Sorry Mark, just looking at the message board and I see your reply regarding the potential risk to the short.

There is no risk on the upside. The warrant holder would short a number of shares that would be equal to or less than the number of warrants he owns. Thus, the share price could go to $10 and if he shorted the same # of shares which he has in warrants, he is indifferent. As an example if he shorted 1000 shares at $2 and had 1000 warrants, he would lose $8000 on his short ((10-2)*8) but he would then exercise his warrants (say the exercise price was $1) and make $9000 ((10-1)*1000). His $1000 profit is the same as if he exercised his warrants today and sold the stock at $2 (i.e. 2*1000-1*1000).

So he is indifferent on the upside (doesn't care how high the share price goes), and can possibly still make money on the downside.