Equity Carve-Out Underwriting Agreement
(With Form Lock-Up Agreement)

Summary

This underwriting agreement may be entered into among the parent, the carve-out subsidiary, any selling stockholders, and the lead underwriter relating to the initial public offering (IPO) of all or a portion of the subsidiary's securities in the equity-carveout. This template includes practical guidance, drafting notes, alternate clauses and optional clauses. The underwriting agreement for an equity carve-out is substantially similar to underwriting agreements used in other types of IPOs. Because the parent company is largely responsible for the authorization and undertaking of the public offering of its subsidiary's shares, underwriters may seek to have both the subsidiary issuer and its parent stand behind the accuracy of the IPO registration statement and prospectus by seeking 10(b)-5 representations on such documents from each of them, especially when the parent has significantly more assets and income than its subsidiary. The underwriters may also seek representations from the parent, as the primary or sole shareholder of the subsidiary, that it has all requisite consents and approvals for all of the transactions contemplated by the underwriting agreement as well as representations that neither the equity carve-out nor the other transactions contemplated by the underwriting agreement conflict with any other parent arrangements. The parent may be a party to the underwriting agreement only in a limited, ministerial capacity, however, if the subsidiary's operations and asset base are relatively strong. All other standard issuer representations in an underwriting agreement relating to the business of the issuer are typically provided by the subsidiary only. Equity carve-outs often involve a number of other arrangements between the parent and its subsidiary, most notably those arrangements necessary or advisable in order to effect the separation of the subsidiary from the parent so that the subsidiary can undertake a standalone offering of its shares. Such separation and other transactions are typically referenced in the underwriting agreement as conditions precedent to the closing of the subsidiary offering. Other provisions that are standard in underwriting agreements for IPOs relating to, among other things, over-allotment options, lock-ups, directed share programs, free writing prospectuses, indemnification and contribution, and underwriter expense reimbursement are also standard provisions for underwriting agreements for equity carve-outs. This template includes these standard provisions; a template lock-up agreement is attached as Exhibit An equity carve-out can be structured as a primary offering, where the subsidiary issues stock directly to the public, or a secondary offering, where the parent and other stockholders (if any) sell their subsidiary shares to the public. In rare instances, the offering is structured as a combination of a primary and secondary offering. This template agreement is for an equity carve-out that is structured as a secondary offering. If an offering is structured as a primary offering, the language in the agreement should be revised accordingly, removing the references to "selling stockholders" and adding language reflecting the subsidiary's sale of shares to the underwriters. Each lead underwriter in an IPO will typically have its own standard form of underwriting agreement that has been vetted by its internal legal team and outside counsel. The lead underwriter will generally insist on using its form as the basis for negotiation. For further discussion of Equity Carve-Outs and other types of divestitures, see Divesting Assets and Businesses. For a broad collection of content related to divestiture transactions, see Divestitures of Divisions and Subsidiaries Resource Kit.