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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.
Unidentified Participant
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 ?
Robert Kanode, Valence Technology, Inc. - President and CEO
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:
Unidentified Participant
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?
Robert Kanode, Valence Technology, Inc. - President and CEO
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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?
Robert Kanode, Valence Technology, Inc. - President and CEO
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?
Robert Kanode, Valence Technology, Inc. - President and CEO
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?
Robert Kanode, Valence Technology, Inc. - President and CEO
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
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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.
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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
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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.
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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
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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."
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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.
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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
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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
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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.
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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,
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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.
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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
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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
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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
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Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 33 of 37
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
Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 34 of 37
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
Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 35 of 37
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
Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 36 of 37
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
Case 1:13-cv-00026-LY Document 29 Filed 03/25/13 Page 37 of 37
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