The conditional nature of CVRs makes them valuable in breaking logjams in price negotiations.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

After all, CVRs are only payable upon the occurrence of some milestone event by a future date.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

Essentially, CVRs are derivatives whose value is tied to future events, such as product performance or revenue targets.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

CVRs can transfer much of the risk normally borne by acquirers to the shareholders in the target corporation.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

The most troubling aspect of CVRs from an investor standpoint, however, is the way the instruments redistribute risk in deals.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

For one thing, the fact that the value of CVRs is largely dependent on future events presents challenging taxation and accounting issues.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

After the financial crisis vastly amplified market volatility, CVRs began to play an increasing role in many mergers and acquisitions, especially in the risk-laden biotech and pharmaceutical sectors.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

CVRs do have some downsides for investors, however.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

Although some CVRs are registered tradable securities, the majority are non-transferable because the issuing company does not want to incur the additional cost, disclosure obligations, and legal responsibilities associated with registering them with the SEC.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

While there is no doubt that CVRs can effectively circumvent arguments about current value, in the wake of a financial crisis fueled by risky and speculative financial instruments, investors are right to be wary of the unknown.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights

If the IRS follows the same rule for event-type CVRs, the issuer recognizes no gain or loss on the CVR issuance, the repurchase of the CVR, or the lapse of the CVR, but a target shareholder generally must recognize an immediate capital gain or loss taking into consideration the fair market value of the CVRs received on the date of distribution.

FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights