Legal Definitions - subscription warrant

A subscription warrant is a type of security that grants its holder the right, but not the obligation, to purchase a specified number of shares of a company's stock at a predetermined price (known as the "exercise price") within a particular timeframe. Companies often issue these warrants to raise capital, sometimes offering them to existing shareholders to allow them to maintain their proportional ownership, or including them as an incentive in a new offering of other securities. Subscription warrants can typically be traded independently of the underlying stock.

• Scenario:TechInnovate Inc., a publicly traded software company, needs to raise $50 million to fund the development of a new artificial intelligence platform. Instead of simply issuing new shares to the public, they decide to conduct a "rights offering" by distributing subscription warrants to their current shareholders. Each warrant allows the holder to buy one new share of TechInnovate stock at $25 per share anytime within the next two years.

  Illustration: This scenario demonstrates a subscription warrant because it provides existing shareholders with a *right* (not an obligation) to *purchase additional shares* of TechInnovate at a *fixed price* ($25) within a *defined period* (two years). This allows shareholders to potentially acquire shares at a discount if the market price rises above $25, while also helping the company raise necessary capital.

• Scenario:GreenEnergy Solutions, a startup focused on renewable energy, is issuing corporate bonds to finance the construction of a new solar farm. To make the bonds more attractive to investors, they bundle each bond with a subscription warrant. This warrant allows the bondholder to purchase 100 shares of GreenEnergy Solutions common stock at $10 per share at any point over the next five years.

  Illustration: In this case, the subscription warrant serves as an *additional incentive* bundled with another security (the corporate bond). It provides the bond investor with the *option to buy* GreenEnergy's stock at a *set price* ($10) for a *specified duration* (five years), offering potential upside if the company's stock value increases significantly as the solar farm becomes operational.

• Scenario:BioHealth Pharma, a privately held biotechnology company, secures a significant investment from a venture capital firm. As part of the investment agreement, the venture capital firm receives not only equity shares but also subscription warrants. These warrants grant the firm the right to purchase an additional 500,000 shares of BioHealth Pharma stock at a price of $15 per share at any time before the company goes public or within seven years, whichever comes first.

  Illustration: This example highlights subscription warrants being used as an *additional incentive* in a private investment deal. The venture capital firm gains the *right to acquire more shares* of BioHealth Pharma at a *fixed price* ($15) over a *long-term period* (seven years or until an IPO), providing them with further potential returns if the company's valuation grows substantially.