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Second Chance for 2nd Swing to Go Public

September 8, 2003

NEW YORK (AP) _ 2nd Swing Inc. is getting a mulligan after an aborted attempt at going public earlier this summer, but its second shot won’t be a garden-variety IPO.

2nd Swing, a retailer of both new and used golf equipment in Minnetonka, Minn., plans an initial public offering as early as this week of 2 million shares at $8 to $10 a share, hoping to revive an offering that was withdrawn in June. The company, which didn’t provide a specific reason for the withdrawal, originally registered for an IPO in October 2002.

The deal, which could be the first since late August as the new issues market returns from its traditional late-summer hiatus, is being underwritten by W.R. Hambrecht & Co. Usually, W.R. Hambrecht brings companies public through its OpenIPO system, a novel Dutch auction where investors bid on the offering and thus help set the offering price.

But 2nd Swing won’t be using OpenIPO. Nor will it be a firmly underwritten deal in the traditional sense. Rather, 2nd Swing is using a so-called ``best-efforts″ approach, where the underwriter merely agrees to try to round up as many investors as possible, without committing its own money to help complete the deal.

``You’re in the netherworld of underwriting,″ said Bruce Foerster, head of capital markets at South Beach Capital in Miami. ``That doesn’t mean the company isn’t going to make it, but it’s usually something most folks avoid.″

The key difference between a traditional IPO and a best-efforts one comes down to the risk the underwriter itself takes in the deal. In a standard IPO, an underwriter agrees to buy all the shares sold by the issuer, usually at a discount _ nowadays about 7 percent _ to the expected offering price. The underwriter then sells the shares to investors at the offering price. The difference between the price paid by the underwriter and the one by the investors is the spread, or the fees that the underwriter pockets for placing the IPO.

In best-efforts offerings, there’s usually no underwriter. Rather, the company goes out and tries to peddle its own shares. W.R. Hambrecht is technically an underwriter, but it is officially serving as a ``placement agent.″ As such, it won’t directly buy the shares but will help line up the investor base, for a fee.

2nd Swing executives couldn’t be reached for comment, though securities rules generally prohibit executives from speaking about their deals during the offering process. The company doesn’t disclose the fees it plans to pay, but does say in offering documents filed with the Securities and Exchange Commission that its total expenses from the IPO, including the placement fee, will be about $750,000.

In some ways, the 2nd Swing offering is more like a private placement than a public offering, although W.R. Hambrecht will perform some functions typically not found in best-efforts offerings. For instance, it plans to support the stock in aftermarket trading, helping to stabilize the price.

Given the type of offering though, people familiar with the IPO expect the stock to ``trade by appointment,″ or trade very thinly on the American Stock Exchange.

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