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Re: ssc post# 5693

Monday, 05/12/2008 1:02:51 AM

Monday, May 12, 2008 1:02:51 AM

Post# of 10461
OT: Here is some more reading for you SSC.

A company may opt to conduct a note financing for a variety of reasons. It may be close to developing a new product or completing a regulatory or other key milestone that will help justify an increased valuation. The company may need funds quickly, and note financings can often be closed sooner than equity financings because they generally involve fewer documents and a more limited due diligence process, and do not require the negotiation of a valuation of the company or, in most circumstances, approval of existing stockholders. Finally, a company may opt to conduct a note financing because it has not been able to line up enough funding sources to make worthwhile the time and expense of conducting a preferred stock financing.

The terms of note financings can vary widely from deal to deal, and are much less standard than a traditional venture capital equity financing. Moreover, note investors have become more sophisticated, creative, and aggressive in negotiating terms, so companies can expect note financings in the coming years to become more complex and potentially less favorable to issuers. Nevertheless, some terms are typical in most note financings.

Investors generally demand more than simple interest to compensate for the risk of pre-investing in a qualifying financing, the specific pricing and terms of which are unknown to them and to the company at the time of the note financing. This extra compensation usually takes the form of either a discounted conversion price or warrant coverage, rarely both.

In the case of a discounted conversion price, the notes convert at a discount from the price paid by the other investors in the qualifying financing. This discount may range from 10% if the qualifying financing is expected soon to as much as 40% or more if the qualifying financing is more uncertain.



Just my opinion...