Released on: March 8, 2008, 1:58 am

Press Release Author: annaya rana

Industry: Education

Press Release Summary: When raising capital for a business venture, warrants are a
common form of equity that is given to investors. A warrant is like an option - it
gives the holder the right to buy a security at a fixed or formulaic price, which is
known as the \"exercise\" or \"strike\" price.

Press Release Body: When raising capital for a business venture, warrants are a
common form of equity that is given to investors. A warrant is like an option - it
gives the holder the right to buy a security at a fixed or formulaic price, which is
known as the \"exercise\" or \"strike\" price.

Warrants are often confused with options. Options, as used in the venture capital
space, are typically long term (up to 10 years). They are also typically issued to
employees versus investors. Conversely, warrants act like short-term options and,
unlike employee options, can be traded as an independent security.

In general, neither the issuance of warrants nor their exercise (at least by
non-employees) is a taxable event. In fact, in 1984, Congress reversed the earlier
position of the IRS that the expiration of a warrant is a taxable event for the
issuer. However, whenever a debt security with warrants attached is issued as a
package, original issue discount problems are invited.

One type of warrant that once popular as a financing mechanism for emerging ventures
is contingent warrants. These warrants become exercisable if and when the holder
does something for the issuer, for example buys a certain level of product.
Contingent warrants are no longer used often since the SEC ruled in favor of current
and periodic recognition of expense to the issuer.

Like an option, a warrant is considered a \"common-stock equivalent" for accounting
purposes. And, if the warrant has been \"in the money\" (i.e., the exercise price is
below the market price) for three consecutive months, it is deemed to impact
earnings per share under the so-called treasury-stock method. That is, the warrants
are considered exercised, new stock is issued at the exercise price, and the
proceeds to the issuer are used to buy in stock at the market price.

Warrants are a common financing mechanism and companies seeking venture capital
should consider and become knowledgeable about this type of equity device.


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