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Technology Stocks : VALENCE TECHNOLOGY (VLNC)
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To: Zeev Hed who wrote (6475)12/30/1998 3:42:00 PM
From: Larry Brubaker  Read Replies (3) of 27311
 
Zeev, There is no doubt that cash will be tight for a while but I am encouraged by the consistent statements now out of IR that samples will be shipped in earnest beginning in January. Presuming this information is correct (unlike statements from IR posted here a year ago regarding VLNC being ready for production), it seems that a great deal of risk is removed from the stock.

The wording of the S-3 suggested to me they were still peeling the onion (to use a Zeevism). If so, the risk of having to resort to more toxic financing seemed high. If the onion has been peeled and it is simply a matter of ramping up production and working out the expected bugs, the financing risk seems to be at a much lower level.

Even if, as you suggest, it takes a few months to get orders and a few months after that to be shipping in large volumes, and even if cash flow is a major concern for a while, it would seem more likely they could raise whatever money they need for cash flow purposes from more conventional sources than the toxic route. As you pointed out, the new provisions give Castle Creek "most favored nation" status, but that may simply help Castle Creek "cover their cash" in case Mr. Murphy dumps further unforseen problems on VLNC.

Regarding this new sort of floorless which is apparently becoming a specialty of Castle Creek. A term for it might be "produce or else" floorless. It seems to give the recipients a window of opportunity to get the job done before exacting a floorless penalty. As such, I see it as a less toxic version of a straight floorless.
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