Private placement financings can be completed on a time efficient basis using the following three financing solutions:

Straight Equity at a Discount

A sale of common stock at the market price or at a slight discount to the public stock price (a so-called Straight Equity financing) is the simplest and most straightforward financing structure. In addition to its simplicity, a primary benefit of selling straight equity is that the terms of the financing are locked in at the closing so that the company knows the exact proceeds to the company, the number of shares to be sold and the price at which the stock is sold. Typically, the company must file a registration statement prior to the financing or at least within several months of the funding. Investors usually require 10% to 50% warrant coverage depending on the liquidity of the stock and the financial position of the company.

Convertible Preferred Securities

Convertible Preferred securities typically include a formula for converting the preferred shares into common shares, typically at a fixed price or at a discount of 5% to 25% below the company's stock price at the time of conversion. Unless a company is highly confident that the financing proceeds will dramatically improve the company's financial outlook and the stock price will respond positively, it is far preferable to have a fixed price conversion. Conversion usually begins 90 days after closing, when the underlying common stock must be registered. While the proceeds to the company are locked in at a floating conversion price, the number of shares that must be issued depends on the stock price at the time the investor converts the preferred stock into common stock. It is crucial to structure a Convertible Preferred with a floor provision to provide the stock price below which the company would not sell stock.

Convertible Notes

Recently, a popular financing structure has been raising capital by issuing convertible notes with an interest rate of 8% to 14%. The notes are often secured by assets of the company. Typical terms are a three-year note with monthly self-amortizing principal and interest payments beginning six months after issuance. The principal and interest can be paid in cash or in stock, at the company's sole option. If the company elects to pay the principal and interest in stock, then the stock is valued at a 5% to 15% discount to the market price at the time of the payment. A benefit to the company is that the conversion price is at the market price or a premium of 5% to 10%. The underlying stock must be registered within six months of issuance. Investors usually require 10% to 50% warrant coverage depending on the liquidity of the stock and the financial position of the company.

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