OpenIPO Auction: Pro-Rata Allocation

Here’s a quick example:

IronBit.com offers 1 million shares at a projected price range of $8–$12. Mr. Smith wants IronBit.com share s, so he bids for 300 shares at $12 per share.

After collecting all bids, WR Hambrecht + Co conducts the OpenIPO auction. Working from the highest bid toward the lowest, the auction finds that at $12, 1 million IronBit.com shares are bid for. So $12 becomes the “clearing price” because investors wanted at least 1 million shares at $12. This amount also represents the maximum public offering price for IronBit.com shares. So Mr. Smith receives shares of IronBit.c om – but how many?

Because investors wanted exactly 1 million shares at $12, everyone bidding at least $12 receives the number of shares they bid for, as follows:

At an offering price of...	IronBit.com received bids at or above the offering price for...	And successful bidders receive...	So, of the 300 shares Mr. Smith bid for, he receives...
$12/share	1 million shares	100% of their bid	300 shares

If the number of shares bid for exceeds the number of shares in the offering, WR Hambrecht + Co all ocates on a pro-rata basis. Under these circumstances, allocations will be rounded to multiples of 100 or 1,000 sha res, depending on the size of the bid.

If IronBit.com chooses to reduce the offering price below the clearing price, the following would happen:

At an offering price of...	IronBit.com received bids at or above the offering price for...	And successful bidders receive approximately...	So, of the 300 shares Mr. Smith bid for, he likely receives...
$11/share	1.25 million shares	80% of their bid (1 million ÷ 1.25 million = 0.80)	200 shares
$10/share	1.50 million shares	67% of their bid	100 shares
$9/share	1.75 million shares	57% of their bid	100 shares
$8/share	2 million shares	50% of their bid	100 shares

For additional information about pro-rata allocation and rounding, please refer to the Plan of Distribution in the applicable prospectus.