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Net share settlement of warrants

JD Greenway's Profile

The holder of the warrants elected to net share settle their warrants. i.e. instead of getting 1000 shares and paying the Company the exercise price, they received 500 shares based on the common stock price on the date of conversion. On the statement of equity within the additional paid in capital details is it more common to gross the transaction up to the 1000 shares and show a forfeiture of 500 shares or to show the net transaction. I couldn't find specific guidance on this transaction and the related presentation. Comments?

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

JD,

Since to get to the 500 shares the paperwork essentially says "1000 issued, 500 traded in, 500 outstanding", you should indicate the buyback via cashless exercise, and put those into the Treasury. A few years from now, your auditor will ask "so they used 500 shares to pay for the exercise. Where are they now?" They have to be somewhere....

...unless you have paperwork indicating a forfeiture of rights (not of the stock) in exchange for the cash to pay for the exercise, in which case the stock was never issued (as the right was forfeited), in which case you show the net amount, along with a liability and conversion of the liability to APIC resulting from the forfeiture of rights.

KP

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