Further, as part of the transaction, previously issued warrant agreements
are being amended, which will allow the company to reclassify them as equity.
In this paper, we examine the efficacy of provisions in warrant agreements that allow managerial discretion in the timing of raising capital.
The inclusion of flexibility provisions in warrant agreements is analogous to the exclusion of bond covenants.
Our final test examines the long-run performance of firms with and without flexibility provisions in their warrant agreements. If the provisions constitute an agency problem, firms with the provisions will underperform.
Table 1 shows the distribution of the three provisions in warrant agreements that allow for managerial flexibility: the right to call the warrant, the right to extend the life of the warrant, and the right to lower the exercise price of the warrant.
Analysis: The requirement that the reduction in exercise price last at least 30 days is common in warrant agreements. The reduction and notification requirements prevent self-dealing by warrant-owning corporate officials and to allow time for warrant holders to learn of the exercise price reduction and to act on it.
The taxpayer's counsel drafted the warrant agreements separately from the product purchase agreement, for three reasons.
Having separate warrant agreements should not taint deductibility, as a separate agreement will most likely be required for securities law purposes.
The IRS argued that the warrant agreement's language, stating that the warrants were "entirely separate and independent" from the purchase agreement and did not "constitute additional consideration" for the purchase of product, showed that the warrants were not issued solely as a customer inducement.
TELECOMWORLDWIRE-January 10, 2012-Plessey Semiconductors signs licensing and warrant agreements with Intel(C)1994-2012 M2 COMMUNICATIONS http://www.m2.com
UK-based Plessey Semiconductors Limited said today that it has entered into a product licensing agreement with Intel Corporation (Nasdaq:INTC) and a share warrant agreement with Intel Capital.
The warrant agreement with Intel Capital is for an unspecified number of shares in Plessey's holding company.