they expire on the 31st and at this level the warrants are going to eat up some of the tax advantage unless the price gets to 14.45.
In fiscal 2006, the Company issued warrants to purchase 1.2 million shares of the Company’s common stock at a price of $7.75 per share as compensation for services provided to the Company. Such warrants have a term of seven years expiring on January 31, 2013. The Company will be entitled to an income tax deduction equal to the amount of income, if any, recognized by the holder of the warrants upon their exercise. The amount of income recognized by the holder upon the exercise of the warrants is equal to the excess, if any, of the fair value of one share of the Company’s common stock on the date of exercise over $7.75 per share, multiplied by the number of shares exercised. To the extent that the income tax deduction, if any, available to the Company upon any exercise of the warrants is less than $6.7 million (which was the fair value of the warrants at its issuance date), then some or all of the $2.6 million deferred tax asset related to the warrants will not be realized. Any such unrealized amount will be charged to common stock in the fourth quarter of fiscal 2013 and will reduce the Company’s pool of windfall tax benefits. As of November 30, 2012, the price of the Company’s common stock was $9.10 per share. If the price of the Company’s common stock on the date of any exercise of the warrants is $9.10 per share, and the warrants are fully exercised, then approximately $2.0 million of the deferred tax asset will not be realized.