[ELI5] What is a “backstop commitment amount?”

Question

I’m trying to understand this document and I’m just not understanding. I’ve done some searching and have a slight grasp but I’m sitting here confused as fudge.

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Visit the link to see what I’m talking about

[https://www.sec.gov/Archives/edgar/data/1490161/000168316817002487/blackridge_ex1001.htm](https://www.sec.gov/Archives/edgar/data/1490161/000168316817002487/blackridge_ex1001.htm)

In: 1

Answer 1

When a company sells stock, during an IPO for example, it often wants to guarantee that it will receive a minimum share price during the sale. Backstop purchasers are people or entities who guarantee that minimum share price.

The company pays the backstop purchasers a fee. If all of the company’s share sell above the backstop price, then the backstop purchasers keep their fee and that’s the end of it. If, however, not all of the company’s shares sell, then the backstop purchasers are obligated to purchase the unsold shares for the backstop price.

So lets say a company is going to sell 100 shares and it wants to get a minimum price of $10 per share, but its concerned that it might not be able to sell all of the shares at that price. It pays you, the backstop purchaser, $50 and you agree to buy any remaining shares for $10.

The company now sells 80 shares for $11, but has 20 shares leftover that it can’t sell. You, the backstop purchaser are now obligated to buy those shares for $10 each.

If there are multiple backstop purchaser then the unsold shares are split between them.

So in the same example as above, I agree to buy up to 20 shares at $10 for a $100 fee while you agree to buy up to 10 shares at $10 for a $50 fee. I now buy 2/3 of the 20 unsold shares while you buy the remaining 1/3.

If in either of the above two examples all 100 shares are sold at $10 or more, then you just keep the $50 fee that you were originally paid without needing to buy any of the stock.

Answer 2

When a company sells stock, during an IPO for example, it often wants to guarantee that it will receive a minimum share price during the sale. Backstop purchasers are people or entities who guarantee that minimum share price.

The company pays the backstop purchasers a fee. If all of the company’s share sell above the backstop price, then the backstop purchasers keep their fee and that’s the end of it. If, however, not all of the company’s shares sell, then the backstop purchasers are obligated to purchase the unsold shares for the backstop price.

So lets say a company is going to sell 100 shares and it wants to get a minimum price of $10 per share, but its concerned that it might not be able to sell all of the shares at that price. It pays you, the backstop purchaser, $50 and you agree to buy any remaining shares for $10.

The company now sells 80 shares for $11, but has 20 shares leftover that it can’t sell. You, the backstop purchaser are now obligated to buy those shares for $10 each.

If there are multiple backstop purchaser then the unsold shares are split between them.

So in the same example as above, I agree to buy up to 20 shares at $10 for a $100 fee while you agree to buy up to 10 shares at $10 for a $50 fee. I now buy 2/3 of the 20 unsold shares while you buy the remaining 1/3.

If in either of the above two examples all 100 shares are sold at $10 or more, then you just keep the $50 fee that you were originally paid without needing to buy any of the stock.