What Are Pre-funded Warrants? -

Pre-funded warrants are a type of warrant that allows its holder to purchase a specified number of a company’s securities at a nominal exercise price. The nominal exercise price is typically as low as $0.01 per share (often referred to as “penny warrants”). The term “pre-funded” refers to the structural feature that allows the company to receive, as part of the pre-funded warrant’s purchase price, the exercise price that would be due for a traditional (not pre-funded) warrant, except for the nominal exercise price, at the time of the warrant’s issuance instead of at the time of the warrant’s eventual exercise.

A pre-funded warrant is typically exercisable, in whole or in part, at the holder’s option immediately following its issuance and generally over a lengthy exercise period (as long as ten years) in order to provide the holder with desired ownership flexibility. However, a pre-funded warrant that expires unexercised has no further value and the purchase price of the pre-funded warrant paid by the holder at the time of the pre-funded warrant’s issuance is not returned to the holder upon expiration. The different risk profile of a pre-funded warrant compared to a traditional warrant, due to the higher non-refundable purchase price and lower or nominal exercise price, should be adequately disclosed in the warrant’s offering document.