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Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 1 of 37

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

: MARK MCNULTY, on Behalf of Himself and : All Others Similarly Situated, :

: Plaintiff, :

: v. :

: ROBERT L. KANODE and DONALD E. : GOTTSCHALK, :

: Defendants. :

:

Case No. 1:13-CV-00026-LY

CLASS ACTION CONSOLIDATED COMPLAINT FOR VIOLATION OF FEDERAL SECURITIES LAWS

INTRODUCTION

1

This is a securities class action on behalf of all persons who purchased Valence

Technology, Inc. ("Valence" or the "Company") securities between August 3, 2011 and July 12,

2012, inclusive (the "Class Period"), against defendants Robert L. Kanode ("Kanode"), Valence's

Chief Executive Officer ("CEO") and director, and Donald E. Gottschalk ("Gottschalk"), the

Company's Chief Financial Officer ("CFO"), for violations of the Securities and Exchange Act of

1934 (the "Exchange Act"). As detailed below, these Defendants (as defined herein) made false

and misleading statements about the Company's capital position, liquidity, and business

prospects as a going concern.

2. Founded in 1989, Valence develops lithium iron magnesium phosphate

rechargeable batteries. Valence products are used in hybrid and electric vehicles, as well as

hybrid boats and Segway, Inc. personal transporters. The lithium-ion battery industry has a long

history of false starts, promising innovations, and unfulfilled potential. Valence has been no

exception. Since its inception in 1989, Valence has not made a profit and, thus, has financed its

operating activities primarily by selling equity securities and issuing debt. Between 1989 and

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2012, the Company raised over $550 million dollars through various stock issuances. The

Company's daily operating activities, however, were funded by Carl E. Berg ("Berg"), Valence's

Chairman of the Board of Directors (the "Board") and largest shareholder. He has pumped more

than $100 million into Valence over the years and owns nearly all of the Company's debt. By

July 2012, the end of the Class Period, the Company owed Berg and his companies $69.1 million

in loans. All of Valence's assets were pledged as collateral to secure these loans.

3. Notwithstanding Berg's tremendous financial backing for the Company, Valence

still could not pay its debts and Berg tired of supporting a business that was not performing. The

Company had no further commitments for financing by Berg or his affiliates, despite its

purported need for minimal funding to continue operations. By March 31, 2012, the Company's

principal sources of liquidity were cash and cash equivalents of only $1.4 million. Cash on hand

and cash generated by operations would not fund the Company's operating and capital needs for

the next twelve months. Accordingly, by this time Defendants knew that the Company was

headed for bankruptcy, or were severely reckless in not knowing the Company was headed for

bankruptcy given that the Company was in dire need of cash without any viable funding

alternatives.

4. By at least May 2012, plans to file for bankruptcy were well underway. The

majority of the Board (or three of four Board members), including defendant Kanode, wanted to

declare bankruptcy. The Board had retained counsel to advise the Company on potentially filing

for bankruptcy. As such, by this time, Defendants knew that Valence was headed for bankruptcy

and would not be able to continue as a going concern.

5. Despite Defendants' knowledge or reckless disregard of the grim realities facing

the Company, they downplayed the severity of the Company's capital position to shareholders.

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They misled investors about the Company's business health and future prospects by evading

inquiries concerning Valence's liquidity and assuring the market of the Company's available

alternatives for raising capital. On August 3, 2011, Defendants reassured investors that " there is

no pressing urgency to do any other funding at the moment " and that Valence has " very strong

financial support ." Defendants also assured investors throughout the class period that they were

"approaching break-even" and that "moving forward our cash needs will not be significant." On

February 8, 2012, Defendants trumpeted that they were " very comfortable going forward that

[they] can secure funding for both [the Company's] daily activities and [its] growth ."

Moreover, on February 23, 2012, Defendants continued to tout Berg as " a very strong supporter

of this company ," who had continuously been relied upon in financing Valence.

6. Not only did Defendants mislead investors about the likelihood that the Company

would declare bankruptcy, Defendants also failed to acknowledge the reason they were not

making break-even. Quality issues plagued Valence's products, causing one major customer to

cancel a contract, and other customers to reduce orders. Specifically, Smith Electric Vehicles

("Smith"), the Company's largest customer who accounted for 36% of sales in the first quarter of

2012, encountered significant failures in Valence batteries. According to a confidential witness,

Smith was returning approximately 50% of shipped orders due to product failures. Smith later

canceled pending contracts. While Defendants did not include Smith's backlog in guidance and

did disclose that Smith elected to order product from a competitor, Defendants omitted that

quality concerns were the primary driver in the cancellations. Segway, the second largest

Valence customer, was experiencing similar quality issues and, as a result, decreased orders.

When questioned about the drop in Segway orders, however, defendant Kanode downplayed

these decreases as "seasonal" adjustments that "fluctuate[s] from time to time." In the same

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breath, defendant Kanode reiterated that "Smith and Segway are still valued customers. We

serve them to the best of our ability." Defendants knew, or recklessly disregarded, that they

would not hit break-even, and thus would need significant funding, while these quality issues

continued.

7. Even when analysts and some investors specifically raised the issues, Defendants

would not admit the fact that the Company was headed for bankruptcy. Instead, Defendants

responded to concerns over dwindling cash reserves by reiterating that the Company was

"evaluating a number of short- and long-term funding alternatives ." Further, Defendants

provided assurances that they believed that the Company has " an excellent future in front of " it.

At the same time Defendants were flatly denying operational concerns, they had engaged

bankruptcy counsel to consider bankruptcy options. Defendant Kanode, as a member of the

Board, not only knew of the potential bankruptcy, but was in the faction of the Board who was

pushing this option. Defendants also knew that the Company was not exploring debt funding

alternatives, and that they did not have any equity placements in motion. More, Defendants

knew that Berg, who controlled a majority of Valence shares, had flatly rejected subordinating

any of the loans within the scope of his control – all which were secured by all of the Company's

collateral. Without any collateral available for security, Valence could not obtain debt financing.

Given that Berg wanted the Company to declare bankruptcy, and that he was the senior secured

creditor in control of when and if loans were due, bankruptcy was inevitable.

8. Despite all of Defendants' positive statements, the Company was facing a $3

million loan payment by July 3, 2012 and did not have enough cash to meet its outstanding

obligations. Worse, Berg had cut off funding. Defendants could no longer keep up with their

charade. Berg's decision to cut his losses in Valence forced the Defendants' hand and caused

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their house of cards to collapse. On July 12, 2012, nine days after the Company's loan payment

was due, Valence issued a press release disclosing to investors that the Company "filed a

voluntary petition for a chapter 11 business reorganization in the U.S. Bankruptcy Court for the

Western District of Texas."

9. When the true state of the Company's business health became public, Valence's

shares essentially lost all value. Valence stock sank from a closing pricing of $0.65 on July 13,

2012, to a closing price of $0.05 at the end of the day on July 16, 2012. This amounted to a

three-day decline of over 92%.

JURISDICTION AND VENUE

10. The claims asserted herein arise under section 10(b) and section 20(a) of the

Exchange Act, 15 U.S.C. §78j(b) and §78t(a), and Rule 10b-5 promulgated thereunder by the

U.S. Securities and Exchange Commission ("SEC"), 17 C.F.R. §240.10b-5.

11. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.

§1331 and section 27 of the Exchange Act, 15 U.S.C. §78aa.

12. This Court has jurisdiction over each defendant named herein because each

defendant is an individual who has sufficient minimum contacts with this District so as to render

the exercise of jurisdiction by the District Court permissible under traditional notions of fair play

and substantial justice.

13. Venue is proper in this Court pursuant to section 27 of the Exchange Act, 15

U.S.C. §78aa and 28 U.S.C. §1391(b), as many of the acts and practices complained of herein

occurred in substantial part in this District.

14. In connection with the acts, conduct and other wrongs alleged in this Complaint,

Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

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including but not limited to, the United States mails, interstate telephone communications, and

the facilities of the NASDAQ Global Market.

PARTIES

15. Lead Plaintiff Charles Forman purchased securities of Valence during the Class

Period as set forth in the accompanying certification, incorporated by reference herein, and was

damaged as a result of Defendants' wrongdoing as alleged in this Consolidated Complaint.

16. Plaintiff Mark McNulty purchased securities of Valence during the Class Period

as described in the previously attached certification hereto and was damaged as a result of

Defendants' wrongdoing as alleged in this Consolidated Complaint.

17. Defendant Kanode is Valence's CEO, President, and a director, and has been since

March 2007. Throughout the Class Period, defendant Kanode made false and misleading

statements regarding the Company's capital position, liquidity, and prospects as a going concern.

Defendant Kanode, because of his positions with Valence, had a substantial role in the day-to-

day operations of the Company and possessed the power and authority to: (i) direct or cause the

direction of the management and polices of the Company's employees; and (ii) control the

contents of the Company's annual reports, press releases, and presentations to securities analysts,

money and portfolio managers, and investors, i.e., the market. Defendant Kanode was provided

with copies of the Company's reports and press releases alleged herein to be misleading prior to

or shortly after their issuance and had the ability and opportunity to prevent their issuance or

cause them to be corrected. Because of defendant Kanode's positions with the Company, and his

access to material, non-public information available to him but not to the public, defendant

Kanode knew that the adverse facts specified herein had not been disclosed to and were being

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concealed from the public, and that the positive representations being made were then materially

false and misleading.

18. Defendant Gottschalk is Valence's Acting CFO and has been since June 2011.

Defendant Gottschalk was also Valence's Corporate Controller from August 2007 to June 2011.

Throughout the Class Period, defendant Gottschalk made false and misleading statements

regarding the Company's capital position, liquidity, and prospects as a going concern. Defendant

Gottschalk was provided with copies of the Company's reports and press releases alleged herein

to be misleading prior to or shortly after their issuance and had the ability and opportunity to

prevent their issuance or cause them to be corrected. Because of defendant Gottschalk's

positions with the Company, and his access to material, non-public information available to him

but not to the public, defendant Gottschalk knew that the adverse facts specified herein had not

been disclosed to and were being concealed from the public, and that the positive representations

being made were then materially false and misleading.

19. Non-party Valence is a Delaware corporation that develops, manufactures, and

sells advanced energy storage systems utilizing its proprietary phosphate-based lithium-ion

technology. The principal executive offices of Valence are located at 12303 Technology

Boulevard, Suite 950, Austin, Texas. On July 12, 2012, Valence announced that it "filed a

voluntary petition for a chapter 11 business reorganization...."

20. The defendants named in ¶¶17-18 are sometimes collectively referred to herein as

the "Defendants."

PLAINTIFFS' INVESTIGATION

21. Plaintiffs' counsel's investigation into the claims alleged herein was based on a

review of publicly available information, including Valence's filings with the U.S. Securities and

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Exchange Commission ("SEC"), wire, and press releases by and regarding Valence and other

relevant entities, business and news media articles, review of documents attached or judicially

noticed in the Company's bankruptcy filing, and interviews with confidential witnesses, as

described further herein.

22. Confidential Witness 1 ("CW1") was a Project Buyer and Component

Engineering Specialist at Valence from 2010 through July 2012. In his/her official capacity,

CW1 was responsible for working on new product builds (i.e., getting the product builds up and

running) with the Company's engineers. CW1 was responsible for procurement of hard to find

components and parts needed to complete customer builds. By virtue of his/her position, CW1

was privy to information concerning quality issues and customer returns of the Company's

products. CW1 reported directly to Timothy Mennitt ("Mennitt"), the Director of Engineering at

Valence. Mennitt, as the Director of Engineering, was responsible for all engineering employees

and operations in Austin, Texas, Henderson, Nevada, and Ireland. CW1 estimated that there

were approximately twenty-five to thirty employees working in the Austin, Texas, headquarters

office; ten to twenty employees in the Henderson, Nevada, office; and twenty-five to thirty

engineers in Ireland. CW1 stated that Valence had battery quality issues which persisted

throughout CW1's employment. According to CW1, the quality issues impacted Valence's

ability to secure and keep business from their largest customers, including Smith and Segway.

CW1 thought that one reason quality issues existed was because Valence rushed to build and

ship products to customers, rather than taking the time to build a product with no quality issues.

CW1 stated that, throughout CW1's employment, the battery quality issues were so problematic

that Smith was returning batteries by the hundreds. CW1 conservatively estimated that Smith

returned at least 50% of the batteries that were ordered and shipped. According to CW1, Smith

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ended up pulling its business from Valence and giving it to a different battery supplier due to

battery quality issues. CW1 was privy to the aforementioned information because he worked

with the engineers to resolve the quality issues with the returned batteries.

23. Additional facts supporting the allegations contained herein are known only to the

Defendants or are exclusively within their control. Plaintiffs believe that substantial additional

evidentiary support exists for the allegations set forth in this Consolidated Complaint that will be

revealed after a reasonable opportunity for discovery.

FRAUDULENT SCHEME AND COURSE OF BUSINESS

24. Defendants are liable for: (i) making material false statements; and (ii) failing to

disclose material, adverse facts known to them about Valence. Defendants' fraudulent scheme

and course of business that operated as a fraud or deceit on purchasers of Valence securities was

a success, as it: (a) deceived the investing public as to Valence's business prospects and

operations; (b) kept the price of Valence securities artificially inflated; and (c) caused plaintiffs

and other members of the Class (as defined herein) to purchase Valence securities at inflated

prices.

BACKGROUND

25. Valence was founded in 1989 and develops, manufactures, and sells advanced

batteries utilizing the Company's proprietary phosphate-based lithium-ion technology. The

Company markets lithium phosphate energy storage systems that are used in electric vehicles,

plug-in hybrid electric vehicles, and similar applications. In addition, the Company

manufactures lithium iron magnesium phosphate batteries for diverse applications, such as

marine, industrial, and medical markets.

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26. Unsurprisingly given the technology-driven lithium-ion battery market, Valence

has expended a massive amount of money on research and development over the past twenty

four years. Unlike many other companies in the technology sector, Valence was not burdened by

large amounts of debt. Instead, Valence primarily funded research and development activities

(along with cash shortfalls in production) through stock offerings. In total, the Company placed

over $600 million in stock through various offerings.

27. In addition to funding activities through equity financing, the Company has

borrowed over $300 million from investor and Chairman of the Board, Berg. Through various

exchanges of debt for preferred stock and other securities, Berg owned and/or controlled over

half of the Company's stock. In addition, Berg holds two loans worth $69.1 million in principal

and unpaid interest. All of Valence's assets are pledged as collateral for the two loans.

28. Berg regularly stepped in at crucial times to fund the Company's operations and

keep it afloat. On multiple occasions, Berg and Valence executives indicated that these critical

capital infusions would continue so long as the Company continued to show progress towards

eventual profitability.

29. Due to Defendants' false assurances, shareholders thought this point was near.

Throughout the Class Period, defendants Kanode and Gottschalk indicated that the Company

was just steps away from earning a profit. In support, defendants Kanode and Gottschalk

pointed to certain months where the Company had, in fact, achieved profitable operations, and

stated time and again that the Company was "approaching break-even." Defendants drove this

point by stating that current revenues, gross margins, and net earnings from these revenues

indicated that their financial modeling and forecasting was accurate. But, notwithstanding Berg's

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tremendous financial backing for the Company, Valence still could not turn the corner towards

profitability and Berg grew tired of supporting a business that was not performing.

30. Defendants knew or recklessly disregarded the fact that Valence was headed for

bankruptcy and would not be able to continue as a going concern without Berg's financial

support. The Company faced a $3 million payment by July 1, 2012, the last of a $20 million

debt issuance from 2005, but did not have sufficient cash to fund the loan payment. Although

Berg (and/or Carl Warden, who owned the note, which was secured by Berg) had modified

and/or extended the terms of the final loan payment, Berg determined that he would not do so

again. Lacking cash, the Company was forced to default on the final loan payment, and instead

declared bankruptcy. Defendants knew and/or recklessly disregarded that the Company did not

have sufficient cash on hand to make this payment, however, deliberately or with extreme

recklessness misled the public concerning the Company's financial condition and business

prospects, failing to disclose the Company's impending bankruptcy until it was too late.

DEFENDANTS' FALSE AND MISLEADING STATEMENTS AND OMISSIONS

31. On August 3, 2011, Valence hosted a conference call with investors, media

representatives, and analysts to discuss the Company's first quarter 2012 financial results.

During the conference call, defendant Kanode assured the market that the Company had

sufficient funding, but this was not true. The exchange between the unidentified participant and

defendant Kanode was as follows:

Unidentified Participant

Good job. The first question I want to ask you is regarding the financing activities this past quarter. I see the cash [is at] $11.6 million . Don mentioned $2 million something from Berg and I believe $12 million through the [At Market Issuance Sales Agreement]. Can you comment at what price you raised that money, why you raised the money and who was behind the purchase? That's my first question.

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Robert Kanode, Valence Technology, Inc. - President and CEO

Well, first of all, it was a -- we sold this off-the-shelf, we cannot comment about the customers who bought it. And that's about all I can tell you. We are preparing -- I mean, you can look at the stock price of the past quarter and pretty much understand what it was sold for. Some of those funds will go towards expansion as we complete our planning, and the balance of those funds will go towards our work in process and normal expenses during manufacturing.


Do you see yourself being very active with the [At Market Issuance Sales Agreement] going forward the next three to six months? Or is this enough to keep you guys going until break-even ?


I can only tell you at this point, we have no plans to do this or not do this at the moment. In other words, there is no pressing urgency to do any other funding at the moment.

32. An investor also questioned defendant Kanode about the Company's expected

earnings through the backlog of orders for Smith, and when that backlog would be fulfilled.

Defendant Kanode dodged the question, stating that the Company was "currently looking at

[Smith's] schedules." When pressed on whether Smith could cancel the backlogged orders,

defendant Kanode responded "Yes. They can cancel anything.... We would not expect them to,

they have an ongoing business." When later pressed about declines in revenues from Smith and

Segway, Valence's second largest customer, defendant Kanode denied that revenues had

decreased. The exchange between the unidentified participant and defendant Kanode was as

follows:


And the second question is regarding... customers. I see Segway dropped off by $1 million or so, I think, from last quarter. I see Smith dropped off by a couple of millions.... How do you feel about Segway? Why was that number down and – being that you diversifying [sic] your customers, how confident do you feel... why aren't we seeing the uptick in revenues from the guidance?


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Well, first of all, Segway is not down.... The second thing I want to mention is that Segway is a seasonal business. So you will see it fluctuate from time to time. But they still – Smith and Segway are still valued customers. We serve them to the best of our ability. We value them and we hope to retain them.

33. Defendants' representations in the August 3, 2011 conference call about "no

pressing urgency to do any other funding" were materially false and misleading when made.

Defendants knew and failed to disclose that they were facing a significant cash shortfall in the

coming months. Defendants also knew and failed to disclose that the Company was

experiencing massive product quality issues and that, as a result, Smith and Segway were

canceling orders. By omitting quality control issues and the likelihood that the Company's Smith

backlog were not likely to result in revenues, defendant Kanode gave the false impression that

the Company's revenues would continue to grow.

34. On February 8, 2012, Valence hosted another conference call with investors,

media representatives, and analysts discussing the Company's third quarter 2012 financial

results. During this conference call, defendant Kanode was questioned about the Company's

progress toward its breakeven point. Defendant Kanode touted the Company's financial results,

and reassured investors that the Company was close to breaking even. Defendant Kanode failed

to disclose the fact that the Company would not be able to actually reach the breakeven point

because continuing quality control issues had caused the Company's revenues to stagnate, if not

sink, and because the Company did not have the case or cash flow to continue operations.

Worse, when questioned about whether the Company has a reliable source of cash to get to the

breakeven point, defendant Kanode stated that Valence has " very strong financial support " and

that he feels "very comfortable going forward that we can secure funding for both our daily

activities and our growth." The exchange between the investor participating on the call and

defendant Kanode was as follows:

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Ron Stewart - Private Investor

Following up on the breakeven discussion, even though you're not able to see when that might be achieved, can you tell us if the sales amount of breakeven has -- is now what?

Bob Kanode, Valence Technology, Inc. - President, CEO

$18 million to $20 million per quarter.

Ron Stewart - Private Investor

Okay. Are you satisfied that Valence has a reliable source of cash to get us to breakeven?

Bob Kanode, Valence Technology, Inc. - President, CE O

We have very strong financial support from a number of different areas, and I feel very comfortable going forward that we can secure funding for both our daily activities and our growth.

And I might also add when you're looking at our -- when I commented breakeven is $18 million to $20 million, in our first quarter of this past year that we just closed, we had a quarter of $14.1 million. And in two of those three months in that quarter, we broke even. So we feel very comfortable that our model is solid at $18 million to $20 million.

35. On February 23, 2012, Valence presented at Jeffries Global Clean Technology

Conference. At this conference, defendant Kanode further quelled any concerns regarding the

Company's liquidity and prospects as a going concern by concluding that, Berg " is a very strong

supporter of this company " and has been continuously relied upon in financing the Company.

Moreover, defendant Kanode downplayed the Company's dwindling cash on hand by stating that

"[m]oving forward our cash needs will not be significant ." The exchange between the

unidentified audience member participating in the conference and defendant Kanode was as

follows:

Unidentified Audience Member

On the balance sheet, just a little color on where you are at right now; cash, debt.

Robert Kanode, Valence Technology, Inc. - President & CEO

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Our major shareholder is our founder, Carl Berg, who owns about 50% of the Company. Carl is a very strong supporter of this company and, therefore, with very little cash needs quarter to quarter , we look at two different funding options. We have used a shelf and also Carl, if you look at our history.

Moving forward our cash needs will not be significant, but we do anticipate we need to balance the foundation of the Company and probably do a modest offering in the future, which we intend to do. However, we want to bring some of the projects that we have on the table to the light of day first so you can better gauge our process which isn't long term.

36. Defendants' representations in the February 8, 2012 conference call and the

February 23, 2012 conference about the Company possessing "very strong financial support" and

that the Company was likely to "secure funding for both [Valence's] daily activities and [ ]

growth" and that "our cash needs will not be significant" were materially false and misleading.

Defendants knew and failed to disclose that they were facing a significant cash shortfall in the

coming months. In addition, Defendants knew that the Company's revenues had been negatively

impacted by the loss of contracts from Smith and Segway and that, with the drop off in revenues

from the Company's largest customers, the Company was not near break-even. Defendants also

knew and failed to disclose product quality issues that continued to plague the Company, and the

resulting accounts receivable disputes with Smith.

37. On May 23, 2012, Valence issued a press release in which defendant Kanode

touted the Company's future business prospects. Defendant Kanode stated that "we are confident

that our experience, quality, and engineering support will continue to distinguish Valence in our

growing markets." Defendant Kanode failed to disclose, however, that Valence and its

shareholders would not be able to capitalize on these "growing markets" and other future

business prospects because the Company was facing bankruptcy and could not continue as a

going concern. The press release stated in part:

"We have seen continued progress with commercial motive customers such as Segway, PVI, Optare, and Electric Vehicles International. During the past year,

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we also expanded our business into a number of sectors, with particular success in the industrial/medical sector where we now supply systems to significant corporations such as Rubbermaid Medical and Howard Technology. Additionally, we have developed strong relationships with customers in the motive and back-up power sectors who see value through the return on investment our advanced U-Charge® family of lithium phosphate batteries offer. Looking to the future, we are confident that our experience, quality, and engineering support will continue to distinguish Valence in our growing markets ," said Robert L. Kanode, president and chief executive officer of Valence Technology.

38. On May 23, 2012, Valence hosted a conference call with investors, media

representatives, and analysts, during which defendants Kanode and Gottschalk were questioned

about the Company's liquidity issues and asked, point-blank, whether the Company was headed

for bankruptcy. Despite the fact that Valence had reported a mere $1.4 million in dwindling cash

reserves and the Company was taking significant steps toward filing for bankruptcy, defendant

Kanode refused to disclose the Company was headed for bankruptcy. Instead, defendant Kanode

reassured investors that the Company was "evaluating a number of short- and long-term funding

alternatives" and that he believed that Valence had "an excellent future in front of" it. Defendant

Kanode further stated that the Company is "poised to move forward and [has] all the right tools

to do so." However, as he well-knew, Valence did not have the right tools to continue as a going

concern as its dangerously low cash reserves were not enough to cover its liabilities, including,

but not limited to, its impending loan obligations. Defendant Kanode also stated that he could

not guarantee that the Company would not declare bankruptcy, when he knew that bankruptcy

was the only viable option that Valence was exploring at the time. The exchange between the

analyst and investor participating on the call and defendant Kanode was as follows:

Rob Young, Wm Smith & Co. – Analyst

Okay, okay.

And then a follow-up pertains to capital positions. It looks like you have got about $1.4 million on the balance sheet in cash .

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I was curious just kind of if you could talk about your comfort level with that amount of cash and any opportunities to increase that cash position either through free cash flow -- are there any opportunities with that? Or are you looking to probably go to the markets somehow?


Well, you're right, at the yearend we were at $1.4 million. And very simply stated we are evaluating a number of short- and longterm funding alternatives , which is not very easy for anyone in this economy I might add. But we are looking at short- and long-term alternatives.

* * *

Paul Ling - Private Investor

Hi, Mr. Kanode. Says the book value of the stock for Valence is negative $0.35 per share. What is the probability that the company can declare bankruptcy and let Mr. Berg take over so the investors get nothing?


We believe we have an excellent future in front of us. Our technology is one of the largest patent estates in the world in lithium phosphate. Lithium phosphate is becoming the go-to technology for safety and long life. We have a library of standard products if you will that are performing extremely well that have been designed over years. We have the fundamentals to move forward, and I feel very comfortable with those fundamentals. There is no doubt we're in a very difficult market and there is no doubt that the emergence of lithium has not been predictable.

Given all of that, we believe we are poised to move forward and we have all the right tools to do so. And that is our position and we feel pretty good about it.

Paul Ling - Private Investor

But there is no guarantee that the company cannot declare bankruptcy?


You know I cannot give you guarantees of the future performance of the economy or other areas. I can only report to you that we have the tools to basically move forward with a great product line, and we're seeing very good markets that need it.

39. In this May 23, 2012 conference call, defendant Gottschalk also downplayed the

Company's liquidity concerns by pointing to the fact that Valence's "cash used in operations" had

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"dropped dramatically" so the Company was " really in a very, very good position right now to

sustain [itself] going forward ." When pressed by Neil Donna, an analyst at Yose Capital,

regarding the Company's alternatives for dealing with its liquidity issues, defendant Gottschalk

stated that Valence was focusing primarily on raising equity and would continue as a going

concern "mostly through the sale of stock." The exchange between the analyst and defendant

Gottschalk was as follows:

Neil Donna, Yose Capital – Analyst

Hey, guys. Yes, just a follow-up on the liquidity situation. I'm a little concerned that you guys let it get to $1.3 million . I guess it looks like you burned more than that in Q4. And so I'm just trying to understand basically you know how you guys think about managing the cash burn going forward. I know you guys have great technology and you have a great pipeline ahead of you, but how do you guys think about managing the cash burn and the working capital going forward with $1 million of cash and 300 people on payroll?

Don Gottschalk, Valence Technology, Inc. - Acting CFO

This is Don. And as Bob said before we are evaluating a lot of short-term and long-term funding alternatives . And if you look at --you'll see on our 10-K that is filed today, and what we mentioned earlier that our cash used in operations from last year to this -- from the previous year to this last year dropped dramatically . And so we're really in a very, very good position right now to sustain ourselves going forward , but we are obviously looking at those different opportunities and those are yet to come.

Neil Donna, Yose Capital – Analyst

What alternatives ? I mean it's just time isn't your friend right now in this market.

Don Gottschalk, Valence Technology, Inc. - Acting CFO

Well, the different opportunities would be borrowings as necessary and also raising equity through the sale of stock and other – just in any other methods that we could come up with for now, but mostly through the sale of stock .

40. Defendants' representations in the May 23, 2012 conference call about the

Company "evaluating a lot of short-term and long-term funding alternatives" and being "in a

very, very good position right now to sustain [itself] going forward" was materially false and

- 18 -


misleading. Defendants knew and failed to disclose that they were facing a devastating cash

shortfall caused, in part, by quality control issues and accounts receivables disputes. Valence

had reported a mere $1.4 million in dwindling cash reserves, not even enough cash on hand to

make it through a month with the Company's cash burn rate. In addition, a $3 million loan

payment loomed in the coming month. Defendants claimed that they were "evaluating" options

for funding. Defendants omitted that, according to a Board member who resigned approximately

one month later, the Company had only contacted one or two banks about financing possibilities.

In addition, Defendants failed to mention that Berg had refused to subordinate any of his debt

(which was secured by all of the Company's assets), and that, without pledging some collateral as

security, finding sources of debt financing would be challenging.

41. Defendant Kanode's hollow warnings that he could not "give [any] guarantees" as

to whether the Company would not declare bankruptcy were also misleading because he knew

that bankruptcy was virtually certain. Defendants Kanode and Gottschalk misled investors

regarding the likelihood of the Company filing for bankruptcy and misrepresented that the

Company had "the tools to basically move forward." In fact, defendant Kanode and other Board

members had hired counsel to advise the Board on a potential bankruptcy. On information and

belief, by late May 2012, three of four members of the Board – including defendant Kanode –

wanted to file for bankruptcy. In short, Defendants knew by May 2012 that: (i) Berg would no

longer pump money into the Company and save it from its debts; (ii) Valence was not making

efforts to raise capital by selling equity; (iii) that Valence was not actively exploring financing

opportunities; (iv) that financing would be difficult with Berg's refusal to release any collateral

for other debt financing; and (v) that, as a result of the foregoing, the Company was headed for

bankruptcy and would not survive as a going concern.

- 19 -


THE TRUTH IS REVEALED

42. On July 12, 2012, only a month and a half after Defendants assured the market of

the Company's ability to sustain itself going forward, Valence issued a press release disclosing to

investors that the Company "filed a voluntary petition for a chapter 11 business reorganization in

the U.S. Bankruptcy Court for the Western District of Texas." The Company did not raise

equity; nor did it find any favorable financing opportunities to stay afloat. The press release

stated:

AUSTIN, Texas, July 12, 2012 (GLOBE NEWSWIRE) -- Valence Technology, Inc. (the "Company") announced today that it filed a voluntary petition for a chapter 11 business reorganization in the U.S. Bankruptcy Court for the Western District of Texas .

The business reorganization is intended to bolster the Company's liquidity in the U.S. and abroad and enable the Company to focus on its core lithium phosphate markets. Valence is currently negotiating a debtor -in-possession credit facility and expects to announce the facility shortly. Once in place, this facility will be used to enhance liquidity and working capital and will be subject to Court approval and other conditions. With a credit facility, the Company believes that it will have sufficient liquidity to operate its business during chapter 11, and to continue the flow of goods and services to its customers in the ordinary course.

The Company expects to pay employee wages and benefits and continue customer programs. Subsidiaries outside of the U.S. are not subject to the bankruptcy proceedings and are expected to continue to operate in the ordinary course of business. Valence plans to honor all post -petition obligations to suppliers in the ordinary course.

"After careful consideration of the implications of chapter 11 and weighing them against a lack of attractive alternatives, the Board of Directors and the senior management team believe that this is a necessary step and the right thing to do for the future of Valence ," said Robert L. Kanode, Valence's president and chief executive officer. "Our goal is to continue to operate and meet customer requirements as we work through the chapter 11 process as quickly as possible. We are fully committed to working with our valued customers."

43. As a result of Defendants' false statements, Valence's stock traded at artificially

inflated levels during the Class Period. However, when the true state of the Company's business

health became public, Valence's shares sank from a closing pricing of $0.65 on July 13, 2012, to

- 20 -


a closing price of $0.05 at the end of the day on July 16, 2012. This amounted to a three-day

decline of over 92% on volume of over thirty-one million shares.

ADDITIONAL ALLEGATIONS OF SCIENTER

44. Defendants acted with scienter in that they knowingly or with severe recklessness

made false and misleading statements to investors. As described supra, defendants Kanode and

Gottschalk assured investors that the Company had sufficient liquidity and capital to operate as a

going concern, that they were exploring multiple avenues of funding, and dismissed bankruptcy

as a viable alternative for the Company. Defendants well-knew or were severely reckless in not

knowing, that the Company's liquidity and capital position was fast-deteriorating, in part due to

quality control issues and order cancellations, Valence was not actively exploring multiple

avenues to generate the needed capital, and that the Company intended to declare bankruptcy.

Resignations Letter from Board Members Reveal Management's Deliberations and Discussions Leading Up to Bankruptcy

45. On May 23, 2012, approximately one and a half months before the Company

would file for bankruptcy, defendant Kanode intentionally evaded a question asking what the

"probability [was] that the company can declare bankruptcy," responding the Company has an

"excellent future" and Valence was "poised to move forward and [it] ha[s] all the right tools to

do so." Defendant Kanode also warned that he could not "give [any] guarantees" that the

Company would not declare bankruptcy. In the same conference call, in response to a question

expressing concern about the Company's "liquidity situation," defendant Gottschalk stated that

Valence was "really in a very, very good position right now to sustain [itself] going forward."

These statements were false and misleading; or at very least, they were severely reckless because

they knew the Company, by that time, had already taken steps and initiated the process of filing

for bankruptcy.

- 21 -


46. Two directors who resigned prior to the bankruptcy filings and were involved in

the decision and deliberations leading up to the bankruptcy filings confirmed that bankruptcy

was but a foregone conclusion when Defendants disseminated their misstatements on May 23,

2012. Among other things, these directors revealed that the Company was taking affirmative

steps to file for bankruptcy given the Company's dearth of liquidity, weak capital position, and

impending credit obligation on a $3 million loan that was scheduled to come due for payment on

July 1, 2012. As Defendants knew but failed to disclose, bankruptcy was the Company's plan of

action from start. Bert C. Roberts, Jr. ("Roberts"), a Company director and member of the Audit

Committee who was privy to internal deliberations at Valence, disclosed in his July 10, 2012

resignation letter that the Company had been ready to file for bankruptcy "for several weeks."

Valence's director and Chairman of the Audit Committee, Donn V. Tognazzini ("Tognazzini"),

corroborated Roberts' statement in a June 28, 2012 letter, acknowledging that the Company had

already enlisted "a law firm specializing in bankruptcy – all but rendering a decision to use their

services ... inevitable."

47. Similarly, Tognazzini and Roberts shed light on Defendants' May 23, 2012

misstatements regarding the Company's efforts to evaluate "a lot" of a number of "short-term and

long-term funding alternatives." As Tognazzini revealed, Defendants knew that the Company

did not adequately consider alternative sources of financing, as Defendants publicly represented,

and dove head-in to bankruptcy. Tognazzini highlighted the Company's failure to "adequately

explore[] the capital markets" and inadequate efforts to "approach[] potential sources of

financing." Indeed, Tognazzini stated in his June 28, 2012 letter that Defendants had only

recently begun to search for alternative sources of funding, recounting: "It has only been with the

shadow of insolvency staring us in the face, that we (directors and management) have begun to

- 22 -


search [for funding]." Defendants knew that their statement touting the Company's strenuous

efforts to secure additional funding was misleading because Defendants had not explored this

option until it was too late and bankruptcy was the only viable option. Accordingly, as the

Company's own directors acknowledge, Defendants knew that the Company had set its course

for bankruptcy during the Class Period, and foreclosed other alternative sources of financing.

Red Flags Raised by Investors

48. There were several red flags that put Defendants on notice that their

representations concerning the Company's capital position and potential to file for bankruptcy

were false and misleading. Unlike other frauds that emanate from the bottom-up or perpetrated

by lower-level employees, here, Defendants were knee deep in the misrepresentations

disseminated to investors. Indeed, the core subject matter underlying the fraud – e.g., liquidity,

capital position, credit facility, ability of the Company to operate as a going concern, and

bankruptcy – were all matters that these Defendants were directly involved in, and responsible

for. Defendants addressed these core subject matters in various releases and conference calls,

and vehemently denied the fact that funding was a material issue and that Valence was headed

for bankruptcy.

49. For example, as early as August 3, 2011, defendant Kanode announced that there

"is no pressing urgency to do any other funding," and in February 8, 2012, defendant Kanode

went a step further and reassured investors that the Company has "very strong financial support

from a number of different areas" and that the Company was "very comfortable going forward

that we can secure funding for both ... daily activities and ... growth." In a conference on

February 23, 2012, defendant Kanode expressly warranted that "cash needs will not be

significant."

- 23 -


50. By this time, however, Defendants knew that they were experiencing a liquidity

shortage and their capital was rapidly deteriorating. As CW1 affirmed, the Company's largest

and most important customer was "returning batteries by the hundreds" due to product quality

issues. According to CW1, these quality issues were discussed in weekly meetings between

Defendants and engineers. Further as Tognazzini recounted in his resignation letter, the

Company was "overdue in its payments to key vendors," required a significant infusion of

working capital ($3 million) to even continue normal operations for another quarter, and did not

even attempt to secure additional funding until just before the bankruptcy announcement.

Defendants' denials regarding funding and capital position shortfalls indicate that they were

either sufficiently familiar with the true facts and knowingly lied, or were severely reckless in

not knowing of severe capital shortfalls and making false and misleading statements.

51. Similarly, as described above, Defendants were asked targeted and specific

questions on May 23, 2012, regarding the Company's prospects of declaring bankruptcy.

Although they did not deny it outright, Defendants implicitly dismissed any notion that

bankruptcy was being considered as a serious option. Defendants mischaracterized the

Company's state of affairs, stating: "we're really in a very, very good position right now to

sustain ourselves going forward." As detailed supra, these statement were nowhere near the

truth, as the Company had already begun the process of declaring for bankruptcy. Defendants'

denials regarding the Company's bankruptcy prospects indicate that they were either sufficiently

familiar with the true facts, or severely reckless in not being familiar, to be in a position to issue

a denial. These patterns of concealment and denials of problems at Valence support an inference

of scienter.

- 24 -


Magnitude and Core Nature of the Fraud

52. The nature of the fraud touched and concerned the core fundamentals of the

Company – its ability to maintain sufficient funds to operate as a going concern. Defendants

were intimately involved in the discussions and deliberations surrounding this important issue.

The Company's ability to operate as a going concern, its liquidity issues, and its decision to file

for bankruptcy were the primary and overarching responsibility of Defendants who served as the

Company's top executives. As the CEO and CFO of Valence, Defendants managed the financial

operations of the Company and established the strategic direction of the Company.

53. During the Class Period, the Company's sole concern was to maintain sufficient

capital and liquidity to fund its operations. Indeed, as discussed supra, in almost every

conference call during the Class Period, investors grilled Defendants regarding the Company's

dwindling capital position, and the probability that it may have to file for bankruptcy.

Defendants even concerned themselves with the product quality issues impacting their ability to

generate sufficient business and revenues to maintain operations. CW1 detailed weekly

meetings in which Defendants met with engineers to discuss product quality issues, including

issues with the Company's battery quality that caused one of its major customers to attempt to

rescind their contract and return at least 50% of batteries that were ordered and shipped. Finally,

as Tognazzini's and Roberts' resignation letters confirm, Defendants, as the CEO and CFO, were

aware of the working capital deficiencies and were aware of internal information regarding the

most critical aspects of the Company's sustainability. For instance, Defendants prepared and

presented internal forecasts that projected the amount of capital Valence needed to maintain its

operations. See, e.g. , Tognazzini's June 28, 2012 resignation letter ("Valence's CEO and acting

CFO have indicated that, with approximately $3 [million] in additional working capital and an

- 25 -


extension in the terms of the credit outlined above, Valence could continue normal operations

through at least mid-October 2012...."). Defendants Kanode and Gottschalk's intimate

knowledge and understanding of the material information underlying the depths of the

Company's operating and capital deficiencies support the inference that Defendants knew or

were severely reckless in not knowing that their statements were false and misleading.

LOSS CAUSATION

54. The market for Valence's securities was open, well-developed, and efficient at all

relevant times. Valence stock traded on the NASDAQ stock exchange until July 12, 2012, when

the Company declared bankruptcy and was moved to the OTC exchange. As a result of these

materially false and misleading statements and failures to disclose, Valence's securities traded at

artificially inflated prices during the Class Period. Plaintiffs and other members of the Class

purchased or otherwise acquired Valence securities relying upon the integrity of the market price

of Valence's securities and market information relating to Valence, and have been damaged

thereby.

55. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of Valence's securities, by publicly issuing false and misleading

statements and omitting material facts necessary to make Defendants' statements, as set forth

herein, not false and misleading. Said statements and omissions were materially false and

misleading in that they failed to disclose material adverse information and misrepresented the

truth about the Company and its ability to continue as a going-concern as alleged herein.

56. At all relevant times, the material misrepresentations and omissions particularized

in this Consolidated Complaint directly or proximately caused or were a substantial contributing

cause of the damages sustained by plaintiffs and other members of the Class. As described

- 26 -


herein, during the Class Period, Defendants made or caused to be made a series of materially

false or misleading statements about Valence's quality issues and the reason for contract

cancellations, whether the Company would file for bankruptcy, and the Company's ability to

continue as a going concern. These material misstatements and omissions had the cause and

effect of creating in the market an unrealistically positive assessment of Valence and its business,

prospects, and operations, thus causing the Company's securities to be overvalued and artificially

inflated at all relevant times. Defendants' materially false and misleading statements during the

Class Period resulted in plaintiffs and other members of the Class purchasing the Company's

securities at artificially inflated prices, thus causing the damages complained of herein. As a

result of their purchases of Valence securities during the Class Period, plaintiffs and other

members of the Class suffered economic loss, i.e., damages, under the federal securities laws.

FRAUD-ON-THE-MARKET DOCTRINE

57. At all relevant times during the Class Period the market for Valence securities

was an efficient market for the following reasons, among others:

(a) There has been a substantial volume in Valence securities during the Class

Period. During the Class Period, weekly trading volume averaged 1.19%, supporting a

presumption of an efficient trading market;

(b) Valence filed periodic public reports with the SEC; and

(c) Valence regularly communicated with public investors via established

market communication mechanisms, including regular disseminations of press releases on the

national circuits of major newswire services and other wide-ranging public disclosures, such as

communications with the financial press and other similar reporting services.

- 27 -


58. As a result of the foregoing, the market for Valence securities promptly digested

current information regarding Valence from all publicly available sources and reflected such

information in the prices of the securities. Under these circumstances, all purchasers of Valence

securities during the Class Period suffered similar injury through their purchase of Valence

securities at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

59. The statutory safe harbor provided under the Private Securities Litigation Reform

Act of 1995 for forward-looking statements under certain circumstances does not apply to any of

the allegedly false statements pleaded in this Consolidated Complaint. The false and misleading

statements alleged herein each relate to then-existing facts and conditions. In addition, to the

extent certain of the statements alleged to be false may be characterized as forward looking, they

were not identified as "forward-looking statements" when made and there were no meaningful

cautionary statements identifying important factors that could cause actual results to differ

materially from those in the purportedly forward-looking statements. Moreover, to the extent

that any forward-looking statements pleaded herein were identified with meaningful cautionary

language, Defendants are liable for those false forward-looking statements because at the time

each of those forward-looking statements was made, the speaker had actual knowledge that the

forward-looking statement was materially false or misleading.

CLASS ACTION ALLEGATIONS

60. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired Valence

securities during the Class Period (the "Class"). Excluded from the Class are Defendants and

their families, the officers and directors of the Company (including Berg), at all relevant times,

- 28 -


members of their immediate families and their legal representatives, heirs, successors, or assigns,

and any entity in which Defendants have or had a controlling interest.

61. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits

to the parties and the Court. At the time Valence declared bankruptcy, it had over 169.9 million

shares of stock outstanding, owned by hundreds, if not thousands, of persons.

62. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) whether the Exchange Act was violated by Defendants;

(b) whether Defendants omitted and/or misrepresented material facts;

(c) whether Defendants' statements omitted material facts necessary to make

the statements, in light of the circumstances under which they were made, not misleading;

(d) whether Defendants knew or deliberately disregarded that their statements

were false and misleading;

(e) whether the price of Valence securities was artificially inflated; and

(f) the extent of damage sustained by Class members and the appropriate

measure of damages.

63. Plaintiffs' claims are typical of those of the Class because plaintiffs and the Class

sustained damages from Defendants' wrongful conduct.

64. Plaintiffs will adequately protect the interests of the Class and have retained

counsel who are experienced in class action securities litigation. Plaintiffs have no interests

which conflict with those of the Class.

- 29 -


65. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

COUNT I

Against Defendants for Violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5

66. Plaintiffs incorporate by reference and reallege each and every allegation

contained above, as though fully set forth herein.

67. During the Class Period, Defendants disseminated or approved the false

statements specified above, which they knew or deliberately disregarded were misleading in that

they contained misrepresentations and failed to disclose material facts necessary in order to make

the statements made, in light of the circumstances under which they were made, not misleading.

68. Defendants violated section 10(b) of the Exchange Act and SEC Rule 10b-5 in

that they:

(a) employed devices, schemes, and artifices to defraud;

(b) made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading; or

(c) engaged in acts, practices, and a course of business that operated as a

fraud or deceit upon plaintiffs and others similarly situated in connection with their purchases of

Valence securities during the Class Period.

69. Plaintiffs and the Class have suffered damages in that, in reliance on the integrity

of the market, they paid artificially inflated prices for Valence securities. Plaintiffs and the Class

would not have purchased Valence securities at the prices they paid, or at all, if they had been

- 30 -


aware that the market prices had been artificially and falsely inflated by Defendants' misleading

statements.

COUNT II

Against Defendant Kanode for Violation of Section 20(a) of the Exchange Act

70. Plaintiffs incorporate by reference and reallege each and every allegation

contained above, as though fully set forth herein.

71. Defendant Kanode acted as a controlling person of defendant Gottschalk within

the meaning of section 20(a) of the Exchange Act. By reason of his positions with the Company,

defendant Kanode had the power and authority to cause defendant Gottschalk to engage in the

wrongful conduct complained of herein. Defendant Kanode controlled defendant Gottschalk and

all of the Company's employees. By reason of such conduct, defendant Kanode is liable

pursuant to section 20(a) of the Exchange Act.

72. As a direct and proximate result of defendant Kanode's wrongful conduct,

plaintiffs and members of the Class suffered damages in connection with their respective

purchases and sales of the Company's securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs pray for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure and certifying plaintiffs as a representative of the Class;

B. Awarding plaintiffs and the members of the Class damages, including interest;

C. Awarding plaintiffs reasonable costs, expert fees, and attorneys' fees; and

- 31 -


D. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

DATED: March 25, 2013

/s/Julia M. Williams JULIA M. WILLIAMS

ROBBINS ARROYO LLP BRIAN J. ROBBINS FELIPE J. ARROYO JULIA M. WILLIAMS KEVIN S. KIM 600 B Street, Suite 1900 San Diego, CA 92101 Telephone: (619) 525-3990 Facsimile: (619) 525-3991 E-mail: [email protected]

[email protected] [email protected] [email protected]

LAW OFFICES OF THOMAS G. AMON THOMAS G. AMON 250 West 57th Street, Suite 1316 New York, NY 10107 Telephone: (212) 810-2430 Facsimile: (212) 810-2427 E-mail: [email protected]

ARMBRUST & BROWN, PLLC MICHAEL BURNETT (#00790399) 100 Congress Avenue, Suite 1300 Austin, TX 78701 Telephone: (512) 435-2300 Facsimile: (512) 435-2360 E-mail: [email protected]

Attorneys for Plaintiffs

851289

- 32 -


CER111CATJON OF PIAIN1IFI PUR$LtANTTO FEDERAL SECIJRD1 ! LAW

Mark McNuhy (Plaintilfl declares as to the claims asserted, or to be assetted, under the fcdeial ecurjts laws. that

1. Plaintiff has reviewed the Class Action Complaint and has retained Robbins Unieda LIP ax counsel in this action for all purposes.

2. Plaintiff did not acquire the security that is the subject of this action at the direction of Plaintiffs counsel or in urder to participate in any private action or any other litigation under the ldcaI securities laws.

3. Plaintiff bab made the fallowing transaction(s) during the Class Period in the securities that are subject of this action:

4. Plaintiff is willing to serve as a relpesentative party on behalf of a class, including providing testimony at deposition and trial if necessary, and Plaintiff is willing to serve as a lead plaintiff, a lead plamaif being a representative party who acts on behalf of other ctss membcrc in directing the action.

S. Plaintiff has not sought to serve or served as a representative party for a class in an action filctj under the fedeed secuntles laws within the past three yea, unless Otherwise stated in the space below:

6. Plaintiff Will not accept any payment for serving as a representative party on behalf of the class beyond the Plainiifl's pro rata share of any recovery, except such reasonable costs and epcnses (including lost wages) directly relating to the representation of the class as ordered or approved by the Court.

7. Plaintiff represents and warrants that he is Ibily authorized to enter into sad execute this certification.

I declare under penalty of pcijury that the foregoing is lore and correct. Eeeutcd this ,. day of September. 2012

e4Ik MAW MCNULTY


CERTIFICATION OF PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAW

Charles Forman ('Plaintiff") declares as to the claims asserted, or to be asserted, under the federal securities laws, that:

1. Plaintiff has reviewed the Class Action Complaint and has retained Robbins Umeda LLP as counsel in this action for all purposes.

2. Plaintiff did not acquire the security that is the subject of this action at the direction of Plaintiffs counsel or in order to participate in any private action or any other litigation under the federal securities laws.

3. Plaintiff has made the following transaction(s) during the Class Period in the securities that are subject of this action:

SECURITY TRANSACTION TRADE PRICE PER (Purchase/Sale) DATE QUANTITY SHARE/SECURITY

See Attached

4. Plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary, and Plaintiff is willing to serve as a lead plaintiff, a lead plaintiff being a representative party who acts on behalf of other class members in directing the action.

5. Plaintiff has not sought to serve or served as a representative party for a class in an action filed under the federal securities laws within the past three years, unless otherwise stated in the space below:

6. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class as ordered or approved by the Court.

7. Plaintiff represents and warrants that he is fully authorized to enter into and execute this certification.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 1-2 day of November, 2012.

CHARLES FORMAN


SECURITY TRANSACTION TRADE DATE QUANTITY PRICE PER

(Purchase/Sale) SHARE/SECURITY

VLNC Purchase 11/30/2011 15,000 0.88

VLNC Purchase 11/30/2011 15,000 0.88

VLNC Purchase 12/2/2011 4,000 0.9

VLNC Purchase 12/2/2011 4,000 0.9

VLNC Purchase 4/2/2012 2,830 0.8296

VLNC Purchase 4/20/2012 50,000 0.7

VLNC Sale 4/25/2012 -20,000 0.76

VLNC Sale 4/25/2012 -10,000 0.77002

VLNC Sale 4/25/2012 -10,000 0.76

VLNC Sale 4/25/2012 -10,000 0.77

VLNC Purchase 5/29/2012 70,000 0.76999

VLNC Purchase 5/29/2012 30,000 0.77

VLNC Purchase 6/19/2012 50,000 0.5293

VLNC Purchase 6/20/2012 50,000 0.5433

VLNC Purchase 6/21/2012 30,000 0.5433

VLNC Purchase 7/5/2012 50,000 0.5293

VLNC Purchase 7/5/2012 50,000 0.5293


CERTIFICATE OF SERVICE

I hereby certify that on March 25, 2013, I authorized the electronic filing of the foregoing

with the Clerk of the Court using the CM/ECF system which will send notification of such filing

to the e-mail addresses denoted on the attached Electronic Mail Notice List.

I certify under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed on March 25, 2013.

/s/ Julia M. Williams JULIA M. WILLIAMS

CM/ECF LIVE - U.S. District Court:txwd- Page 1 of 1


Mailing Information for a Case 1:13-cv-00026-LY

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

•

Felipe J. Arroyo [email protected] ,[email protected] ,[email protected]

• Paul R. Bessette [email protected],[email protected] ,[email protected]

• Michael Leonard Ray Burnett [email protected] ,[email protected] ,[email protected]

• Gregory E. Del Gaizo [email protected]

• Kevin S. Kim [email protected],[email protected] ,[email protected]

• Brian J. Robbins [email protected]

• Julia M. Williams [email protected],[email protected] ,[email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.

Thomas G. Amon Law Offices of Thomas G. Amon

250 West 57th Street Suite 1316

New York, NY 10107

Leonid Kandinov Robbins Arroyo LLP 600 B Street

Suite 1900

San Diego, CA 92101

https://ecf.txwd.uscourts.gov/cgi-bin/MailList.pl?252132578458626-L_1_0-1 3/25/2013

Documents

Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 2 of 37 …securities.stanford.edu/filings-documents/1049/VLNCQ00... · 2013. 7. 3. · Case 1:13-cv-00026-LY Document 29 Filed