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

To: Larry Brubaker who wrote (9617)	3/20/1999 9:27:00 PM
From: kolo55	Read Replies (2) \| Respond to of 27311

Well, lets discuss short position then You lost on the preferred share conversion issue... so lets now talk about CC possible short position. <<Larry, you've been telling us Castle Creek can't lose, even if Valence collapses. >> Yes Paul. The reason deals like this are made (floorless conversion priveleges) are set up this way is because it is a high risk investment that no institutional investor would touch at a fixed price. My response: Good, we agree on what you've been saying. <<In summary, you say that Castle Creek did not invest in Valence expecting them to succeed, and they plan to make money whether Valence succeeds or fails.>> That is exactly correct. In fact, I think one would be foolish to assume that Castle Creek would set up the deal this way and not take advantage of the tools (hedging their bets by shorting the stock) provided. My response: Good, we agree that you said this too. <<But now the SEC filings and short interest reports aren't quite matching up with your theory. >> Sure they do. The shares outstanding question has nothing to do with this theory. The short interest reports have indicated a large increase in the short position since Castle Creek got involved. My response: The short interest position was already at 500,000 shares in mid September when Valance stock was $4-5. By the time the share price exceeded 6.03 per share, and CC could short at a profit against their preferred, there should have been 600,000 to 700,000 shares short. The short position by December was 1,250,000. If they shorted all the newly short shares to that point, it would be 600,000 shares. If CC accounted for half of the increase in short postion to that point, it would only be a short position of about 300,000 shares. CC has the ability to convert preferred shares or exercise warrants to own 1.7 million shares from the first tranch alone. Certainly doesn't appear like a no-lose situation to me. The short interest reports, added to the fact the the preferreds haven't been converted and sold, means your theory (that they can't lose) is full of hot air. <<Although it is still uncertain whether Castle Creek has shorted shares and if so how many shares they have shorted>> You previously claimed that because there was no change in beneficial ownership statement filed, Castle Creek could not possibly have shorted. You apparently are now acknowledging you are wrong on that issue. My response: I believe that if Castle Creek has shorted more than 1% of the outstanding shares, about 300,000 shares, and not reported it in a 13D filing, then they have violated SEC rules. They may be trying to avoid the section 13 filing requirements due to the clause in the financing restricting them from converting more preferred shares if it raises their ownership of the common to more than 4.9%. But I think this is a ploy the SEC won't buy, if CC really has shorted over a million shares. Earlier you claimed they have to file a initial Form 13 showing they own the shares, before they have to report a material change in ownership. I believe the S-3 and 423B3 filings substituted for a 13D reporting acquisition of these shares. 13D filings are used to report existing shares that were acquired, these shares were new shares issued by Valence and needed a registration statement, a more comprehensive report. <<I believe that Castle Creek has shorted less than 300,000 shares as a hedge, if any, and thus the bulk of the $15M they have invested in Valence is still at risk.>> At least you are acknowledging that your previous claim that they couldn't have possibly shorted was wrong. But what's the basis for your belief they have shorted less than 300,000 shares? Your wishful thinking? The short interest has increased by a lot more than 300,000 shares since Castle Creek became involved. <<We will find out more when the next short interest report is released. If your theory, and Zeev's assertion today that they may already shorted to hedge half the preferred B position, are correct, then the next short interest report should show an increase in open short position of over 600,000 shares>> I have never claimed to know exactly how much of their position is hedged. Nor have I made any prediction as to how much the short interest will increase during any period. I simply point out it has increased substantially since July 27, 1998. My response: Sure you have. You've said that they have shorted enough shares so that they can't lose money if Valence fails... this implies a short position of least 1.2 million shares against the A preferred. To hedge half their preferred B postion, as Zeev suggested they might have (earlier post today), would require another short position of at least 600K shares. <<Your theories are starting to unravel.>> They are? I see nothing in your flurry of posts that provides any evidence to suggest my theory is unraveling. Again, Castle Creek would be foolish not to use the tools (hedging their position) that the terms of the financing allow. My response: My flurry is in response to over 40 posts on this thread, where you have espoused this theory. Of course they can use these tools. They just need to report when they have used them, per SEC guidelines. The Valence SEC reports, short open interest reports, and lack of 13D filings, suggest your theory is hogwash. This leaves us with another theory: Castle Creek invested in Valence because they believe they will be successful. That's why they hired technical experts to review Valence's technology and spent over six months doing due diligence. Paul