Exploding Warrant


DEFINITION of 'Exploding Warrant'

An equity derivative investment instrument that gives that holder the right, but not the obligation, to acquire the underlying instrument, and which is exercised only if the issuing company does not meet certain specified goals.

An exploding warrant becomes exercisable only in the event that the issuing company fails to meet certain goals, such as sales targets, product goals or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) values. If the specified goals are met, however, the warrant "explodes" and is not exercisable.

Also known as a "springing warrant."

BREAKING DOWN 'Exploding Warrant'

A warrant is often presented as part of a new-issue offering to attract investors. It is similar to a call option, but is issued and guaranteed by the issuing company, and the lifetime is in terms of years, not months like a traditional option.

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  1. I own some stock warrants. How do I exercise them?

    Typically, stock warrants are derivative instruments added to new issues of stocks or bonds to make these issues more attractive. ... Read Full Answer >>
  2. How are stock warrants different from stock options?

    A stock option is a contract between two people that gives the holder the right, but not the obligation, to buy or sell outstanding ... Read Full Answer >>
  3. Why should investors consider the fully diluted share amount?

    Investors should consider a company's fully diluted share amount before purchasing the company's stock, because it could ... Read Full Answer >>
  4. What's the difference between basic shares and fully diluted shares?

    Basic shares and fully diluted shares are different types of methods to measure the amount of shares investors hold in a ... Read Full Answer >>
  5. What is the difference between share purchase rights and options?

    There is a big difference between share purchase rights and options. With share purchase rights, the holder may or may not ... Read Full Answer >>
  6. Why is a company's diluted EPS always lower than its simple EPS?

    A company's diluted earnings per share is lower than its basic earnings per share because diluted earnings per share takes ... Read Full Answer >>

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