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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: mooter775 who wrote (3530)	7/29/1998 1:58:00 PM
From: kolo55	Read Replies (1) \| Respond to of 27311

Now I'm confused. OK, lets talk about the first tranche. I'm assuming it is convertible at a price 20% over the current stock price, and this is fixed, unless "If the company meets a certain milestone, the Series A Convertible Preferred Stock will be convertible at variable price after twelve months from issuance." If I read this correctly, then if Valence performs, and hits a certain milestone, then instead of using the current stock price to set the 20% premium conversion pricing, then the conversion pricing will be set at variable price after twelve months from issuance. So worst case is the current price + 20%, and an upside case is the company hits the certain milestone and gets the conversion price set per some formula as yet not revealed, twelve months from now. I used the reasonable worst case scenario in my dilution calculations, and used 5 x 1.20 = $6 as the conversion pricing. Possibilities for this first milestone; could be mass volume production, contracts in hand, shipments of a certain volume, etc. My guess is volume shipments exceeding a certain $ level by a specific date, but its impossible to guess with any reasonable certainty. The intention of this milestone incentive: my guess is that the company has probably made a forward looking statement to Castle Creek, and they want to tie the company to making good on this forward looking statement. Now the second tranche. The release says that "...upon Valence's achieving certain milestones, has made a commitment to purchase up to $7.5M additional shares of Convertible Preferred Stock." What could the milestones be here? Since the company probably needs this funding sometime in the next 3-4 months, I'm guessing that the milestones relate to commercial operation of the NI plant, but the conditions could be contract related. If they get some sizeable contracts, they will need the money to ramp production, and for working capital. Again though, there is really no way of knowing just what the milestones are. Unfortunately until the details of the deals are released in a 10Q, we won't know the milestones, unless management discusses them in a conference call. The pricing on the second tranche isn't really revealed, except that its stated it will be at a 20% premium. But 20% premium to what? I'm assuming the stock price on the day the second tranche is completed. To be conservative, we really should use the current stock price, and that's what I did to get a reasonable case estimate of dilution. I didn't think I should assume the stock price goes up, or goes down. The bulls and bears can argue that one, and that they seem to be doing. Certainly you appear to be correct, if the company hits the milestones, and the stock price climbs to the 10-12 range, the dilution will be less than 10%. Paul