Underwriting Arrangements – What is contained in the underwriting agreement? (33)

In addition to being a securities purchase agreement, an underwriting agreement may serve to protect the underwriters from liability under the Securities Act in connection with an offering. Part of underwriters’ due diligence is making sure that the representations of the issuer in the underwriting agreement are true and accurate. In addition, the underwriters’ defenses are bolstered by the receipt of opinions of counsel about specific matters relating to the company as well as
“comfort letters” from the company’s auditors and in some circumstances, receipt of similar letters from other experts such as engineers and oil and gas experts.
The most important provisions of an underwriting agreement are:
Description of the nature of the underwriters’ obligation. The opening paragraphs describe the offering, whether the underwriters have a firm commitment or best efforts obligation and the underwriters’ compensation.
Representations and warranties. The company makes statements about its business, finances and assets, the offered stock and the accuracy of the registration statement.
Conditions to closing. Conditions usually include the continued effectiveness of the registration statement and the absence of material adverse changes.
Required deliverables. The company will need to provide opinions of counsel and other experts, certificates confirming the accuracy of the representations and warranties, the initial accountants’ comfort letter delivered at the time of pricing the offering and the bring- down letter delivered at closing and other closing documents.

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