Page 261 - A Canuck's Guide to Financial Literacy 2020

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Stock Warrants

Stock warrants are issued by public companies to shareholders giving them the right to
purchase more shares of the company at a specific price and by a specific time. The
warrant holder would have to exercise their right to buy more shares which in turn would
increase the total number of outstanding shares of the company. Warrants are a great way
for companies to solicit investors to participate in their private placement or shelf offerings.

Features of Stock Warrants

Stock warrants are often attached when a company is looking to raise money either via
equity or bonds. The warrants make it more attractive for investors to participate in the
company's offering. Common features of warrants are:

• Warrants dilute the share count and increase the total number of shares outstanding
• The exercise price or the price that warrant holders are entitled to exercise the
warrants are pre-determined ahead of time
• Warrants do not provide the holder with any additional voting or dividend rights,
unless exercised
• Warrants are not typically listed on a stock exchange but you will find certain
companies that might

Usefulness of Stock Warrants

Typically, the underlying stock in the warrant is also the common share of the issuer. When
a holder exercises their warrant, they provide capital to the company and in return receive
additional shares. This capital can help the company expand operations or conduct new
business.

Investors prefer warrants as it aligns the interest of management with the interest of the
shareholders. Warrants often have an exercise price above the stock price "at issue"
meaning that the warrant holder will not exercise their option until the share price has
passed a certain threshold.

Certain warrants may be traded on a public exchange for a premium. The longer the date of
expiry, the higher the premium. As the expiration date approaches, the premium would get
reduced. In addition, if the common share of the publicly traded warrant is higher than the
exercise price, the more expensive the warrant would be.

However, it's important to note that trading warrants can be difficult and time consuming if
they're not listed on an exchange. You may have to get a lawyer and complete paperwork.
Let the company know ahead of time if you're trading your private stock warrants with
another individual. They may provide advice and guide you throughout the process.