No, I think the SEC filing is to allow them to sell.
They already registered these shares in the S-3, and now have put out a prospectus to sell the shares from the first tranche. The question is why now? If this was in preparation for a 'death spiral' in January/February, then the prospectus is being issued too soon. There is a proposal to be voted on in the shareholders meeting on January 7th that will require a revision to the prospectus. This proposal will allow Castle Creek to acquire more than 5% of the outstanding shares, which could happen in a 'death spiral'.
By issuing the prospectus now, I expect the company is allowing (per the the Purchase Agreement) Castle Creek, and Baccarat (Carl Berg), to convert their preferred, exercise their warrants, and sell into a big market run-up, if they want. This could be in anticipation of impending news.
As for the second and third tranches, I don't think we'll see them, unless the pricing is revised upward (Valence has the option to proceed or not). It doesn't make sense for Valence to go forward with these tranches with the stock price at 10, because the preferred shares convert at 6.03 and the warrants exercise prices are well below the current stock price.
I expect we will see a private placement at better terms.
Much has been made of the downside leverage in this stock if the price declines, due to the variable conversion of the first tranche preferred shares. If the stock price is around 10, the company will see about 10-12% dilution due to the first tranche. At a stock price of 10, the company can raise the remaining $15M with an additional dilution of only 1.5M shares, or about another 6% dilution. This is much less than feared by the doomsayers.
As the stock price strengthens above 10, the dilutary effects of a secondary raising $15M decreases even more.
Only today and tomorrow to buy before analysts visit NI. Given the time zone differences, the analysts will have had a pretty good look by the time trading starts on Thursday.
Paul |
