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Technology Stocks : VALENCE TECHNOLOGY (VLNC)
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To: Larry Brubaker who wrote (9758)3/23/1999 11:11:00 PM
From: Zeev Hed  Read Replies (2) of 27311
 
Larry, the warrants have a life of 5 years or so. The Schloss (Sp?) formula assumes the stock appreciates at a given rate (typically 10%/year), so they have a formula stating what would these warrants be worth over their life that they MUST use for accounting purposes. The warrants are an incentive to CC (and Gemini) to get the deal done, but no money was actually paid. That is why the $3.553 MM do not show on the cash flow, but do show on the income statement. Look at it in another way. If indeed the stock goes to let say $20/share, and at that time, the warrants are exercised, VLNC would get only $6.875/share (resulting from the warrants) while in principle their value is $20/share or $13 more. When the warrants are issued they must take a hit of what the expected value is ($13/share or which ever number came up discounted at a given interest rate to the date of the transaction).

Believe me, when the warrants are exercized at $6,875 it will be because these shares can be sold at a much higher value. If the shares are below %6.875, the warrants will not be exercised. I do not know if they have to correct the books if it turnsas out the warrants are exercised at extremely beneficial face value (relative to their cost), I think it is not required.

Zeev
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