The underwriting agreement (UA) is typically signed the evening before or the morning of the effective date of the security’s issue. Unlike the letter of intent, it is a binding agreement. The agreement sets the terms and conditions between the issuer and the lead underwriter. Recall that the Agreement Among Underwriters grants authority to the lead underwriter to enter into the UA with the issuer on its behalf. The agreement is filed with the SEC and becomes part of the registration statement.
The UA includes:
• The public offering price or a formula with which to derive it
• The per-share underwriting spread
• A settlement date on which the issuer will receive payment and deliver the securities to the syndicate
• The net proceeds to be received by the issuer and which costs will be borne by which parties
• An over-allotment (greenshoe) option, if granted, allowing underwriters to issue up to 15% more shares than originally planned
• Legal provisions allowing the underwriter to terminate the contract under certain conditions
Summary Table
Syndicate Agreements
Agreement
What Is Included
Agreement Among Underwriters (AAU) (syndicate agreement)
• Duties and rights of each member of the syndicate
• Allocation of shares and the liability of each underwriter
• Identity of the lead underwriter and any co-managers
• Authority of the lead underwriter to make stabilizing bids and enter into the underwriting agreement on behalf of the syndicate
• Compensation for each underwriter and the compensation offered to the brokers who are selling
