In a cashless exercise for a warrant, sometimes known as a “net exercise”, the cost of the exercise is paid for with a portion of the shares being exercised rather than a direct payment of cash by the holder.
An example is as follows:
You hold 10,000 warrants at a strike of 5.00 with a 1:1 delivery ratio. Suppose the underlying stock closes at 10.00 when the exercise is requested.
10,000 warrant shares x 5.00 exercise price = 50,000 total exercise price
10,000 warrant shares x 10.00 stock price = 100,000 value of warrant shares on exercise date
100,000 share value – 50,000 total exercise price = 50,000 gain for warrant holder
50,000 exercise price / 10.00 stock price = 5,000 shares to cancel as payment
10,000 warrant shares – 5,000 shares to cancel = 5,000 net exercised shares received
NOTE
- The above is for illustrative purposes only and is not guaranteed to reflect how the warrant issuer will determine the stock allocation. Holders should review the warrant prospectus to confirm treatment.