Underwriting Arrangements – What kinds of underwriting arrangements are possible? (31)

been offered and sold if there is a concurrent IPO. A company cannot state in its preliminary prospectus that its shares have been approved for listing, subject to official notice of issuance, unless it has actually received such approval. As listing is often critical to the success of an IPO, it is best practice to get such approval before the preliminary prospectus has been printed.
Underwriting Arrangements
What kinds of underwriting arrangements are possible?
In a typical IPO, the underwriters will have a “firm commitment” to buy the shares once they sign the underwriting agreement, meaning they will purchase all of the offered shares if the conditions specified in the underwriting agreement are satisfied. However, other underwriting arrangements exist, including a “best- efforts” underwriting, in which the underwriters agree to use their best efforts to sell the stock as the company’s agents. If purchasers are not found, the stock will not be sold. Abest-efforts underwriting may provide that no shares will be sold unless purchasers can be found for all of the offered shares but other arrangements provide that shares may be sold as long as a specified minimum is reached (sometimes known as a “min-max best efforts offering”). The SEC imposes certain escrow and other requirements on amini-max best efforts offering. The nature of the underwriters’ commitment will also affect the ability of the underwriters to engage in certain stabilizing transactions to support the stock price following the IPO.
How much will the underwriters’ compensation be?
The underwriters will be paid a fixed percentage of the
total dollar amount of securities sold, usually about 7%.

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