A market out clause is a provision in an underwriting agreement that permits the underwriter to terminate the contract under specific circumstances without facing penalties. This clause is typically invoked when unexpected changes in the securities market occur, making it challenging for the underwriter to sell the securities as initially planned.
This term is primarily used in financial and securities law, particularly in the context of underwriting agreements for public offerings. It allows underwriters to manage risks associated with market volatility. Individuals or businesses engaging in securities transactions may encounter this clause when working with underwriters or investment banks. Users can find templates for underwriting agreements that include market out clauses through resources like US Legal Forms.
Here are a couple of examples of abatement:
Example 1: A company plans to issue shares but faces a sudden market downturn. The underwriter invokes the market out clause to cancel the agreement without penalty.
Example 2: (hypothetical example) An underwriter may cancel a bond issuance agreement if new regulations drastically change the market landscape, making the sale unfeasible.
Examples of state differences (not exhaustive):
| State | Market Out Clause Variations |
|---|---|
| California | Commonly includes broader conditions for termination. |
| New York | Typically has stricter notification requirements. |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Definition | Difference |
|---|---|---|
| Termination Clause | A provision allowing one or both parties to end a contract. | A market out clause specifically relates to market conditions affecting sales. |
| Force Majeure Clause | A clause that frees both parties from liability when an extraordinary event occurs. | Force majeure covers unforeseen events, while market out focuses on market conditions. |
If you are involved in an underwriting agreement and are unsure about the implications of a market out clause, consider the following steps:
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It is a provision in an underwriting agreement that allows the underwriter to cancel the agreement under certain market conditions.