For various reasons a corporation may issue warrants to purchase shares of its common stock at specified prices that, depending on the circumstances, may be less than, equal to, or greater than the current market price. For example, warrants may be issued:
1. To existing stockholders on a pro rata basis.
2. To certain key employees under an incentive stock-option plan.
3. To purchasers of the corporation's bonds
For each of the three examples of how stock warrant are used:
(a) Explain why they are used
(b) Discuss the significance of the price (or prices) at which the warrants are issued (or granted) in relation to (1) the current market price of the company's stock, and (2) the length of time over which they can be excercised.
(c) Decribe the information that should be disclosed in financial statements, or notes thereto, that are prepared when stock warrants are outstanding in the hands of three groups listed above.