Separation and Distribution Agreement

Summary

This separation and distribution agreement sets forth the principal transactions and arrangements that are required to effect a spin-off of a business division from its parent company. This template includes practical guidance, drafting notes, and alternate and optional clauses. Similar to asset purchase agreements in sale transactions, the separation and distribution agreement identifies assets to be transferred, liabilities to be assumed, and contracts to be assigned to each of the spin-off company and the parent in implementing their separation, and sets forth when and how these transfers, assumptions, and assignments will occur. Separation and distribution agreements generally include provisions designed to account for assets, liabilities, contracts, permits, or other items contemplated to be transferred that cannot be transferred at the closing. Such transfers must then occur at some undetermined time post-closing, if at all, due to the failure to obtain required consents or approvals or to make required notifications or, in some cases, to receive regulatory approval in non-U.S. jurisdictions on or prior to the desired closing date. Separation and distribution agreements usually refer to a number of ancillary agreements to address in detail the specifics of the allocation of complex assets and liabilities or to address complex transition issues. In that regard, there is usually, among others, a transition services agreement, a tax matters agreement, an employee matters agreement, and typically an intellectual property assignment and/or license agreement. The employee matters agreement addresses the allocation of liabilities under employee benefit plans for employees of the subsidiary being spun off who were previously covered under plans for which the parent company was liable. However, if the spin-off subsidiary has been operating largely on a standalone basis within the larger operations of the parent, then it is possible that employment and employee matters may be addressed adequately in a limited number of provisions in the separation and distribution agreement. This template provides language that may be used if such employee matters are to be addressed in limited provisions of this agreement, which may be omitted if a separate employee matters agreement will be used. Click here to see recent spin-off or demerger deals in Market Standards, the searchable database of publicly filed M&A deals from Practical Guidance that enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed deal points to filter search results. You can customize this search to your needs by adding filters or modifying the search criteria. For more information on Market Standards, click here. For further discussion of the agreements required in a spin-off transaction, see Operative Agreements in Divestiture Transactions, and Ancillary Agreements in Divestiture Transactions. For further discussion of divestiture transactions, see Spin-off Tasks and Timetable (Parent Company Spin-off of Subsidiary), Preliminary Actions in Divestiture Transactions and Preparation for and Closing Divestiture Transactions.