The main purpose of a subscription contract is to clarify all the conditions associated with the underwriting process with respect to these new securities. To this end, the Company and the subscriber will make specific commitments with respect to the issuance of shares. The text of the agreement explicitly describes the rights and obligations of both parties, so there is no risk of misunderstanding between the two companies. In the subscription agreement, the issuer is often expected to comment on compliance with the Foreign Corrupt Practices Act of 1977 (FCPA), sanctions administered by the U.S. Treasury Department`s Office of Foreign Assets Control (OFAC), and anti-money laundering (AML) laws. Insurers have generally placed more emphasis on these declarations of compliance due to the recent increase in enforcement activities by federal agencies and the severe civil and criminal penalties resulting from violations. Syndicated banks should therefore focus on maintaining standard FCPA, OFAC and AML representations in the form of a subscription agreement as defined by the leading investment bank. Nevertheless, the issuer may wish to adapt these insurances and guarantees to its particular situation. A common point of negotiation is the scope of the parties subject to representation. Most standard contracts confirm the compliance of the issuer, its subsidiaries and their respective directors, officers, employees and agents.
The issuer may be able to agree on a shortlist of parties and identify parties over which it has more direct control or supervision, as it may be costly or impractical to locate each of its representatives. In addition, the issuer may be able to add a knowledge qualifier to an insurance or guarantee certifying compliance with one or more parties over which it has no direct control. While some details of a subscription agreement vary depending on factors such as the type of shares issued, the country of origin, and the laws currently in force governing the issuance of shares of the company, certain elements can be found in any such contract. A subscription contract systematically defines the business structure and purpose of the two companies that enter into the agreement. After determining the identity of the participants, the agreement defines the conditions that each party recognizes and respects. The issuer is required to pay all expenses related to the offer or to reimburse them to the unionized banks. The issuer should also reimburse syndicated banks for consultation fees related to the review of the Financial Sector Regulatory Authority (FINRA). The issuer usually includes a limit on the amount that can be reimbursed for the subscriber`s attorney`s fees related to the FINRA review. The subscription agreement may also include a provision requiring the underwriters to reimburse the issuer certain offer costs if the underwriters do not comply with the subscription agreement. For example, an issuer may request a refund if the underwriters do not market the securities in a manner consistent with the subscription agreement. Despite the limited repayment obligation, unionized banks are required to pay for their own legal counsel. In the context of a firm subscription, the underwriter guarantees the purchase of all securities offered for sale by the issuer, whether or not it can sell them to investors.
This is the most desirable agreement because it immediately guarantees all the money of the issuer. The more popular the offer, the more likely it is to be made on a firm commitment basis. In a firm commitment, the subscriber puts his own money at risk if he cannot sell the securities to investors. The subscription agreement contains the details of the transaction, including the obligation of the underwriting group to purchase the new issue of securities, the agreed price, the initial resale price and the settlement date. The subscription contract often also includes a ”greenshoe” or over-allotment option. This provision gives syndicated banks the opportunity to sell investors more shares than originally planned. The greenshoe option generally states that investors can buy up to 15% more than the initial number of shares. The over-allotment option is especially useful when demand for the company`s shares is higher than expected. During and after the Transaction, the Underwriters will seek to prevent the Issuer from issuing securities and its directors and officers from selling securities that could adversely affect the price of the Securities in connection with the Offering.
A full issue of the issuer`s shares could significantly reduce the demand for and thus the price of the securities to be offered as part of the transaction or cause investors to become more skeptical about the potential risk of investing in the securities offered by the underwriters. Subscribers will seek lock-in agreements from all or substantially all of the existing securityholders for a period of 180 days. The issuer should look for exceptions that prevent the lock-in from interfering with existing agreements. These include, but are not limited to, exclusions for already planned issuances or transfers of securities, regular price loans or capital markets activities, as well as issuances to employees under existing agreements or to attract or retain key talent. As part of an all-or-nothing underwriting, the issuer decides that it must receive the proceeds from the sale of all securities. Investors` funds are held in trust until all securities are sold. When all securities are sold, the proceeds are paid to the issuer. If all securities are not sold, the issue will be cancelled and investors` funds will be returned to them. In some cases, the subscription contract takes a form called a best effort agreement. .
