<PAGE>
                                                                   EXHIBIT 10.40

                                            CONFIDENTIAL TREATMENT REQUESTED
                                          UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
                                                  200.83 and 240.24b-2



                                                   LICENSE AND SUPPORT AGREEMENT
--------------------------------------------------------------------------------







between

ALLIANT/VALENCE, LLC

and

VALENCE TECHNOLOGY, INC.
VALENCE TECHNOLOGY CAYMAN ISLANDS INC.

on

OCTOBER 7, 1996




ALLIANT/VALENCE / VALENCE CONFIDENTIAL
<PAGE>


THIS AGREEMENT, entered into as of October 7, 1996 ("Effective Date") by and 
between Valence Technology, Inc. with offices at 301 Conestoga Way, Henderson, 
Nevada ("Valence US") and its wholly-owned subsidiary Valence Technology Cayman 
Islands Inc. with offices at P.O. Box 309, Grand Cayman, Cayman Islands, 
British West Indies ("Valence Cayman") (collectively "Valence")  and 
Alliant/Valence, LLC, with offices at Power Sources Center, 104 Rock Road, 
Horsham, Pennsylvania 19044 ("Alliant/Valence").

WHEREAS, Valence has the knowledge, expertise and technology to design, 
develop, manufacture and sell solid polymer electrolyte batteries, and Valence 
owns or has rights to certain patents, trademarks, know-how, technology and 
other intellectual property related to the design, manufacture, and sell such 
batteries, and the laminates that are used in such batteries;

WHEREAS, Alliant/Valence desires to enter the business of designing, 
manufacturing, marketing, selling, repairing, installing, maintaining, 
exploiting, applying, distributing and dealing in products that use such 
batteries;

WHEREAS, Alliant/Valence, initially having no technology or know-how of its own 
on solid polymer electrolyte battery technology, desires to license from 
Valence the certain technology and know-how, and obtain from Valence certain 
support.

NOW, THEREFORE, In consideration of the mutual covenants and promises herein 
set forth, Joint Venture Alliant/Valence and Valence agree as follows:

1.             DEFINITIONS

1.1            AFFILIATED COMPANIES shall mean all subsidiaries, parent 
companies, and subsidiaries of parent companies, where the party or parent owns 
at least fifty percent (50%) of the subsidiary, or where the party's parent 
owns at least fifty percent (50%) of the party.

1.2            APPLICATIONS shall mean applications for use in the Joint 
Venture Markets, except for those applications for which Valence has already 
granted an exclusive license to another party, such as automotive, traction and 
utility load leveling markets licensed to General Motors, personalized lighting 
systems and uninterruptable power supplies licensed to Goldtron Ltd., and any 
applications in Korea licensed to Hanil Telecom Co., Ltd.

1.3            BATTERIES (or BATTERY, singular) shall mean the advanced 
rechargeable solid polymer electrolyte batteries manufactured by 
Alliant/Valence utilizing Laminates based on the solid polymer electrolyte 
technology owned and licensed by Valence.

1.4            JOINT VENTURE AGREEMENT shall mean the agreement entered into 
between Alliant Techsystems Inc. and Valence on October 7, 1996.

1.5            JOINT VENTURE MARKETS shall mean United States Military, foreign 
military sales and United States government specialized markets, not including 
Valence standard product sales into such markets.

1.6            INTELLECTUAL PROPERTY RIGHTS shall mean all copyright, patent 
rights, trademark rights and all common law rights connected therewith and all 
other intellectual property rights, and shall include rights to new inventions, 
discoveries, works of authorship and improvements existing during the term of 
this Agreement.

1.7            LAMINATES shall mean cathode, separator and anode laminates, or 
films, of the Battery, produced exclusively by Valence.

1.8            SPACE BASED APPLICATIONS shall mean Batteries intended for use 
on deployment in products in space.



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<PAGE>
                        CONFIDENTIAL TREATMENT REQUESTED


1.9            VALENCE shall mean Valence US and Valence Cayman jointly and 
separately, provided that Valence US shall accept any rights or obligations 
that arise under this agreement in the United States, Canada or Mexico, and 
Valence Cayman shall accept any rights or obligations that arise under this 
agreement in the remainder of the world.

2.             LICENSES

2.1            Valence hereby grants to Alliant/Valence a personal, 
non-transferable, non-sublicensable license to all of Valence's Intellectual 
Property Rights necessary to design, manufacture, use, sell, and distribute 
Batteries, using Laminate supplied exclusively by Valence, [ 
                                                                         ] for 
Applications in the Joint Venture Markets, but specifically excluding 
Intellectual Property Rights relating to the composition or manufacturing of 
Laminates.  This license shall be exclusive in the United States and 
non-exclusive elsewhere.

2.2            Valence hereby grants to Alliant/Valence the right to 
manufacture, assemble, fabricate and package Batteries, using Valence supplied 
Laminates, for Valence as a sub-contractor of Valence, upon terms and 
conditions to be agreed between Alliant/Valence and Valence.

2.3            Alliant/Valence hereby grants to Valence, and its Affiliated 
Companies, a non-exclusive, world-wide, royalty-free, non-transferable, 
non-sublicensable, personal license to all intellectual property created by 
Alliant/Valence during the term of this Agreement, except for Joint Venture 
Markets.  Notwithstanding the forgoing, such license shall be assignable 
incident to the transfer of all or substantially all of Valence's, or its 
Affiliated Companies', business.

2.4            Patents arising out of inventions made jointly by employees of 
Valence and Alliant/Valence shall be jointly owned by the parties.  The parties 
shall mutually agree as to which party shall file any resulting patent 
applications. The cost for such applications shall be equally shared.

2.5            Valence hereby grants to Alliant/Valence a non-exclusive, 
personal, non-transferable, non-sublicensable license to Valence's Trademarks 
necessary to market, sell, and distribute Batteries for Applications in the 
Joint Venture Market.  Alliant/Valence's use of the Valence trademarks shall 
inure to the benefit of Valence, and Alliant/Valence shall not register nor 
attempt to register such trademarks in its own name. Other than the rights 
granted herein, each party recognizes the right, title, and interest of the 
other party and its affiliates in and to all service marks, trademarks, and 
trade names used by the other and agrees not to use any of the other party's 
service marks, trademarks, and trade names without the other party's express 
written permission, other than provided herein.  Any promotional material 
produced by Alliant/Valence that specifically references any Battery 
performance specifications or promotes the additional value of such Batteries, 
shall also include a reference to Valence and an appropriate promotional copy 
supplied by Valence.  Valence must approve any specifications prior to 
publication or distribution.

2.6            Alliant/Valence shall mark all its Batteries with the Valence 
logo and/or name under the license provided above.  Because Valence's logo 
and/or name will be on the Batteries, Valence shall have right to stop 
manufacturing, sales and/or distribution of Batteries, if, in Valence's sole 
judgement, there is any safety defect.  Additionally, Valence shall have the 
right to cause Alliant/Valence to conduct a recall of Batteries, if such a 
defect is discovered in Batteries already distributed outside Alliant/Valence.  
Alliant/Valence shall install and maintain a lot tracking system adequate to 
allow an effective and timely recall.  Further, Valence shall review design and 
quality of products to assure such products meet Valence design and quality 
standards.  Alliant/Valence shall provide representative samples of Batteries 
prior to their first sale, and upon incorporation of any material change.

2.7            Alliant/Valence shall market and sell the Batteries for the 
Applications under names, trade marks, trade names, designs, logos and get-up 
and all other trademark rights relating to the marketing and sale of the 
Batteries for the Applications.  Such Alliant/Valence created trademarks, 
except for any marks derived from, identical with or similar to Valence's 
trademarks or trade name, shall belong to and be the absolute property of 
Alliant/Valence.


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<PAGE>
                        CONFIDENTIAL TREATMENT REQUESTED

2.8            Valence hereby grants Alliant/Valence a right of first refusal 
to the Space Based Applications market for Valence's battery technology.  Prior 
to granting any license for Spaced Based Applications, Valence shall offer such 
an offer, on the same terms as are being offered to a third, to 
Alliant/Valence. Alliant/Valence shall have ten (10) days to accept such an 
offer.

3.             EXCLUSIVE USE OF VALENCE SUPPLIED LAMINATE

3.1            Alliant/Valence shall only design, manufacture, use, sell, and 
distribute Batteries, using Laminate supplied by Valence, [



                                                             ]

3.2            Alliant/Valence hereby covenants and warrants that it will not 
design, develop, manufacture Laminate or any replacement or substitute for 
Laminate. Alliant/Valence further warrants that it will not decompose or 
reverse engineer Laminate.

4.             VALENCE PERSONNEL SUPPORT

4.1            Initially, Valence will provide one hundred sixty (160) hours of 
consulting time to Alliant/Valence, through such personnel as it deems 
appropriate. Following this initial consulting, Valence, at its discretion, 
shall supply consulting services as it deems necessary to support 
Alliant/Valence.

4.2            Valence may fulfil this obligation by providing a variety of 
qualified Valence engineers, depending on the needs of Alliant/Valence, and 
their availability from Valence.  Alliant/Valence shall establish, within a 
reasonable amount of time, a complete battery design and test laboratory.  
Alliant/Valence may, if it so desires, direct these engineers to assist 
Alliant/Valence in setting up the complete battery design and test laboratory.

4.3            Valence employees at Alliant/Valence, shall at all times remain 
employees of Valence.  Alliant/Valence shall not be liable for any expenses of 
such visiting Valence employees.

5.             MANUFACTURING EQUIPMENT

5.1            Valence grants Alliant/Valence the rights to use battery 
manufacturing equipment designed by or for Valence, and manufactured by Valence 
or its authorized equipment suppliers.  These rights include the rights to the 
designs of the battery manufacturing equipment designed by or for Valence 
listed in the Manufacturing Equipment Exhibit.

5.2            Valence shall use its best efforts to either sell, upon terms 
and conditions acceptable to Valence and Alliant/Valence, or assist 
Alliant/Valence in procuring from Valence's equipment vendors, Battery 
manufacturing equipment. However, Alliant/Valence may also purchase Battery 
manufacturing equipment from vendors other than Valence or its vendors.

6.             COVENANTS AND WARRANTIES

6.1            The parties each covenants to the other that it shall fully 
comply with any legislative and regulatory requirements (including any 
regulations, statutory or otherwise, relating to environmental controls) 
directly or indirectly applicable to the performance of its obligations 
hereunder.    Because the rights licensed under this Agreement are in part 
based on some technology of United States origin, Alliant/Valence shall comply 
with all current and future United States export regulations, including export 
embargoes and export licensing provisions. Valence shall use its best efforts 
to notify Alliant/Valence of such regulations, and any changes thereto.


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<PAGE>


6.2            Valence warrants to Alliant/Valence that it is the legal and 
beneficial owner or licensee of the technology, Intellectual Property Rights, 
knowledge and expertise granted to Alliant/Valence pursuant to this Agreement 
and has the power and capacity to enter into this Agreement.

6.3            Each party ("Indemnitor") shall, at its own expense, defend any 
suit that is instituted against the other ("Indemnitee") to the extent such 
suit alleges that any goods, information, designs, or any part, of Indemnitee, 
thereof sold hereunder infringe any patent, trademark, copyright, or trade 
secret.  Indemnitor shall not be liable to Indemnitee if such alleged 
infringement arises from any modification or addition made by anyone other than 
the Indemnitor, or the use as a part of or in combination with any other 
devices or parts or from the use to practice any method or process, if there 
would have been no infringement but for such acts.  Indemnitee shall give the 
Indemnitor immediate notice in writing of any such suit and permits the 
Indemnitor, through counsel of its choice, to answer the charge of infringement 
and defend such suit. Indemnitee shall give the Indemnitor all the needed 
information, assistance and authority, at the Indemnitor's expense, to enable 
the Indemnitor to defend or settle such suit.  In the case of a final award of 
damages in any suit the Indemnitor, shall pay such award, but shall not be 
responsible for any settlement made without its prior written consent.  In the 
event the use, lease or sale of the goods is enjoined, the Indemnitor may at 
its own option and expense (i) procure for the Indemnitee the right to use, 
lease or sell such goods, (ii) replace such goods, (iii) modify such goods, or 
(iv) remove such goods and refund the aggregate payments made by the 
Indemnitee, less a reasonable sum for use, damage and obsolescence.  THIS ABOVE 
STATES THE INDEMNITOR'S TOTAL RESPONSIBILITY AND LIABILITY, AND THE 
INDEMNITEE'S SOLE REMEDY, FOR ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY 
INTELLECTUAL PROPERTY RIGHT BY ANY GOODS DELIVERED HEREUNDER OR ANY PART 
THEREOF.  THIS SECTION IS IN LIEU OF AND REPLACES ANY OTHER EXPRESS, IMPLIED OR 
STATUTORY WARRANTY AGAINST INFRINGEMENT. 

6.4            The above indemnity obligation with regard intellectual property 
rights is the sole and only indemnity obligation owed by each party to the 
other party under this Agreement.

7.             TERMINATION

7.1            A party shall be deemed to have breached or defaulted if:

               7.1.1     any representation, warranty or statement by such 
               party in this Agreement or in any document delivered under 
               this Agreement is not complied with or is or proves to have 
               been incorrect in any material respect when made;
               
               7.1.2     such party does not perform or comply with any one 
               or more of its material obligations under the Agreement and 
               such party in breach shall fail to rectify that breach within 
               sixty (60) days of written notice of breach being given to 
               that party in the terms of this Section; or
               
               7.1.4     a winding up or bankruptcy petition is presented, an 
               order is made, an effective resolution passed or legislation 
               enacted for the winding-up other than for the purpose of 
               reconstruction or amalgamation of such party or if a receiver 
               and/or manager is appointed of the undertaking or part thereof 
               of such party; or 
               
               7.1.5     such party is unable to pay its debts as they fall 
               due or stops payment of its debts generally or commences 
               negotiations with its creditors with a view to readjustment or 
               re-scheduling of its debts or compounds or enters into any 
               arrangement with or makes any assignment for the benefit of 
               its creditors generally or attempts to do any of the foregoing 
               (except as part of or pursuant to a scheme for reconstruction 
               or amalgamation);

7.2            In the event a party commits a breach or default, as described 
above in Section 7.1, the other party hereto shall, without prejudice to any 
other rights and remedies such party may have, be entitled by notice in writing 
to the party in breach or default to terminate this Agreement forthwith as 
against such party.


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<PAGE>


7.3            In the event of a termination of this Agreement because of the 
breach or default a party, all licenses granted to the other party, and its 
Affiliated Companies, under this Agreement shall terminate.

7.4            The provisions of this Agreement with regard to confidential 
information and intellectual property rights indemnity shall survive the 
termination of this Agreement.

7.5            This Agreement shall immediately and automatically terminate 
upon the termination of the Joint Venture Agreement

8.             TAXES

8.1            Each party hereto shall be responsible for its own taxes, 
whether present or future including income tax payable in respect of any sum 
received by it, levies, goods and services tax, value added tax, impost, 
deductions or withholding imposed, assessed or collected by any political 
subdivision or taxing authority of any country in respect of this Agreement, 
any transaction or any documents contemplated herein.  In no circumstances 
shall either party be obliged to gross up the amount of any payment which it is 
otherwise obliged to make pursuant to this Agreement so as to ensure that the 
net amount received by the recipient equals that amount which the recipient 
would have been entitled to receive in the absence of any applicable 
withholding tax.

8.2            Where Alliant/Valence is obliged to withhold any tax or other 
charge from payments otherwise due by Alliant/Valence under this Agreement, 
Alliant/Valence shall promptly forward to Valence the original tax payment 
certificates evidencing that such withholding taxes or other charges have been 
paid.

9.             CONFIDENTIALITY AND PUBLIC DISCLOSURE

9.1             "Confidential Information" shall mean that information of 
either party which is disclosed to the other party ("Recipient") by reason of 
the parties' relationship hereunder, either directly or indirectly in any 
written or recorded form, orally, or by drawings or inspection of parts or 
equipment, and, either in writing and marked as confidential or proprietary, or 
if oral, reduced to writing similarly marked within thirty (30) days of 
disclosure.

9.2            Recipient shall receive and use the Confidential Information 
only for performance of Recipient's obligations hereunder, and will not use 
Confidential Information for any other purpose, and shall not disclose such 
Confidential Information to any person or persons who do not need to have 
knowledge of such Confidential Information in the course of their employment.  
Recipient further agrees that except as authorized by the Export Administration 
Regulations of the U. S. Department of Commerce it will not transmit, directly 
or indirectly, any "technical data" acquired from the other party hereto or any 
"Q, S, W, Y or Z" country as those terms are defined in the Regulations.

9.3            It is expressly understood that Recipient shall not be liable 
for disclosure of any Confidential Information if the same:

               9.3.1     was in the public domain at the time it was disclosed;
               
               9.3.2     was known to Recipient at the time of disclosure;
               
               9.3.3     is disclosed with the prior written approval of the 
               other party hereto;
               
               9.3.4     is disclosed after five (5) years from the termination 
               of this Agreement;
               
               9.3.5     was independently developed by Recipient; or


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<PAGE>

               
               9.3.6     becomes known to Recipient, on a non-confidential 
               basis, from a source other than the other party hereto, 
               without breach of this Agreement by Recipient.

9.4            Each party hereto shall not except as authorized by the Board of 
Directors of Alliant/Valence, or required by any applicable law or regulation 
of the Cayman Islands or the United States of America, reveal to any person, 
firm or Alliant/Valence any of the trade secrets, secret or confidential 
operations, processes or dealings or confidential information of 
Alliant/Valence or any information concerning the organization, business, 
finances, transitions or affairs of Alliant/Valence which may come to his 
knowledge hereunder and shall keep with complete secrecy all trade secrets and 
other confidential information entrusted to him and shall not use or attempt to 
use any such information in any manner which may injure or cause loss either 
directly or indirectly to Alliant/Valence or its Business or may be likely to 
do so.

9.5            Valence and Alliant/Valence agree that the terms and conditions 
of this Agreement shall not be disclosed to any other party without the prior 
written consent of the other, which consent should not be unreasonably 
withheld. Neither Valence nor Alliant/Valence shall publish or use any 
advertising, sales promotion, press release or publicity matters relating to 
this Agreement, without the prior written approval of the other, which approval 
shall not be unreasonably withheld.  Notwithstanding the forgoing, either party 
may make such disclosures and press releases as are necessary to meet its 
disclosure requirements under the laws, regulation and rules of the Cayman 
Islands or the United States of America.

9.6            Alliant/Valence shall not enter into any agreement that would 
require it to disclose or encumber any Valence or Alliant/Valence confidential 
information or Intellectual Property Rights.

10.            GOOD FAITH AND RELATIONSHIP BETWEEN PARTIES

10.1           In entering into this Agreement the parties hereto recognize 
that it is impracticable to make provisions for every contingency that may 
arise in the course of the performance thereof.  If by reason of any unforeseen 
occurrence or development the operation of this Agreement is likely to cause 
any inequitable hardship to any of the parties hereto, the parties hereto shall 
negotiate immediately in good faith as to what manner the terms and conditions 
of this Agreement may be modified in order to provide an equitable solution in 
so far as such is possible within the spirit of this Agreement for such 
unforeseen occurrence or development.

10.2           The parties hereto hereby agree and declare that they will 
execute and do all such acts and things as are necessary and within their power 
and authority for the time being to carry into effect and/or to comply with the 
provisions of this Agreement.

10.3           Nothing in this Agreement shall be construed to imply the 
existence of a partnership between the parties hereto.  Valence and 
Alliant/Valence each represent and warrant to the other that they have entered 
into no contracts, nor are subject to any obligations, which prevent them from 
entering into and performing this Agreement.  It is understood and agreed that 
Valence and Alliant/Valence are, and at all times shall remain, independent 
contractors.  At no time shall either Party represent to any third party that 
it is the agent of the other for any reason whatsoever.  Valence and 
Alliant/Valence further covenant that no authorization shall be given to any 
employee to act for the other Party to this Agreement.  In no event shall 
either Party at any time have authority to make any contracts or commitments on 
behalf of or as an agent of the other or otherwise make use of its relationship 
with the other, without the other's express consent in each instance.

11.            LIMITATION OF LIABILITY

In no event shall either party be liable for any indirect, special, incidental 
or consequential damages resulting from its performance or failure to perform 
under this Agreement, whether due to a breach of contract, breach of warranty, 
or such party's negligence.  Neither parties' liability hereunder shall exceed 
the amounts paid hereunder.


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<PAGE>


12.            GENERAL

12.1           Neither party may assign its rights or obligations under this 
Agreement without the prior consent of the other, and any purported assignment 
without such consent shall have no force or effect, except that a party may 
assign this Agreement incident to the transfer of all or substantially all of 
its business. Subject to the foregoing, this Agreement shall bind and inure to 
the benefit of the respective parties hereto and their successors and assigns.

12.2           No failure or delay by either party to enforce or take advantage 
of any provision or right under this Agreement shall constitute a subsequent 
waiver of that provision or right, nor shall it be deemed to be a waiver of any 
of the other terms and conditions of this Agreement. 

12.3           Neither party to this Agreement shall be liable for its failure 
to perform any of its obligations hereunder during any period in which such 
performance is prevented by any cause beyond its reasonable control.  In the 
event of any such delay the date of delivery or performance hereunder shall be 
extended by a period equal to the time lost by reason of such delay.  In the 
event Valence's production is curtailed, Valence may allocate its available 
production, as reasonably equitable, among its various customers.

12.4           The validity, performance and construction of this Agreement 
shall be governed by the laws of the state of Delaware (excluding its conflict 
of laws provisions).

12.5           Each party hereto shall bear its own costs and expenses in 
respect of the preparation, negotiation, finalize and execution of this 
Agreement and the other agreements or documents contemplated herein.

12.6           All notices or communications to be given under this Agreement 
shall be in writing and shall be deemed delivered upon hand delivery, upon 
acknowledged telex  or facsimile communication, or seven (7) days after deposit 
in the mail, postage prepaid, by certified, registered or first class mail, 
addressed to the parties at their addresses set forth above.

12.7           In the event that any provision of this Agreement is prohibited 
by any law governing its construction, performance or enforcement, such 
provision shall be ineffective to the extent of such prohibition without 
invalidating thereby any of the remaining provisions of the Agreement.

12.8           The terms and conditions of this Agreement may not be 
superseded, modified, or amended except in writing which states that it is such 
a modification, and is signed by an authorized representative of each party 
hereto.  This Agreement shall not be modified, supplemented, qualified, or 
interpreted by any trade usage or prior course of dealing not made a part of 
the order by its express terms.

12.9           Section titles used herein are for reference only and shall not 
be for purposes of interpretation.

12.10          This Agreement may be executed in several counterparts, each of 
which shall be deemed an original and all of which shall constitute one and the 
same instrument. 


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<PAGE>


12.11          This Agreement, including exhibits, constitutes the entire 
Agreement between the parties as to the subject matter hereof, and supersedes 
and replaces all prior or contemporaneous agreements, written or oral, 
regarding such subject matter, and shall take precedence over any additional or 
conflicting terms which may be contained in either party's purchase orders or 
order acknowledgment forms.

ACCEPTED AND AGREED:

VALENCE TECHNOLOGY, INC.                 ALLIANT/VALENCE, LLC
                    
By:                                     By:  
   -----------------------------------     -----------------------------------
signature of authorized representative  signature of authorized representative

Calvin L. Reed 
--------------------------------------  --------------------------------------
printed name                             printed name

President      
--------------------------------------  --------------------------------------
title                                    title

--------------------------------------  --------------------------------------
date                                     date


VALENCE TECHNOLOGY CAYMAN ISLANDS INC.  
                    
By:            
--------------------------------------
signature of authorized representative  

Melvern Slates 
--------------------------------------
printed name   

General Manager     
--------------------------------------
title          

--------------------------------------
date           



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<PAGE>
                        CONFIDENTIAL TREATMENT REQUESTED


Manufacturing Equipment Exhibit


1.             [



                                                                     ]

2.             [



                                                                     ]

3.             [



                                                                     ]

4.             [







                                                                     ]

5.             [


                                                                     ]

6.             [





                                                                     ]

7.             Miscellaneous equipment

               a.   Battery testing equipment

               b.   Battery tester network and database systems

               c.   Battery safety test equipment and test chambers

               d.   Specialized laboratory equipment for component testing






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