Sale and delivery to underwriters closing: Overview, definition, and example
What is sale and delivery to underwriters closing?
The sale and delivery to underwriters closing refers to the final phase of a securities offering, such as an initial public offering (IPO) or secondary offering, where the company sells its securities (e.g., stocks or bonds) to underwriters, who then deliver them to the public or investors. This closing typically happens once all conditions in the underwriting agreement are met, including pricing, regulatory approvals, and due diligence. The underwriters, who act as intermediaries, help sell the securities to investors and usually charge a fee for their services.
For example, in an IPO, after the price is set, the company’s shares are sold and delivered to underwriters who distribute them to the public investors through stock exchanges.
Why is sale and delivery to underwriters closing important?
This step is important because it marks the completion of the offering and the transfer of ownership of the securities from the company to the underwriters, who then distribute the securities to investors. It ensures the company receives the funds from the sale, while underwriters help facilitate the market entry of the securities.
For businesses, this process allows them to raise capital by selling shares or bonds in the public market. It also establishes a legal framework for the transaction, ensuring that the underwriters are properly compensated and the securities are transferred in compliance with legal and regulatory requirements.
Understanding sale and delivery to underwriters closing through an example
Imagine a tech startup that is preparing for its IPO. After months of preparation and regulatory approval, the company sets a final share price of $20 per share. The underwriters purchase the shares from the company and then deliver the shares to institutional investors and the general public through stock exchanges. The company now receives the funds from the sale of shares, and the underwriters take their fee for facilitating the offering. This marks the completion of the sale and delivery to underwriters closing.
In another scenario, a corporate bond offering is conducted by a publicly traded company. After setting the final terms of the bonds, the company sells them to underwriters, who then deliver the bonds to investors. The company receives the bond proceeds and uses the funds for business expansion, while the underwriters distribute the bonds to investors.
Example of a sale and delivery to underwriters closing clause
Here’s how a sale and delivery to underwriters closing clause might appear in a contract:
"The Company shall sell, and the Underwriters shall purchase, the Securities at the agreed offering price on the Closing Date. On the Closing Date, the Company shall deliver the Securities to the Underwriters, and the Underwriters shall deliver the proceeds of the sale to the Company, subject to adjustments as provided herein."
Conclusion
The sale and delivery to underwriters closing represents the final stage of a securities offering, ensuring that the securities are sold, funds are raised, and underwriters are compensated. It is an essential part of the capital-raising process, ensuring that both the company and the underwriters fulfill their obligations under the underwriting agreement and that investors receive the offered securities. This transaction is crucial for businesses looking to enter the public market or raise additional funds through securities offerings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.