Warrant

A Warrant is a financial instrument that gives the holder the right, but not the obligation, to purchase a company's stock at a specific price, known as the exercise price or strike price, within a predetermined timeframe. Warrants are typically issued by companies as part of fundraising strategies, often attached to bond or preferred stock offerings to make them more attractive to investors.

Unlike stock options (commonly issued to employees), warrants are usually issued to investors or lenders as part of financing deals. They can also serve as an incentive in venture debt agreements, mergers, or acquisitions. When exercised, warrants result in the issuance of new shares, potentially diluting existing shareholders’ equity.

Key features of warrants:

• Exercise price: The predetermined price at which the holder can purchase the underlying stock.

• Expiration date: The deadline by which the warrant must be exercised.

• Dilutive nature: When exercised, new shares are issued, affecting existing ownership percentages.

Warrants provide investors with a leveraged exposure to a company’s equity, offering upside potential if the company’s stock appreciates beyond the exercise price before the warrant expires.