revenues and receipt of funds from other sources, we may need to raise additional funding through debt or equity financing through fiscal 2001 to complete funding of planned capital expenditure expansion, research and product development, marketing and general and administrative expenses and to pursue joint venture opportunities. Our cash requirements, however, may vary materially from those now planned because of changes in our operations, including changes in original equipment manufacturer (OEM) relationships or market conditions. There can be no assurance that additional funds for these purposes, whether from equity or debt financing agreements, will be available on favorable terms, if at all. If we cannot raise additional funds, further development and production of our batteries may be delayed, we may not be able to increase personnel in our sales and marketing departments or otherwise execute our business plan, all of which may have a material adverse effect on our operations and financial condition. In addition, if any of the risks described in "Risk Factors" do occur, such as additional costs resulting from an adverse judgment or settlement of litigation, we may need to obtain additional funds to enable us to continue operations and execute our business plan beyond the first quarter of fiscal 2001. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. The effects of these 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, which we completed in May 1998. We presently have limited quantities of commercially developed and manufactured products available for sale. If we cannot rapidly increase our production capabilities to make commercially acceptable product, we may not be able to fulfill existing purchase orders in a timely manner or at all, and we may not be able to procure additional purchase orders, in which event, our business and financial condition would be materially adversely affected.

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 $182,031,000 as of December 26, 1999. We may never 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 and execute our business plan, including planned capital expenditures beyond the first quarter of fiscal 2001, 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 parties to an agreement pursuant to which we are entitled to capital grant advances from the Northern Ireland Industrial Development Board once we obtain cumulative revenues from the sale of batteries of $4 million. We may not achieve these cumulative revenues 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 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 preclude us from continuing to redesign and modify our manufacturing facility, ramp up our sales and marketing staff and otherwise execute our business plan, all of which would have a material adverse effect on our business, financial condition, and results of operations.

WE ARE INVOLVED IN LAWSUITS THAT COULD NEGATIVELY IMPACT OUR BUSINESS. We currently have two substantial lawsuits in which we are involved and a third in which a recently-reached settlement is pending court approval, which would result in a dismissal of the case. The recently-settled lawsuit was a class action 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 compensatory and punitive damages, attorneys' fees and costs for claimed misstatement of our stock price in the public offering and open market purchases of stock during that period. The complaint names the Company as a defendant as well as some of our present and former officers and directors, asserting that the Company and those individuals violated federal securities laws by misrepresenting and failing to disclose certain information about the Company's business during the class period. On February 10, 2000 we announced a settlement of the class action, subject to court approval. The second lawsuit involves a claim by a manufacturer of one of our pieces of manufacturing equipment that we owe it approximately $2.5 million; in this action, we have filed a counterclaim against the manufacturer seeking damages to be determined at trial. The third lawsuit 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 intend to defend vigorously the claims against us in each of these lawsuits, if any of them is resolved unfavorably to us we may be required to pay substantial monetary damages which would have a material adverse effect on our financial condition, results of operations and cash flows. In addition, our defense of these actions has, and may continue to, result in substantial costs to us, as well as requiring the significant dedication of management resources. If we choose to settle any of these lawsuits, the settlement costs could also have a significant effect on our cash resources and our financial condition.

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. To date, we have produced limited quantities of 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 produce battery systems with these characteristics from our manufacturing line. In addition, to facilitate broad commercialization of our products, we will need to reduce our manufacturing costs. 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 will need to be more fully developed before we will be able to manufacture our batteries in commercial quantities. We must be able to substantially raise yields of commercial quality batteries in commercial quantities in order to cost effectively produce our batteries. Failure to achieve substantially increased yields of our batteries and reduce unit-manufacturing costs will preclude us from offering our batteries at a competitive price to the public and therefore cause a material adverse effect on our business, results of operations and financial condition. If we manufacture our batteries in commercial quantities and they fail to perform as expected, our reputation could be severely damaged, and we could lose existing or potential future business, which would have a material adverse effect on our ability to market our batteries even if the defect were corrected.

BECAUSE OUR BATTERIES ARE ONLY SOLD WHEN INCORPORATED INTO OTHER PRODUCTS, WE 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 our 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. If we are unable to design, develop and introduce products that meet OEMs' and other customers' exacting requirements on a timely basis, we may not be able to fulfill our obligations under existing purchase orders, we may lose opportunities to enter into additional purchase orders and our reputation may be damaged, all of which would have a material adverse effect on our business, results of operations and financial condition. In addition, 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. We may not receive adequate assistance from OEMs to successfully commercialize our products.

WE MUST EXPAND OUR SALES STAFF, SUPPORT CAPABILITIES AND DISTRIBUTION CHANNELS TO DISTRIBUTE OUR PRODUCTS ON A COMMERCIAL SCALE. To implement our strategy successfully, we will have to increase our staff, including personnel in sales and marketing, engineering, development and product support capabilities, as well as third party and direct distribution channels. We may not be able to sufficiently increase our staff or product support capabilities, or be successful in our sales and marketing efforts. Failure in any of these areas could have a material adverse effect on our business and results of operations.

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. To date, we have not manufactured batteries on a commercial scale. 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 capital 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. To date, we have not achieved production yields sufficient to sustain commercial production of our batteries. In 1993, we entered into a purchase order for $100 million of our batteries, which incorporated a previous technology, that we were unable to fulfill due to our inability to commercially produce our batteries pursuant to the customer's specifications. We must be able to substantially raise yields of commercial quality batteries in commercial quantities in order to cost effectively produce our batteries. Any failure to achieve substantially increased yields of our batteries and reduce unit-manufacturing costs could have a material adverse effect on our business, results of operations and financial condition. 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, 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 or at all. 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 modifying 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 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 SOLE OR LIMITED SOURCE 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 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 in the past experienced delays in product development due to the delivery of nonconforming raw materials from our suppliers. If we are unable to obtain high quality raw materials in sufficient quantities and on a timely basis, our production of batteries may be delayed which will have a material adverse effect on our business and results of operations.

OUR BATTERIES MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE. To achieve market acceptance, our batteries must offer significant performance advantages at a cost effective rate as compared to other current and potential alternative battery technologies in a broad range of applications. Our batteries may not be able to achieve or sustain these advantages. Even if our 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 batteries do not achieve and maintain significant performance advantages at a cost effective rate 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.

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 battery technologies, such as lead acid and NiCad, and other companies have recently introduced or are developing batteries based on nickel metal hydride ("NiMH"), lithium and other emerging and potential technologies. While these competitors are engaged in significant development work on these various battery systems, 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. The capabilities of many of these competing technologies have improved over the past several years, which have resulted in a customer perception that our technology may not offer as many advantages as previously anticipated. 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 COMPETITORS MAY DEVELOP BATTERIES SIMILAR OR SUPERIOR TO OURS OR OTHERWISE COMPETE MORE SUCCESSFULLY THAN WE DO. Competition in the rechargeable 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. 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 other customers. We believe that our primary competitors

are existing suppliers of lithium ion, competing polymer and, in some cases, NiMH batteries. These suppliers include Matsushita Industrial Co., Ltd., Sony, Toshiba, SAFT America, Inc. 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 our targeted application segments, which include laptops, cellular phones and personal digital assistance products, on the basis of performance, cost and ease of recycling. There is also a risk that we may not be able to compete successfully against manufacturers of other types of batteries in any of our targeted applications.

OUR SUCCESS DEPENDS HEAVILY ON OUR SENIOR MANAGEMENT PERSONNEL AND ON OUR ABILITY TO ATTRACT AND RETAIN KEY EMPLOYEES. Our 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 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 battery industry as well as skilled personnel to operate our facility in Northern Ireland. Competition for personnel, in particular for product development and product implementation personnel, is intense, and we compete in the market for personnel against numerous companies, including larger, more established competitors with significantly greater financial resources than us. The availability of skilled and unskilled workers in Northern Ireland is limited due to a relatively low unemployment rate. From time to time we experience difficulty in recruiting qualified personnel, and we cannot be certain that we will be successful in attracting and retaining skilled personnel. If we are unable to attract and retain other qualified personnel, we may not be able to staff our manufacturing facility to operate at full capacity, which could delay our production of batteries and cause us to breach our obligations under existing or new purchase orders. Also, if we cannot attract and retain experienced sales and marketing personnel, we may not achieve the visibility in the marketplace that we need to obtain purchase orders, which would have a material adverse effect on our financial condition.

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. These 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, 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. We intend to pursue enforcement and defense of our patents and our other proprietary rights. We could incur significant expenses in preserving our proprietary rights and these costs could have a material adverse effect on our financial condition. In addition, we may not be able to effectively protect our intellectual property rights outside of the United States. 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 MATERIALS, WHICH COULD EXPOSE US TO LIABILITY. In the event of a short circuit or other physical damage to a battery, a reaction may result with excess heat or a gas being released and, if not properly released, may be flammable or potentially even explosive. Our batteries, based on an earlier (and since abandoned) technology, have smoked, caught fire and vented gas in the past, and we have attempted to design our current batteries to reduce this risk; if we are unsuccessful in these efforts, we could be exposed to product liability litigation. In addition, our batteries incorporate potentially dangerous materials, including lithium. While we believe the materials in our batteries are less reactive than other potentially dangerous materials found in other types of batteries, 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 this type of circuitry.

WE HAVE NOT COMPLETED SAFETY TESTING OUR BATTERIES AND MAY NOT BE ABLE TO MAKE COMMERCIAL SALES OF OUR BATTERIES UNTIL WE SUCCESSFULLY COMPLETE SUCH TESTS. We have conducted safety testing of our batteries and have submitted batteries to Underwriters Laboratories for certification, which is required by many OEMs prior to placing a purchase order with the Company. We cannot assure you that Underwriters Laboratories will certify our batteries. 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. These results were generally expected, and until we have completed testing we cannot make a complete 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 DELAY PRODUCTION AND ADVERSELY AFFECT OPERATIONS. There is a risk 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 manufacturing delays or claims for damages resulting from injuries, which would adversely affect our operations and financial condition.

WE DO NOT FULLY CONTROL OUR JOINT VENTURE OPERATIONS, STRATEGIES AND FINANCIAL DECISIONS AND WE CANNOT ASSURE YOU THAT OUR PRODUCTS WILL BE MARKETED SUCCESSFULLY THROUGH THESE VENTURES. We do not control or manage either of our operating joint ventures. Consequently, we are required to depend on the management of our venture partners to successfully operate these ventures. There is a risk that our joint venture partners may have economic, business or legal interests or goals that conflict with ours or that we may be required to fulfill obligations of our joint venture partners if they are unable to meet their obligations. Any significant disagreements with our venture partners could have a material adverse effect on our ventures. Also, we depend to a significant degree on local partners in our joint ventures to provide us with regulatory and marketing expertise and familiarity with the local business environment. Any disruption in our relationship with these parties could make it more difficult to market our products in the geographic regions or to the customers to which the joint venture relates. Also, if these ventures are not successful, they could significantly damage our reputation, which will make it more difficult to obtain purchase orders for our batteries.

WE DO NOT 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 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 may not 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 may 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.

A STRICT REGULATORY ENVIRONMENT MAY DEVELOP WHICH MAY DELAY SHIPMENTS AND IMPOSE ADDITIONAL COSTS ON US. At the present time, neither the storage, use or disposal of the component parts of our batteries nor the transport of our batteries is regulated by federal, state or local law. However, we expect that laws and regulations may be enacted in the future which could impose environmental, health and safety controls on the storage, use, and disposal of certain chemicals and metals used in the manufacture of lithium polymer batteries as well as regulations governing the transport of our batteries. Satisfying any future laws or regulations could require significant time and resources from our technical staff and possible redesign which may result in substantial expenditures and delays in the production of our product, all of which could have a material adverse effect on our business.

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 contained source code that had not been updated to the calendar year "2000," we have recently completed modification or replacement of such source code to the extent we believe necessary. There is a risk that these modifications might not be completely effective, and that significant computer systems of Valence could yet be affected by an adverse "Year 2000" event. Although to date we have not experienced any problems with suppliers and customers arising out of "Year 2000" computer transitions, we do not have direct knowledge of our suppliers' and customers' "Year 2000" remediation. Thus, there continues to be some risk that "Year 2000" problems might arise which could adversely affect us in our own operations, or indirectly through adverse impacts on the operations of our suppliers, customers or financial institutions.

POLITICAL INSTABILITY IN NORTHERN IRELAND MAY DELAY PROGRESS IN OUR NORTHERN IRELAND FACILITY. Despite the recent peace accord in Northern Ireland, we cannot assure you that instabilities will not continue in the future. Any political instability in Northern Ireland could delay our manufacturing of batteries. Any delays could also cause us to lose sales and marketing opportunities, as potential customers would 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 December 26, 1999, our officers, directors, and their affiliates as a group beneficially owned approximately 20.91% of our 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 million 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. 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, 3,500 shares of which currently are outstanding, 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. The issuance of additional shares of preferred stock 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 B Preferred Stock.