Underwriting Agreement – Securities Regulation

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You can grab notes on other topic from here.

  1. UW Agreement
  • UW purchase from corp in exchange for a fee (for resale to public). Contemplated that it’ll be executed with final prospectus.

o Prior to signing, no binding agreement.

o Filing in different jurisdictions, dates in which final needs to be filed so they can get securities into hands of buyers (and “out” clauses for underwriters)

o Certificates of accuracy of prospectus, but this is not a substitute for due diligence, must independently verify if you’re the UWs

o When copies of prospectus are to be delievered and how many copies (quickly b/c of cooling off, otherwise UWs are exposed to contingencies of market, want to be exposed for as little time as possible)

o Underwriter only distrib sec where there is a receipt for a final prospectus

  • Other: Notify of material change, reps and warranties, indemnification (obligation to file amendment asap and at most w/in 10 days of material change)

o Re: indemnification: if there is a misrep in prospectus, company will indemnify the directors, employees and agents against liab (likely will not uphold as would not ensure ppl to take; Never tested in Can, but US cts consistently said indemnity provisions not enforceable – contrary to public policy – BUT if acting for underwriters incl anyways – can’t hurt)

  • Problem with company indemnification (Policy): The underwriter has no incentive to properly do their due diligence if they know the company is good for it. You ’ve contracted out of the obligation to do proper due diligence

o Hasn’t been challenged in Canada, in the US, they’re not enforceable.

o Although never tested in Canada, he thinks Canadian courts would say the same thing o Legal fiction in mature companies doing IPOs (not start ups, though)

  • Contribution: Interesting, says if the UW gets sued for misrep and they go after them for the whole thing, the UW has a right to go back to the company for its share of that misrep

o Have a right to seek contribution of company for what you’re not responsible for (UWs responsible for part underwritten by them) o s. 130(8): of securities act – you can get contribution unless court denies you that right (contractually providing for right to contribution) o Policy: Protect investors by holding as many people responsible as possible -contribution makes sure everyone has to be worried about it, not just the person with the deepest pocket ^ encourages more people to be more careful, which is what the legislation is meant to do

  • Termination: Market Out: UW can terminate agreement, means people are scared (unclear when it can be relied upon – not if market simply having a bad wk OR blip)

You can grab notes on other topic from here.

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