A standby underwriting agreement involves a company selling securities and a financial institution. The financial institution agrees to purchase any remaining shares of the securities after the public offering for a fee. This arrangement helps the company guarantee the sale of all their securities and secure the necessary funds.
A standby underwriting agreement, also known as a standby commitment, is a contract between an underwriter and an issuer of securities. In this agreement, the underwriter agrees to buy any unsold shares of the securities after a public offering, in exchange for a fee.
For example, Company A wants to raise capital by issuing new shares of stock. They hire Company B as their underwriter for the public offering. Company B agrees to purchase any unsold shares of the stock for a fee, thus entering into a standby underwriting agreement.
Another instance where a standby underwriting agreement is utilised is when a municipality issues bonds to finance a project. The underwriter commits to buying any unsold bonds after the public offering, in return for a fee.
These examples demonstrate how a standby underwriting agreement functions. By providing a safety net for the issuer, the underwriter’s commitment to purchase any unsold securities instills confidence in the issuer to proceed with the public offering, knowing that they won’t be burdened with unsold securities.
A standby underwriting agreement is a legal contract between a company issuing securities and an underwriter. It states that the underwriter will purchase any unsold securities during a public offering, ensuring that the company receives the necessary funds.
A company may need a standby underwriting agreement to guarantee that it will receive the desired amount of funds from a public offering. It provides a safety net by ensuring that any unsold securities will be purchased by the underwriter.
Once the company determines the terms of the public offering, including the number of securities and the offering price, the standby underwriting agreement is executed. If the public offering does not generate enough demand to sell all the securities, the underwriter steps in and purchases the remaining unsold securities.
The underwriter is responsible for purchasing any unsold securities during the public offering. They must also provide the necessary funds to the company in exchange for the securities.
Yes, a company can terminate a standby underwriting agreement if certain conditions are met. These conditions are typically outlined in the agreement itself and may include events such as a material adverse change in the company’s financial condition or a breach of the agreement by the underwriter.
If the underwriter fails to fulfill their obligations, the company may have legal recourse. This could include seeking damages for any financial losses incurred as a result of the underwriter’s breach of contract.
Yes, there are risks involved for both the company and the underwriter. The company may not receive the desired amount of funds if the public offering does not generate enough demand. The underwriter, on the other hand, may be left with unsold securities that they are obligated to purchase.
Yes, a company can enter into multiple standby underwriting agreements if needed. This allows them to secure multiple underwriters who are willing to purchase any unsold securities during a public offering.
Standby underwriting agreements are relatively common, especially for companies conducting public offerings. They provide a level of assurance to the company that they will receive the necessary funds, even if the public offering falls short of expectations.
Yes, a standby underwriting agreement can be negotiated between the company and the underwriter. The terms and conditions, including the underwriter’s compensation and any termination clauses, can be discussed and agreed upon before the agreement is executed.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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