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Unemon Unemon

Subject:

VLTC - I am a seller at >$8 ... and a buyer at <$3 ... Going to be Dead Money for the
Next 3 years

1. VLTC is a shitty company. The Value of the Ongoing Operating Business is 0.
2. VLTC tangible assets are IMO worthless (see balance sheet)
3. Only Value in VLTC are the NOLs (Total of $477.80m)
As of December 31, 2014, we had federal and state NOLs of $410.3 million and $67.5 million, respectively, that begin
to expire in 2019 for U.S. federal income tax purposes and in the current year for state income tax purposes.
Currently Shares Outstanding approx. 9,063,358 (after Feb 27 addl).
At end of Q1, Total Preferred Shares Nominal Value approx $41.5m
Current Value of NOLs in case of No-Ownership Change and assuming a Tax Rate of 35% (Just theoretical
since the company on its own will never be able to take advantage of it)
NOLs FV = $477.80m x 35% = $167.23m
PPS FV = ($167.23m – $41.50m Preferred Shares Value) / 9.063m Shares OUT = $13.87
Problem is that this company will never generate any profit … so that it will never be able to take advantage of this
NOLs. In the unlikely scenario the Company would be able to turn to profit and take advantage of this NOLs in 5
years from now, Assuming a Discount Rate of 15% p.a. … … the Current Fair Value per Share would be approx.
<$6.89

Is the NOLs Value Attractive for a Potential Buyer? - Not Really, It will be a valuable Target only for Icahn …
but not earlier than 3 years from now Section 382 of the Internal Revenue Code (“Section 382”) Limits the Maximum Annual NOLs that can be
utilized by the Buyer.
Section 382 severely restricts the buyer's use of acquired NOL following a change in ownership, limiting the annual
use of such NOL to:

Purchase price of target's stock × IRS long-term tax-exempt rate
IRS long term tax-exempt rate is currently at 2.47% (http://www.irs.gov/pub/irs-drop/rr-15-08.pdf)
VLTC MCAP is now at $78.6m … A change of Control at Current Prices would limit the annual use of NOLs to
2.47% * $78.6m = $1.941m
Assuming an Tax Rate of 35%, the Total Tax Saving the buyer could realize are limited to $0.679m/year
The FV of VLTC NOLs for a Potential Acquirer would therefore be (Discount Rate 10%, not Considering NOLs
expirations):

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The total Value of VLTC is $13.01m Net Assets Value of $6.743m (Total Assets – Total Liabilities as of
12/31/2014) + $6.27m FV of Tax Savings for a possible acquirer (assuming a purchase price of 78.3m).
NO ONE OTHER THAN ICHAN WOULD EVER BE INTERESTED IN ACQUIRING VLTC FOR ITS
NOLs.

Key is therefore to determine whether or not a change of Ownership as defined under Section 382 is likely to occur:
A section 382 "ownership change" generally occurs if the percentage of the stock of the "loss corporation" owned by 
one or more "5‐percent shareholders" has increased by more than 50 percentage points over the lowest percentage 
of stock of the loss corporation owned by such shareholders at any time during the relevant "testing period." I.R.C, § 
382(g)(1). 
The "testing period" is generally the 3‐year period ending on the "testing date." I.R.C. § 382(i)(l).  
 
Recent stake increase by Icahn Enterprises does not constitute a Change of Ownership. 
Since Q1 2012 till March 30, 2015 Icahn owned 0.678m VLTC shares (14.42% at its lowers point). His position 
increased by approx. 4.061m (52.29% ownership). 
Representing a 37.87 percentage points increase (<50 percentage Points) and therefore not constituting a Change In 
Control as defines in Section 382. 
 
 
To take Advantage of the NOLs, Icahn needs to wait 3 years (meaning till March 30, 2018) before launching a tender 
offer for all the remaining outstanding 47.31% shares.  
 
‐ Company will generate more losses for the next 3 years (adding some NOLs) … but the Value reduction (loss) 
will outsize the NOLs creation effect (we ignore both effects) 
‐ Some NOLs at state Level start to expire this year (we assume they never expire) 
‐ Preferred Shares Value would be in the magnitude of >$50m by 2018 
 
 
2018 NOLs = $477.8m … with Implied Tax Saving of $167.23m. Assuming a 20% Return on Investments a Buyer 
would value the NOLs at $133.78m.  
Less the Preferred Shares Value … = $83.78m  
 
Assuming no further Dilution (Current Liquidity of $10m will be enough only if Co Ceases all the Operations) and a 
Discount Rate of 15% , the NPV of the 2018 NOLs (to Icahn) is  $55.08m ($6.08 per share).  
 

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