Form of warrant clause: Copy, customize, and use instantly
Introduction
A form of warrant clause specifies the conditions, rights, and details surrounding any warrants granted as part of a transaction or agreement. It defines the type of warrant, the conditions under which it may be exercised, and the terms governing its use. This clause is essential in financing agreements, mergers, acquisitions, and shareholder agreements where warrants are issued as part of the deal structure.
Below are templates for form of warrant clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard form of warrant clause
This version defines the essential terms of the warrant.
The Company hereby grants to [Investor/Holder] a warrant to purchase [number] shares of [Company Name]'s [type of stock] at an exercise price of [$amount] per share. The warrant shall be exercisable at any time, in whole or in part, within [number] years from the date of issuance.
Form of warrant clause with anti-dilution protection
This version includes protection against dilution.
The Warrant Holder shall be entitled to anti-dilution protection in the event of a stock split, stock dividend, or any other corporate action that affects the number of shares of the Company’s [type of stock]. The exercise price of the Warrant will be adjusted proportionally to reflect such actions.
Form of warrant clause with cashless exercise option
This clause allows for cashless exercise of the warrant.
The Warrant Holder may exercise the Warrant on a cashless basis, whereby the Holder will receive the net number of shares equal to the difference between the current market value of the shares and the exercise price, without the need to pay the exercise price in cash.
Form of warrant clause with expiration date
This version includes a specified expiration date for the warrant.
The Warrant granted hereunder shall expire and become void on [date], unless earlier exercised, terminated, or extended as agreed in writing by both Parties.
Form of warrant clause with conversion feature
This version allows for conversion into a different class of stock.
The Warrant Holder shall have the right to convert the Warrant into [type of stock] at the holder’s option, at any time prior to the expiration date, by notifying the Company in writing and paying the exercise price.
Form of warrant clause with vesting schedule
This version includes a vesting schedule for the warrants.
The Warrant shall vest in accordance with the following schedule: [percentage]% shall vest on the first anniversary of the issuance date, and the remaining [percentage]% shall vest annually over the following [number] years, contingent upon the Warrant Holder’s continued service with the Company.
Form of warrant clause with registration rights
This clause grants registration rights for the underlying shares.
The Company agrees to use commercially reasonable efforts to register the shares underlying the Warrant under the Securities Act of 1933, as soon as practicable after the Warrant is exercised.
Form of warrant clause with change of control provision
This version includes a change of control trigger.
In the event of a Change of Control (as defined herein), the Warrant Holder shall have the right to exercise the Warrant in full, whether or not vested, and receive shares at the exercise price or the value of the shares in a cash-out transaction.
Form of warrant clause with limited transferability
This clause restricts the transfer of the warrant.
The Warrant is non-transferable and non-assignable, except with the prior written consent of the Company, except in the case of a transfer to an affiliate of the Warrant Holder or as part of a transfer of the underlying shares.
Form of warrant clause with market-based exercise price
This version ties the exercise price to market conditions.
The exercise price for the Warrant shall be determined based on the average closing price of the Company’s [type of stock] on the [stock exchange] for the [number] trading days immediately preceding the exercise date.
Form of warrant clause with acceleration of vesting upon exit event
This version accelerates vesting in certain events.
In the event of a Sale of the Company, as defined in the Agreement, all unvested portions of the Warrant shall immediately vest and become exercisable.
Form of warrant clause with adjustment for stock repurchases
This clause adjusts the warrant based on stock repurchase actions.
If the Company repurchases or redeems any of its outstanding shares, the number of shares underlying the Warrant shall be adjusted proportionally to reflect the repurchased or redeemed shares.
Form of warrant clause with cash exercise option
This version provides a cash exercise option.
The Warrant Holder may, at their election, exercise the Warrant by paying the exercise price in cash to the Company, in which case the Company shall issue the Warrant Holder the corresponding number of shares.
Form of warrant clause with lock-up period
This version imposes a lock-up period after exercise.
The Warrant Holder agrees not to sell or transfer any shares acquired upon the exercise of the Warrant for a period of [number] months following the exercise date, except as part of a registered offering by the Company.
Form of warrant clause with valuation rights
This clause includes a valuation mechanism for the shares.
In the event the Warrant is exercised after the expiration date, the Warrant Holder shall be entitled to receive the fair market value of the shares at the time of exercise, as determined by an independent valuation expert.
Form of warrant clause with conditional exercise rights
This version allows for conditional exercise.
The Warrant Holder may only exercise the Warrant once certain conditions are met, including [specific conditions, e.g., regulatory approval, performance milestones], as determined by the Company.
Form of warrant clause with adjustment for stock splits
This clause adjusts the number of shares for stock splits.
In the event of a stock split, reverse stock split, or similar event, the number of shares subject to the Warrant shall be adjusted proportionally, and the exercise price shall be adjusted accordingly.
Form of warrant clause with minimum exercise period
This version specifies a minimum period during which the warrant can be exercised.
The Warrant Holder shall not exercise the Warrant prior to [number] years after issuance, except in the event of a Sale of the Company or other exit event as defined herein.
Form of warrant clause with restrictions on exercising in certain circumstances
This clause places restrictions on when the warrant can be exercised.
The Warrant Holder may not exercise the Warrant during any period when the exercise would violate securities laws or regulations or when the underlying shares are not registered for sale.
Form of warrant clause with rights to participate in future rounds
This version gives the warrant holder the right to participate in future funding rounds.
The Warrant Holder shall have the right to participate in future equity offerings by the Company, on the same terms as the offering participants, to maintain their pro-rata ownership percentage.
Form of warrant clause with preemptive rights on future issuance
This clause grants preemptive rights on future share issuance.
The Warrant Holder shall have preemptive rights to purchase shares in any subsequent equity offering by the Company, in an amount sufficient to maintain their ownership percentage on an as-converted basis.
Form of warrant clause with right of first refusal
This version includes a right of first refusal.
If the Warrant Holder wishes to sell or transfer the Warrant, the Company shall have a right of first refusal to purchase the Warrant on the same terms as the proposed transfer.
Form of warrant clause with reorganization adjustments
This clause allows for adjustments in case of company reorganization.
In the event of a reorganization, consolidation, or merger of the Company, the Warrant shall be adjusted so that the Warrant Holder receives equivalent value in the resulting entity.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.