Underwriting Arrangements – What is contained in the underwriting agreement? (34)

Division of expenses. The underwriting agreement will specify which expenses of the offering are paid by the company.
Lock-ups. The underwriting agreement will prohibit the company as well as directors and executive officers from selling equity, except for certain limited purposes, during a period of up to 180 days following the IPO without the managing underwriter’s consent. This “lock- up” will also often extend to all or certainly the largest shareholders of the issuer. The exceptions from the lock-up provisions can be highly negotiated.
Indemnification. The indemnification section is probably the most important part of the underwriting agreement other than the payment provisions. Arguably, the balance of the agreement is a due diligence exercise designed to ensure that the company provides sufficient information to the underwriters to satisfy the underwriters’ liability obligations under the Securities Act. In the indemnification section, the company (and sometimes, the primary shareholder) agrees to indemnify and be responsible for the underwriters’ damages and expenses in the event of any litigation or other proceedings regarding the accuracy of the registration statement and prospectus. The indemnification section will also provide that the underwriters will be liable to the company for misstatements in the prospectus attributable to the underwriters, which information is typically limited to the underwriters’ names and the stabilization and

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