Warrant Coverage

DEFINITION of 'Warrant Coverage'

An agreement between a company and its shareholders whereby the company issues warrants equal to some percentage of the dollar amount of the shareholder's investment.

BREAKING DOWN 'Warrant Coverage'

For example, if an investor purchases 1,000,000 shares of stock at a price of $5 per share (a $5,000,000 investment), and the company grants 20% warrant coverage, the company issues to the investor $1,000,000 in warrants or, in technical terms, warrants 200,000 additional shares at an exercise price of $5 per share.

This would not give the investor any additional downside protection as the underlying shares would be issued at the same price that is currently paid for the stock. However, the warrant coverage would give the investor additional upside in the event that the company goes public or is sold at a price above $5 per share.

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RELATED FAQS
  1. Are warrants more desirable than options?

    Understand what stock warrants are, the differences between warrants and options, and learn whether warrants or options are ... Read Answer >>
  2. 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 Answer >>
  3. Is there a secondary market for warrants?

    Find out how to trade warrants on the primary market, the secondary market and the over-the-counter market, including how ... Read Answer >>
  4. Why is the value of capital stock important to public shareholders?

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