Reviewing and Navigating Underwriting Agreement Negotiations for In-House Counsel

Companies may enter into an underwriting agreement when they want to offer securities registered with the Securities and Exchange Commission (SEC). The underwriting agreement is among the company issuing the offered securities (the issuer) and the investment banks acting as underwriters (the underwriters). It memorializes the issuer’s obligation to sell and the underwriters’ obligation to buy the offered securities. While underwriting agreements are often associated with initial public offerings (IPOs), they are also used for follow-on securities offerings by companies.

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There are many standard provisions into an underwriting agreement. The terms must be tailored to fit the specific circumstances of the issuer and the structure of the securities offering. As the company’s in-house counsel, you should be familiar with these provisions in order to help the company navigate negotiations with underwriters’ and their legal counsel.

Issuer Representations and Warranties

In simple terms, representations and warranties are statements of fact and assurances made to the other party. Representations and warranties help allocate risk between the parties.

Common issuer representations and warranties in an underwriting agreement include:

  • No material misstatements or omissions
  • Compliance with the Securities Act of 1933
  • The company is not an ineligible issuer
  • The issuer is qualified to do business and in good standing
  • The issuance of the securities or execution of the underwriting agreement will not conflict with any existing agreements
  • The issuer has rights to use all material, intellectual property necessary to its business operations
  • The issuer has adequate internal controls over financial reporting

Selling Stockholder Representations and Warranties

In some secondary offerings of securities, there will also be selling stockholders party to the underwriting agreement. These selling stockholders will be subject to the terms and conditions for selling securities that are outlined in the underwriting agreement.

The representations and warranties applicable to selling stockholders are similar to those applicable to the issuer. Selling stockholders are often represented by their own legal counsel, which can add increased complexity to the negotiations.

Agreement to Sell and Purchase the Offered Securities

This section of the underwriting agreement includes the purchase price for the offered securities. It also describes how the underwriting commission is calculated. The purchase price paid by the underwriters is equal to the offering price to the public minus a negotiated underwriting discount.

The underwriting commissions are negotiated on a deal-by-deal basis. The underwriting discount is intended to compensate for the risk assumed by the underwriters in the event that they are unable to sell all the offered securities.


In simple terms, covenants are a promise to engage in an action (an affirmative covenant) or to refrain from engaging in an action (a negative covenant). The covenants in an underwriting agreement mostly cover covenants made by the issuer to the underwriters.

The issuer covenants commonly seen in underwriting agreements include:

  • Blue sky qualification: The issuer agrees to qualify the securities for offer and sale under the state laws of the jurisdictions requested by the underwriters.
  • Amendments and supplements: The issuer agrees to provide the underwriters with a copy of any proposed amendments or supplements to the transaction documents.
  • Stabilization or manipulation: The issuer agrees not to engage in activities that could be reasonably be expected to result in any stabilization or manipulation of the price of the offered securities.
  • Lock-up: If the securities are subject to lock-up arrangements for a certain period of time after the offering, the issuer agrees to comply with the specified lock-up period. The lock-up period usually lasts for at least 180 days for an IPO and 90 days for a follow-on offering.


This section of the underwriting agreement explains the allocation of expenses between the issuer and the underwriters. The expenses typically covered include:

  • Legal fees
  • Auditors’ fees
  • SEC filing fees
  • Stock exchange listing fees
  • Taxes
  • Road show and marketing expenses

Each party generally is responsible for its own expenses. However, the issuer often agrees to pay underwriter expenses related to the qualification of the issuer’s securities under state securities laws—commonly referred to as blue sky laws.

Indemnity and Contribution

In this section, the issuer and selling stockholders (if any) agree to indemnify the underwriters for losses arising from any material misstatements or omissions. This section of the underwriting agreement also outlines the procedures for notifying the indemnifying party of the commencement of legal action.

The underwriting agreement also has contribution provisions whereby each indemnifying party agrees to contribute based on relative fault. Contribution provisions are particularly important in the event that the indemnity provisions are unenforceable or determined to go against public policy.


The underwriting agreement has termination provisions to protect the underwriters if external events adversely affect the financial markets or the issuer. The section of the underwriting agreement that contains the termination provisions is sometimes referred to as the “market-out” provision.

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