Incomep,
<<Question 1: how can 447,761 shares of common stock of warrants exercisable at a purchase price of $6.7 only worth less than $1.35 million.>>
The answer to the first question lies in the key words <<The warrants have been valued at a total of $1.35 million using the Black Scholes valuation method and recorded as a component of common stock.>>
The valuation of 1.35mm is based on a mathematical formula for pricing options as invented by Myron Scholes and Fischer Black. You can read about them in the Links below.
The long form mathematical model on Black Scholes.
digizen.net
This is a cool site for Black Scholes, complete with a picture of Myron Scholes and Fischer Black
bradley.bradley.edu
<<Question 2: The company has over 25 million shares, how can half million shares of warrant exercise possibly arise more than 4.9% of the Company's common stock.>>
The short answer is 0.5mm warrants do NOT convert to 4.9% or more of common stock.
The long answer is that there are two issues here. One issue is the 4.9% limit or restriction, which is an SEC requirement in that 5% or more issuance of new shares MUST have shareholder approval. Thus issuing 4.9% of the total shares outstanding DOES NOT require shareholder approval. Smells a little of sardine, but no fish gut yet. This is all perfectly legal. My guess, and it's just my opinion, is that the 5% additional shares rule is suppose to allow companies an efficient and timely way to do private placements or issue additional shares without a lot of shareholder red tape. The second issue is that the 4.9% statement was intended to encompass BOTH the preferred stock and the warrants. Notice that the are two classes of preferred stock, 7,500 shares of our Series A Preferred Stock, 7,500 shares of our Series B Preferred Stock (both at 1,000 per shares). The warrants are for 895,522 shares of common stock. Shares Out (Mil) 26.71, per marketguide.
The answer to your second question requires knowing the terms of the convertible. For example, 7.5mm worth of prefer shares that converted at $7.5 will result in 1mm new shares. If the conversion price is at $5, then the additional new share dilution would be 1.5mm shares. Noticed that the lower the conversion price, the greater the number of new shares created.
4.9% of 26.71 shares is 1,308,790 shares. Subtract out the warrants of 895,522, leaves 413,268 that can be converted from the $15,000,000 of series A and series B prefers. Conversion price would have to be over $36 to stay within the 4.9% limit, and I haven't even factored in accretion at 6% yet.
freeedgar.com
Our Recent Financing......... In July 1998 and December 1998, we raised a total of 17,500,000 in a debt and equity financing, which ultimately may raise up to $25,000,000. The financing comprised:
-- the sale, for $15,000,000, of 7,500 shares of our Series Preferred Stock, 7,500 shares of our Series B Preferred stock and warrants to purchase 895,522 shares of our common stock, to CC Investments, an institutional investor, and
-- a loan of $2,500,000 from Baccarat Electronics, an affiliate of a director of Valence.
Baccarat's loan agreement with Valence for an additional $7,500,000 remains in place. We issued to Baccarat in connection with the draw down of the $2,500,000 loan to us a arrant to purchase 149,254 shares of our common stock. We ill issue additional warrants to Baccarat in the amount of 47,761 shares of our common stock multiplied by the fraction equal to the dollar amount of additional loans actually made to us divided by $7,500,000.
In connection with the financing, we issued to Gemini capital, the placement agent in the financing, as a portion f its compensation warrants to purchase 175,000 shares of our common stock. See "Additional Information--Our Recent financing" for more details on the terms of this financing.
I'll look up the terms a little later.
Chester |
