PLC - Confidentiality Agreement: Mergers and Acquisitions

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Confidentiality Agreement: Mergers and Acquisitions

Resource type: Standard Document
Status: Maintained
Jurisdiction: USA

A standard form of confidentiality agreement to be used in connection with an acquisition. This

Standard Document has integrated notes with important explanations and drafting and negotiating
tips.
PLC Corporate & Securities
PLC would like to thank the Corporation Law Committee of the New York City Bar Association for
contributing certain of the contractual provisions in this Standard Document.

Hide Note

Read This Before Using Document

This is a unilateral form of confidentiality agreement, sometimes referred to as a nondisclosure agreement (or NDA). It assumes that only one party (the seller) is disclosing
confidential information. In other transactions (such as joint ventures, mergers of equals, or if
the buyer is issuing stock), both parties may disclose confidential information and a mutual
confidentiality agreement would therefore be required. In a mutual confidentiality agreement,
the provisions bind and benefit each of the parties in the same way.
This agreement assumes that the seller is selling the stock or assets of a subsidiary (the
company). If the seller is selling its own stock or assets or is a party to a merger, modify this
agreement by deleting all references to the "Company" or by replacing them with the
"Disclosing Party," as applicable.
The provisions in this agreement have generally been drafted in favor of the disclosing party,
but the draft aims to be relatively reasonable in order to reduce the time and expense that it
takes to agree on the final version.
The parties may wish to add additional provisions either to address certain industry or deal
specific concerns or to include other terms not related to confidentiality (for example, an
exclusivity provision). For more information on additional provisions, see Practice Note,
Confidentiality Agreements: Mergers and Acquisitions (www.practicallaw.com/4-381-0514).

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Confidentiality Agreement

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This Confidentiality Agreement (the "Agreement"), effective as of [DATE] (the "Effective

Date"), is by and between [NAME OF DISCLOSING PARTY] (the "Disclosing Party") and [NAME
OF RECIPIENT] (the "Recipient").
WHEREAS, in connection with the Recipient's consideration of a possible acquisition (the
"Transaction") of [NAME OF TARGET] [(the "Company")], the Recipient has requested certain
information concerning the Company which is non-public, confidential, or proprietary in nature; and
Hide Note

Martin Marietta v. Vulcan: Definition of "Transaction"

The May 2012 decision of the Delaware Court of Chancery in Martin Marietta Materials, Inc. v.
Vulcan Materials Co., 56 A.3d 1072 (Del. Ch. 2012) aff'd, 45 A.3d 148 (Del. 2012) and aff'd, 68
A.3d 1208 (Del. 2012), as corrected (July 12, 2012), has focused attention on how the parties
define a "Transaction" for purposes of determining the scope of the recipient's permitted use of
the confidential evaluation material. In deciding whether Martin Marietta could use the
confidential information it received under the terms of existing confidentiality agreements with
Vulcan (the target company) in its pursuit of a hostile takeover, the Court held (after also
considering extrinsic evidence) that the definition of "Transaction" was narrowly drafted and
limited to only a consensual transaction. As a result, Martin Marietta was found to have
breached the confidentiality agreements and was enjoined from moving forward with its
takeover efforts for four months.
Because the Martin Marietta/Vulcan case demonstrates how certain provisions in a
confidentiality agreement can be used to restrict a party from initiating a hostile bid despite the
absence of a standstill provision (see Section 9 and Drafting Note: Standstill), it is important for
parties to make their intentions clear, particularly if a standstill is not included.
The disclosing party may want to consider inserting the word "negotiated" between the words
"possible" and "acquisition" so that it is clear that the confidential information is being
exchanged for, and can only be used in connection with, a consensual and friendly transaction.
The recipient may not agree with this approach and would argue that narrowing the definition
imposes a backdoor standstill, especially if the recipient wants to preserve the ability to go
hostile at a later date (before the expiration of the confidentiality agreement) should
negotiations fail.
For more information on the Martin Marietta/Vulcan case, see Legal Update, Martin Marietta:
Delaware Court of Chancery Holds Use of Confidential Information in Hostile Bid Breaches
Confidentiality Agreements (www.practicallaw.com/4-519-3553) and Legal Update, Delaware
Supreme Court Issues Opinion Affirming Court of Chancery Ruling in Martin
Marietta (www.practicallaw.com/2-520-3384).

Hide Note
WHEREAS, the Disclosing Party wishes to protect and preserve the confidentiality of such
information.

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NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1.

For purposes of this Agreement, the following terms have the following meanings:

(a) "Evaluation Material" means all information, data, documents, agreements, files and
other materials, whether disclosed orally or disclosed or stored in written, electronic or other form or
media, which is obtained from or disclosed by the Disclosing Party or its Representatives before or
after the date hereof regarding the Company, including, without limitation, all analyses,
compilations, reports, forecasts, studies, samples and other documents prepared by or for the
Recipient which contain or otherwise reflect or are generated from such information, data,
documents, agreements, files or other materials. The term "Evaluation Material" as used herein
does not include information that: (i) at the time of disclosure or thereafter is generally available to
and known by the public (other than as a result of its disclosure directly or indirectly by the Recipient
or its Representatives in violation of this Agreement); (ii) was available to the Recipient from a
source other than the Disclosing Party or its Representatives, provided that such source, to
Recipient's knowledge after reasonable inquiry, is not and was not bound by a confidentiality
agreement regarding the Company; or (iii) has been independently acquired or developed by the
Recipient without violating any of its obligations under this Agreement.
Hide Note

Evaluation Material: Definition

Disclosing Party
The definition of evaluation material should be broad enough to encompass every type of
material that will be disclosed to the recipient and every way that the material could be
disclosed (for example, oral disclosures). If the disclosing party is concerned about particular
information, it may want to list out certain categories of materials preceded by the words
"including, but not limited to." For example, if the company being acquired owns significant
intellectual property, the disclosing party could include the following after the general
description of evaluation material: "including, but not limited to, trade secrets, software
programs, intellectual property, data files, source code, computer chips, system designs,
product designs," and so on.
It is important to include materials that the recipient creates (or materials created for the
recipient) using the evaluation material. For example, if the recipient creates a report using raw
data supplied by the disclosing party, it should be treated as confidential evaluation material.
The recipient will attempt to broaden the exceptions to the definition of evaluation material. The
exceptions in the above definition are standard, but the disclosing party can tighten the
language in its first draft. Often the disclosing party requires that any disclosures pursuant to
clause (ii) are made on a "non confidential basis" and "not in violation of any legal, fiduciary or
contractual duty" and does not include the exception clause (iii) in its first draft.

Recipient

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The exceptions provided above are standard. When reviewing a confidentiality agreement, the
recipient should ensure that evaluation material does not include material that is or becomes
public through no fault of its own. Since the definition of evaluation material typically includes
materials developed by the recipient using the confidential information, it is important to clarify
that any material that was independently developed (without the use of the evaluation material)
by the recipient is excluded. If the recipient and disclosing party have a pre-existing business
relationship and the disclosing party has shared confidential information in the ordinary course
of business, the recipient should try to carve out that information from the definition of
Evaluation Material. Counsel to the disclosing party should confirm that a valid confidentiality
agreement is in place (and will remain in effect) covering those previously disclosed and
unrelated confidential materials.
Because the definition of Evaluation Material is broad, it picks up any information meeting the
criteria set out in the definition, whether or not the information has been specifically identified
as confidential by the disclosing party. Although usually not successful, the recipient can try to
narrow the definition to include only those materials that are marked as "confidential" or
otherwise identified by the disclosing party as confidential (for orally disclosed information).
The recipient would argue that the disclosing party is in control of the material disseminated
and better suited to determine what is or is not confidential and therefore subject to the terms
of the confidentiality agreement. Most often the recipient loses this argument on the basis that
it is too burdensome a task for the disclosing party to physically identify each and every
document or other material that is confidential. But depending on the buyer's leverage and the
amount of material to be reviewed during due diligence, it may prevail on this point.

Hide Note
(b) ["Permitted Co-bidder" means any Person (and any affiliates of such Person) who
may invest in the Transaction on a side-by-side basis with the Recipient, if such Person (or its
affiliate) (i) has executed its own confidentiality agreement with respect to the Transaction with the
Disclosing Party or is an affiliate of the Recipient and (ii) is listed on Exhibit A.]
Hide Note

Permitted Co-bidder
Do not include this defined term if the recipient has decided to prohibit the buyer from forming
or participating in a club deal (see explanation of a club deal below).
If the recipient has determined that it will allow a co-bidding arrangement, the recipient will
need to add Exhibit A to identify those co-bidders who are permitted under the terms of the
confidentiality agreement. The parties should also note that this defined terms requires that
each co-bidder execute its own confidentiality agreement with the seller.

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(c) "Person" means any individual, partnership (whether general or limited), limited liability
company, corporation, association, trust, members of joint venture entities or other entity.
(d) "Representatives" means, as to any Person, such Person's affiliates, and its and their
respective directors, officers, employees, managing members, general partners, agents and
consultants (including attorneys, financial advisors and accountants).
Hide Note

Representatives
The definition of "representatives" is important to the disclosing party because it identifies the
universe of people who are permitted to receive the evaluation materials. This definition is also
important to the recipient because the recipient may also be liable for any breach of the
agreement by its representatives, depending on the obligations set out in the agreement. This
definition is generally broad to capture those persons who are likely to evaluate the materials
and advise the recipient.

Disclosing Party
The disclosing party should ensure that this definition is not over-inclusive. If the disclosing
party is sharing its confidential information in an auction scenario or with a private equity
bidder, this is one of the areas of this Standard Document that may require more scrutiny and
be more heavily negotiated.
In particular the seller may be concerned with the possibility of consortium bidding. Consortium
bidding, often referred to as "clubbing," is the private equity acquisition strategy of forming a
group of bidders to collectively participate in an acquisition. Clubbing gives some private equity
sponsors the benefit of participating in a deal that might have otherwise been prohibitively
expensive to undertake alone. However, club deals can adversely impact the seller or target
company by lessening competition for bids and reducing the price that might otherwise be paid
for the target company. Because clubbing can also yield benefits to the seller if the club
members' access to capital is greater than a single sponsor pursuing the transaction, the
disclosing party may decide that it will permit a clubbing arrangement, but will do so on its
terms and with its knowledge.
The seller (as the disclosing party) needs to determine its position on permitting the buyer to
form a club. If the disclosing party does not object to a club deal, then it will want to approve
the prospective co-bidder's entry into the process. This Standard Document addresses the
issue of clubbing in other provisions (see Section 1(b) and other references to Permitted Cobidder throughout this Standard Document, and Section 6). However, the recipient may
request that the definition of "Representatives" be expanded to include potential financing
sources, which would, on its face, allow potential equity financing sources (such as prospective
co-bidders) to have complete access to the evaluation materials (under the terms of the
confidentiality agreement) and possibly participate in the acquisition. The disclosing party
should avoid such a wide inclusion or at least be aware of its implications.

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Also, notwithstanding whether or not the recipient is a financial or strategic financial buyer, it
may plan to finance the acquisition. If this is the case, the disclosing party should expect that
the prospective financing sources will need to review the evaluation materials. To permit this
sharing of confidential information with prospective lenders, the disclosing party will need to
expand the definition of "Representatives" to include actual or potential sources of debt
financing. Sellers incorporating this additional category of "Representative" may wish to further
limit those debt financing sources to only those it approves (see Section 6(c)). To effect this
limitation, the disclosing party would further describe those sources of debt financing to those
identified in an exhibit to the confidentiality agreement.

Recipient
The recipient should consider who needs to review the evaluation materials and ensure that
the definition of representatives includes those people. For example, if the recipient's debt or
equity financing sources will conduct due diligence, it should try to expand the definition to
include them. However, given many seller's sensitivity to clubbing arrangements, it should be
prepared to disclose and discuss its intention regarding club deals with the seller. For more
information on consortium bidding, see Practice Note, Interim Consortium Agreements in
Private Equity Buyouts (www.practicallaw.com/2-503-9906).
The definition of "Representative" also includes a person's "affiliates," but that term is not
specifically defined in this Standard Document so that it is sufficiently broad from the disclosing
party's perspective. The recipient may want to add a definition of affiliates in Section 1 so that
it is clear that an affiliate is a person or entity controlled by, or under common control of, the
recipient. Adding this definition could:
Narrow the scope of the persons or entities that qualify as affiliates of the recipient.
Limit the universe of persons bound by the terms of the agreement.
The following language can be included to define affiliate:
""Affiliate" means, with respect to any Person, any other Person that is directly or
indirectly Controlling, Controlled by or under common Control with such Person, where
"Control" and derivative terms mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise."

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Other terms not specifically defined in this Section 1 shall have the meanings given them
elsewhere in this Agreement.
2. The Recipient shall keep the Evaluation Material strictly confidential and shall not use the
Evaluation Material for any purpose other than to evaluate, negotiate and consummate the

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Transaction. The Recipient shall not disclose or permit its Representatives to disclose any
Evaluation Material except: (a) if required by law, regulation or legal or regulatory process, but only
in accordance with Section 5, [or] (b) to its Representatives, to the extent necessary to permit such
Representatives to assist the Recipient in evaluating, negotiating and consummating the
Transaction, [or (c) to Permitted Co-bidders,] [or (d) as permitted in Section 6(c)]; provided, that the
Recipient shall require each such Representative to be bound by the terms of this Agreement to the
same extent as if they were parties hereto and the Recipient shall be responsible for any breach of
this Agreement by any of its Representatives.
Hide Note

Treatment of Evaluation Material

Disclosing Party
If the recipient is permitted to disclose the evaluation material to its representatives, the
representatives should also be obligated to keep the material confidential. If the definition of
representatives is broad and includes third parties not under the recipient's immediate control
(such as co-bidders or lenders), the disclosing party can require the recipient to obtain its
consent before sharing the information with those parties. Often the recipient objects to any
obligation to obtain consent.
Also, this provision allows for the recipient to share evaluation materials with permitted cobidders (assuming that clubbing is allowed). Counsel to the disclosing party should note that
the recipient is not itself liable for any breaches of the agreement by permitted co-bidders
(unless they are affiliates of the recipient), although the recipient is responsible for breaches by
its representatives. As drafted, co-bidders are directly responsible for their own breaches
because they will have either executed their own confidentiality agreement with the seller or be
bound under the subject confidentiality agreement as an affiliate (and therefore a
"representative") of the recipient (see Section 1(b)).
The bracketed clause (d) above should only be included if Section 6(c) is a part of the
agreement. Section 6(c) restricts the recipient from sharing the evaluation materials with any
actual or prospective financing sources (equity or debt) unless it is a bona fide lender disclosed
in an exhibit to the agreement. The seller will need to take a position on whether it wants the
recipient to be responsible for any breaches of confidentiality by its lender(s) or whether it
should require the lender to enter into a separate confidentiality agreement with the seller. A
common way to handle this scenario is to include the prospective lenders in the definition of
"Representative." By doing this, the recipient is directly responsible for the lender's breach (if
any).

Recipient
The recipient should try to eliminate any requirement making it responsible for the breaches of
its third-party representatives, but this is usually an important point for the seller. Counsel to the
recipient should also try to replace any obligations to "cause" or "prevent" its representatives
from taking or refraining from certain actions with an obligation to "direct" or "inform" them

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because the recipient usually does not have complete control over its representatives. The
recipient can propose the following language to replace the proviso in Section 2:
"provided, however, that the Recipient agrees that it or one of its Representatives shall
inform such Representative of the provisions of this Agreement and instruct it to comply
with the provisions hereof applicable to its Representatives."

To protect itself, the recipient sometimes requires its representatives to sign a confidentiality
agreement in favor of the recipient, which mirrors the provisions in the confidentiality
agreement it signs itself. These are commonly referred to as "back-to-back" agreements. This
is a more common structure in a financed deal where lenders are included in the definition of
"representatives."
The recipient should also object to any obligation to obtain the disclosing party's consent
before sharing evaluation materials with its representatives because it often complicates and
delays the due diligence process.

Use of Evaluation Material: Lessons from Martin Marietta, Inc. v. Vulcan

Materials Co.
The Delaware Court of Chancery's decision in Martin Marietta Materials, Inc. v. Vulcan
Materials Co., 56 A.3d 1072 (Del. Ch. 2012) aff'd, 45 A.3d 148 (Del. 2012) and aff'd, 68 A.3d
1208 (Del. 2012), as corrected (July 12, 2012), highlights the fact that a failure to clearly define
how a recipient may use the target's confidential information received during the course of a
deal could effectively create a backdoor standstill, prohibiting the recipient from pursuing a
hostile deal while the confidentiality agreement is in effect. The Court found that the recipient,
Martin Marietta, breached two confidentiality agreements it entered into with Vulcan, the target,
when it initiated a hostile bid for Vulcan (through an exchange offer and proxy contest) using
confidential information acquired during its merger negotiations. To remedy the breach the
Court enjoined Martin Marietta from taking any actions to advance its takeover strategy for a
period of four months.
As drafted above, this Standard Document provides that the recipient can only use the
evaluation material to "evaluate, negotiate and consummate the Transaction." This language
conveys that the:
Parties are contemplating a consensual business combination because of the inclusion of
the word "negotiate."
Recipient is not authorized to use the evaluation materials for any purpose other than a
negotiated transaction.
Parties, particularly the disclosing party, should review the definition of "Transaction" to confirm
that it remains consistent with the agreement's use clause. If the disclosing party wants more
assurances that the recipient is prohibited from using the disclosed confidential information in a

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hostile scenario, it can narrow the definition of "Transaction" to refer only to a negotiated deal
(see Drafting Note, Martin Marietta v. Vulcan: Definition of "Transaction").
The recipient, on the other hand, must make sure that the language is consistent with its
understanding and the intent of the parties. If the recipient successfully managed to keep a
standstill provision out of the agreement (see Section 9) and it wants to preserve its flexibility
to pursue a hostile transaction if negotiations fail, the use provision must be broad enough
(including the definition of "Transaction") to pick up a possible nonconsensual deal.
For more information on the Delaware Court of Chancery's decision, see Legal Update, Martin
Marietta: Delaware Court of Chancery Holds Use of Confidential Information in Hostile Bid
Breaches Confidentiality Agreements (www.practicallaw.com/4-519-3553) and Legal Update,
Delaware Supreme Court Affirms Court of Chancery Ruling in Martin
Marietta (www.practicallaw.com/1-519-7374).

Hide Note
3. Except for such disclosure as is necessary not to be in violation of any applicable law,
regulation, order or other similar requirement of any governmental, regulatory or supervisory
authority [or any applicable listing agreement], the Recipient shall not, and shall not permit any of its
Representatives to, without the prior written consent of the Disclosing Party, disclose to any person:
(a) the fact that the Evaluation Material has been made available to it [or any Permitted Co-bidder]
or that it [or any Permitted Co-bidder] has received or inspected any portion of the Evaluation
Material, (b) the existence or contents of this Agreement, (c) the fact that investigations, discussions
or negotiations are taking or have taken place concerning the Transaction, including the status
thereof or (d) any terms, conditions or other matters relating to the Transaction.
Hide Note

Non-Disclosure
Disclosing Party
This provision broadens the restriction on the type of information that must be kept confidential
to include information about the transaction itself and the status of the negotiations. This
language is particularly important if the acquisition has not yet been publicly announced. If the
company being acquired is a public company, the disclosing party will not want to trigger public
disclosure requirements under the federal securities laws. Even if the company being acquired
is private, the disclosing party may not want its employees, customers, competitors or other
potential buyers to have knowledge of the transaction because of the potential disruption to the
business and the deal process.

Recipient
The recipient usually does not find this provision controversial, but it may request that the
obligations under this provision be reciprocal so that the disclosing party is also prohibited from

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disclosing any information about the proposed transaction to any third party. The recipient has
two main concerns:
The disclosing party actively shopping the deal if an exclusivity agreement is not in place.
The disclosing party being subject to more interest from potential buyers as an acquisition
candidate once information about the possible sale is in the public domain, particularly if
the target company is public.
In either of those scenarios above, the recipient is at risk of losing the deal to an competing
bidder or possibly paying more than initially offered for the target company if a bidding war
ensues.
If the parties agree to make the provision above reciprocal, counsel must include a carve-out if
disclosing party is running an auction and speaking to multiple potential bidders, such as the
following:
"Notwithstanding the foregoing, the Disclosing Party may disclose to other potential
buyers that it is considering or negotiating a Transaction and the terms and conditions
thereof, but may not disclose the involvement of the Recipient, its Representatives [or any
Permitted Co-bidder] or any other information identifying the involvement of the Recipient,
its Representatives [or any Permitted Co-bidder]."

In those instances where a recipient has initiated a hostile takeover attempt and plans to rely
on an exception from the non-disclosure provision (when necessary to comply with applicable
laws and regulations) to include confidential information in the requisite public filings, counsel
to the recipient should consult the Delaware Court of Chancery's analysis in Martin
Marietta/Vulcan (see Legal Update, Martin Marietta: Delaware Court of Chancery Holds Use of
Confidential Information in Hostile Bid Breaches Confidentiality
Agreements (www.practicallaw.com/4-519-3553)).
The Court addressed whether Martin Marietta's disclosure of confidential information in its
SEC filings, including details about the merger negotiations, was permitted under the exception
for legally required disclosure when Martin Marietta voluntarily subjected itself to the legal
requirement by initiating the hostile bid and proxy contest. The Court found that both parties
intended for the exception for legally required disclosure to only be triggered by external
demands, such as subpoenas, and not by discretionary acts by a party that trigger disclosure
obligations. Although the non-disclosure exception in Martin Marietta was drafted more
narrowly than the exception in this Standard Document, the recipient should understand that it
may not be able to rely on the disclosure exception when it is solely responsible for the
creation of the legally required disclosure obligation. Here, the parties should make their
intentions clear.
If a recipient can negotiate a confidentiality agreement without a standstill provision (see
Section 9), it needs to be careful that the use and disclosure provisions (found in Section 2 and

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Section 3) do not otherwise restrict its ability to make an unsolicited bid if it wants to preserve
that flexibility in the future.

Hide Note
4. The Recipient understands and agrees that none of the Disclosing Party, the Company or any
of their respective Representatives: (a) have made or make any representation or warranty
hereunder, expressed or implied, as to the accuracy or completeness of the Evaluation Material or
(b) shall have any liability hereunder to the Recipient or its Representatives relating to or resulting
from the use of the Evaluation Material or any errors therein or omissions therefrom. The parties
agree that unless and until a definitive agreement between the Disclosing Party and Recipient has
been executed and delivered with respect to the Transaction, none of the Company or the
Disclosing Party will be under any legal obligation of any kind whatsoever with respect to the
Transaction, including any obligation to (i) consummate a Transaction, (ii) conduct or continue
discussions or negotiations or (iii) enter into or negotiate a definitive agreement. The Disclosing
Party reserves the right, in its sole discretion, to reject any and all proposals made by the Recipient
or on its behalf with regard to the Transaction, to terminate discussions and negotiations with the
Recipient at any time and to enter into any agreement with any other Person without notice to the
Recipient or any of its Representatives, at any time and for any reason or no reason.
Hide Note

No Representation or Warranty
Disclosing Party
This provision clarifies that:
The recipient can only look to a definitive agreement for assurances about the business
and operations of the target company and the disclosing party.
Neither the target company nor the disclosing party has an obligation to negotiate or
complete a transaction.
This disclaimer on the accuracy and completeness of the evaluation material in the first
sentence is an attempt to limit the disclosing party's liability for the information provided during
the due diligence process. Delaware courts have taken the position that this type of disclaimer
clearly and unambiguously includes any inaccurate information attributable to intentional fraud.
In other words, this language protects the disclosing party from liability for evaluation materials
that are intentionally false or misleading, and the Delaware courts have interpreted it that way
under both Delaware and New York law.
This confidentiality agreement also includes language that states that the disclosing party and
the target company are not obligated to complete a deal or negotiate a definitive agreement as
a result of entering into the confidentiality agreement. Absent this language there is nothing
that specifically binds the parties to a deal, however it is a good practice to include this

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language for the avoidance of any doubt. Also different states may take a different position on
whether entry into an agreement such as a confidentiality agreement creates an obligation, at
the very least, to negotiate in good faith.
This provision explains that the seller or target company can walk away from the transaction
without penalty until a definitive agreement is in place. Although it is not common at such an
early stage in the deal process, counsel to the disclosing party should confirm that there is not
a provision for a break-up fee (www.practicallaw.com/9-382-3284) in a preliminary
agreement such as a term sheet (www.practicallaw.com/2-382-3876), letter of intent or
exclusivity agreement (www.practicallaw.com/2-382-3452).

Recipient
Generally the disclaimer on representations and warranties is uncontroversial, even though it
can be interpreted to disclaim intentionally false information contained in the evaluation
materials. However, the recipient should make sure that this disclaimer only applies to the
confidentiality agreement and can not be used to disclaim liability under other agreements
(including the definitive agreement). You may need to insert the word "hereunder" in each
place where liability is disclaimed (see clauses (a) and (b) above).
The recipient should request that the second and third sentences of the paragraph be
reciprocal, so that it is clear that the buyer has no obligation to negotiate or complete a deal,
and can walk away at any time, until a definitive agreement is in place. If the disclosing party
agrees to this addition, the counsel to the recipient should also confirm that the recipient has
no obligation to pay any type of reverse break-up fee (www.practicallaw.com/7-382-3770)
that was previously agreed to in a preliminary agreement (such as a term sheet or letter of
intent).

Hide Note
5. If the Recipient or any of its Representatives is required, in the written opinion of the
Recipient's counsel, to disclose any Evaluation Material, by law, regulation or legal or regulatory
process, the Recipient shall (a) take all reasonable steps to preserve the privileged nature and
confidentiality of the Evaluation Material, including requesting that the Evaluation Material not be
disclosed to non-parties or the public; (b) give the Disclosing Party prompt prior written notice of
such request or requirement so that the Disclosing Party may seek, at its sole cost and expense, an
appropriate protective order or other remedy; and (c) cooperate with the Disclosing Party, at the
Disclosing Party's sole cost and expense, to obtain such protective order. In the event that such
protective order or other remedy is not obtained, the Recipient (or such other persons to whom such
request is directed) will furnish only that portion of the Evaluation Material which, on the advice of
the Recipient's counsel, is legally required to be disclosed and, upon the Disclosing Party's request,
use its best efforts to obtain assurances that confidential treatment will be accorded to such
information.
Hide Note

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Disclosure Required by Law

Disclosing Party
It is essential that the recipient is obligated to provide the disclosing party with sufficient notice
and cooperation if required by law to disclose the evaluation materials. If the disclosing party is
concerned with the time frame for receiving notice of the impending disclosure, it can replace
the words "prompt prior written notice" with "immediate prior written notice."
The disclosing party needs the ability to limit disclosure of the evaluation material. Any
additional obligation for the recipient to use best or reasonable efforts to obtain a protective
order is beneficial but not essential.

Recipient
The recipient should make sure that this exception is broad enough so that it can comply with
legal requirements. For example, if the provision merely stated that the recipient can make
disclosures "required...by law," it may not be able to comply with regulatory requirements. The
recipient may also want this exception to apply to requested disclosure (rather than only
required disclosure) out of concern that failure to comply with a request from the government or
a regulatory authority could have negative implications on the transaction. However, the
disclosing party is usually reluctant to make this change. As a compromise, the parties may
agree to a bifurcated structure permitting the exception to apply to requested information in
some cases and required information in other cases. For example:
"If the Recipient or any of its Representatives (a) is required, in the written opinion of the
Recipient's counsel, by an interrogatory, subpoena or order issued by a court or
governmental authority, or (b) receives a request for information from a governmental,
regulatory or supervisory authority, or similar legal process, to disclose any Evaluation
Material, the Recipient shall..."

The recipient may wish to limit its responsibilities under this provision to merely providing
notice and cooperation to the disclosing party and strike any affirmative order to act. The cost
of any actions to protect the evaluation material should be borne by the disclosing party and
the recipient should try to reduce any efforts standard to "commercially reasonable efforts" (the
above provision requires the recipient to use best efforts). It may be necessary to insert the
words "at the Disclosing Party's sole cost and expense" where any action is referenced. The
recipient should be wary of the obligation to get a written legal opinion from counsel before
making disclosures because of the time and expense related to the exercise. The recipient
may be successful in striking the requirement, but can offer a reference to the "advice" of its
counsel as a compromise.

Hide Note
6.

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(a) The Recipient hereby represents and warrants that the Recipient is not acting as a
broker for or Representative of any other Person in connection with the Transaction, and is
considering the Transaction only for its own account [and for the account of its affiliates] [and
Permitted Co-bidders]. Except with the prior written consent of the Disclosing Party, the Recipient
agrees that (i) it will not act as a joint bidder or co-bidder with any other Person with respect to the
Transaction, [other than its Permitted Co-bidders,] and (ii) neither the Recipient nor any of its
Representatives (acting on behalf of the Recipient or its affiliates) will enter into any discussions,
negotiations, agreements, arrangements or understandings (whether written or oral) with any other
Person regarding the Transaction, other than the Disclosing Party and its Representatives, [and] the
Recipients Representatives (to the extent permitted hereunder) [and Permitted Co-bidders].
(b) The Recipient hereby represents and warrants that neither it nor any of its
Representatives is party to any agreement, arrangement or understanding (whether written or oral)
that would restrict the ability of any other Person to provide financing (debt, equity or otherwise) to
any other Person for the Transaction or any similar transaction[, other than those with Permitted Cobidders], and the Recipient hereby agrees that neither it nor any of its Representatives will directly
or indirectly restrict the ability of any other Person to provide any such financing.
(c) Notwithstanding anything to the contrary contained herein, without the prior written
consent of the Disclosing Party, the Recipient agrees that neither the Recipient nor any of its
Representatives will disclose any Evaluation Material to any actual or potential sources of financing
(debt, equity or otherwise), other than [(i)] bona fide third party institutional lenders who are or may
be engaged to provide debt financing to Buyer or its affiliates [and are disclosed on Exhibit [B]
hereto] [and (ii) Permitted Co-bidders].
Hide Note

Anti-Clubbing and Lock-ups

Anti-clubbing
Section 6(a) operates as a general restriction on consortium bidding, or clubbing, by
prospective buyers that are not approved in advance by the seller or target company (as the
disclosing party) and included on a schedule to the confidentiality agreement (see Section 1
(b)). If the disclosing party has decided not to allow any "Permitted Co-bidders" to participate in
the transaction, delete all references to "Permitted Co-bidders" in this subsection. However, if
the disclosing party does not object to a club deal, it should include the carve-outs for
permitted co-bidders in this paragraph.
Private equity buyers, as opposed to strategic buyers, are more likely to assemble a club of
multiple private equity sponsors. The primary objectives of a club deal are to:
Pool capital to compete for larger deals.
Distribute risk among participants.
Increase access to debt financing sources.

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Share industry expertise.

While not common, there are also situations where a private equity buyer might want to bring a
strategic partner into the acquisition for operational know-how and industry experience. It is
also possible that a strategic buyer could join with a private equity firm if additional capital is
needed to secure the desired deal. If the recipient is a strategic buyer, it may request for this
subsection to be removed because it has no plans to form a club. There probably is not much
risk to the disclosing party if it removes the language in Section 6(a) if a strategic buyer is the
recipient, but the disclosing party will have to determine if it is willing to accept the risk of not
prohibiting club arrangements. The disclosing party could also argue that if the strategic buyer
is not going to engage in a club deal, then the subsection is benign and has no effect on the
proposed buyer as the recipient.
Section 6(c) is an extension of the anti-clubbing provisions and further bolsters the provision in
Section 2 that the recipient cannot share or otherwise disclose any of the evaluation material to
any prospective financing source, unless that financing source has been approved by the
disclosing party.

Lock-ups
In Section 6(b) the recipient makes a representation that it is not a party to any exclusivity (lock
-up) arrangement with a potential source of financing (whether debt or equity financing). By
having some assurance that a bank or other possible financing source is not exclusively tied to
the recipient, the pool of financing sources that could be available to other potential buyer
candidates (either in an auction scenario or in a deal with a different buyer) will not be so
limited. A seller looking to consider competing offers does not want those other bidders
constrained because a desirable bank is locked up from providing financing to another
possible buyer.
Buyers want to lock-up their financing bank, mostly in auctions or in other non-exclusive
negotiations, so that the bank will not use information which it gained from the recipient to
advance another prospective buyer's deal. If the recipient insists that it needs a lock-up with its
bank or is already a party to a lock-up arrangement that it will not release the bank from, the
seller or target company needs to evaluate the facts and circumstances surrounding the lockup and determine whether it is adversely affected by this type of agreement.
If the disclosing party allows consortium bidding, an exception to this lock-up provision should
be provided to carve out any consortium agreement entered into among the permitted cobidders for equity financing (see Practice Note, Interim Consortium Agreements in Private
Equity Buyouts (www.practicallaw.com/2-503-9906)). Members of a private equity consortium
typically enter into an interim consortium agreement to set out their agreement on, among
other things, governance and decision-making, deal structure and equity capitalization and fee
and expense sharing (see Practice Note, Interim Consortium Agreements in Private Equity
Buyouts: Purposes of a Consortium Agreement (www.practicallaw.com/2-503-9906)). A
consortium agreement usually includes an exclusivity provision prohibiting consortium
members from contacting or joining another group of investors or making their own bid for the
target company to:

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Ensure that members freely share their proprietary information about the target company
and the acquisition.
Avoid the possibility that a member can use the information in a manner that is detrimental
to the consortium.
This kind of exclusivity provision in a consortium agreement needs to be carved out of the
representations and warranties in the lock-up provision. To effect this carve-out, use the
optional phrase in Section 6(b).

Hide Note
7. At any time upon the Disclosing Party's written request, the Recipient shall promptly, and in any
event no later than [five] days after the request, return all Evaluation Material (including all copies,
extracts or other reproductions) to the Disclosing Party or certify in writing to the Disclosing Party
that such Evaluation Material (including any Evaluation Material held electronically) has been
destroyed. Notwithstanding the return or destruction of Evaluation Material, the Recipient and its
Representatives shall continue to be bound by their obligations of confidentiality and other
obligations hereunder.
Hide Note

Return or Destruction of Evaluation Materials

Disclosing Party
Ideally the recipient should be obligated to return all evaluation material on the disclosing
party's request. However, recipients often ask (and disclosing parties often agree to this
request) for the option to destroy materials instead of returning them, which this Standard
Document reflects. It is important for the disclosing party to have confirmation that the
evaluation material was in fact destroyed, so the requirement to certify any destruction is
usually not disputed by the recipient.
This agreement contemplates that the return or destruction of the confidential information must
happen within five days of the request. The stated time period can be longer, shorter or not
stated at all (in which case the disclosing party is relying on the recipient's interpretation of
"promptly"). The disclosing party should consider the amount of material that has been
transmitted to the recipient and its representatives at the time of the request to return
materials, and the time frame for the return or destruction should bear some relation to the
volume of materials.

Recipient
If not already permitted, the recipient should request the right to destroy rather than return
material, particularly those materials that it generates on its own using evaluation materials
(such as financial models, other analysis and reports). The recipient may ask for the right to

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retain evaluation material for legal compliance purposes, so that it can bring or defend litigation
relating to the transaction or respond to requests from regulatory authorities. Some sellers may
permit the recipient to hold the evaluation materials for this limited purpose, but the disclosing
party (seller) may also request that this retained copy be held in a manner where the
recipient's employees do not have access (such as with outside counsel). Also, because due
diligence data is often transmitted electronically, these materials are often embedded in
electronic files as part of a company's normal back-up procedures (for example, if a computer
network is systematically backed-up). The recipient will want to carve this scenario out of the
covenant.
The recipient may want to add the following proviso after the first sentence:
"provided that (i) neither the Recipient nor any of its Representatives shall be required to
destroy any electronic copy of any Evaluation Material that is created pursuant to such
Persons standard electronic backup and archival procedures if (x) personnel whose
functions are not primarily information technology in nature do not have access to such
retained copies and (y) personnel whose functions are primarily information technology in
nature have access to such copies only as reasonably necessary for the performance of
their information technology duties (e.g., for purposes of system recovery), [and] (ii) the
Recipient and its Representatives may each retain (a) one copy of any Evaluation
Material to the extent required to defend or maintain any litigation relating to this
Agreement or the Evaluation Material, or established document retention policies and (b)
such copies of the Evaluation Material to the extent required to comply with requirements
of applicable law [and (iii) neither the Recipient nor any of its Representatives shall be
required to destroy any proprietary financial analyses or models prepared by the
Recipient or its Representatives in connection with the evaluation of the Transaction so
long as all Evaluation Material is deleted from all such financial analyses and models]."

Hide Note
8. [Except with the express permission of the Disclosing Party, the Recipient agrees that for a
period of [NUMBER] year[s] from the Effective Date, neither the Recipient nor its Representatives
will directly or indirectly solicit or hire any officer, director, or employee of the Disclosing Party, the
Company or any of their respective subsidiaries, except pursuant to a general solicitation which is
not directed specifically to any such employees.]
Hide Note

Non-Solicitation
Disclosing Party
The disclosing party should consider the impact that a failed or abandoned deal could have on
its employees, such as the prospective buyer poaching key employees or large groups of
employees. If this is a concern, the agreement should include a non-solicitation provision.

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Non-solicitation provisions are not included in every confidentiality agreement and the recipient
will likely object (at least in part) to the language. Often the parties will agree to limit this
particular provision to a shorter time period (one year is common) and to certain key
employees.
If the disclosing party wants to prevent the recipient from soliciting its business contacts (such
as suppliers or customers), it can take a more aggressive position by restricting the recipient
from soliciting or contracting with any of the target company's potential or actual suppliers or
customers identified in the Evaluation Material. A seller might include this if the recipient is a
competitor and it has particular concerns about the recipient offering more favorable
commercial terms to its suppliers or customers. The disclosing party should expect the
recipient to resist this point and the outcome will likely depend on the relative bargaining
strength of each party.

Recipient
If the recipient agrees to a non-solicitation provision it should consider the following:
Term. The term of this provision is often shorter than the term of the agreement (one year
is common).
Who does it restrict? If the recipient's representatives are receiving evaluation materials,
the recipient may want to carve them out from this provision.
What does it restrict? This Standard Document carves out general solicitations (for
example, mass advertisements) from the non-solicitation provision. The recipient can go
further and try to limit which employees cannot be hired or contacted (for example, key
employees). The recipient may also want to limit the provision to only prohibit solicitations
so that hiring is permissible if the employee contacts the recipient on its own accord. If
there is a non-solicitation of customers and the recipient is in the same business as the
disclosing party, consider inserting an exception for customers and suppliers that the
recipient has existing relationships with or deals with in its ordinary course of business.

Hide Note
9. [Unless approved in advance in writing by the board of directors of the Company, the Recipient
agrees that neither it nor any of its Representatives acting on behalf of or in concert with the
Recipient (or any of its Representatives) will, for a period of [___] year[s] after the date of this
Agreement, directly or indirectly:
(a) make any statement or proposal to the board of directors of any of the Company, any of
the Companys Representatives or any of the Companys stockholders regarding, or make any
public announcement, proposal or offer (including any solicitation of proxies as such terms are
defined or used in Regulation 14A of the Securities Exchange Act of 1934, as amended) with
respect to, or otherwise solicit, seek or offer to effect (including, for the avoidance of doubt,

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indirectly by means of communication with the press or media) (i) any business combination,
merger, tender offer, exchange offer or similar transaction involving the Company or any of its
subsidiaries, (ii) any restructuring, recapitalization, liquidation or similar transaction involving the
Company or any of its subsidiaries, (iii) any acquisition of any of the Company's loans, debt
securities, equity securities or assets, or rights or options to acquire interests in any of the
Company's loans, debt securities, equity securities or assets, (iv) any proposal to seek
representation on the board of directors of the Company or otherwise seek to control or influence
the management, board of directors or policies of any of the Company, (v) any request or proposal
to waive, terminate or amend the provisions of this Agreement or (vi) any proposal, arrangement or
other statement that is inconsistent with the terms of this Agreement, including this Section 9(a);
(b) instigate, encourage or assist any third party (including forming a "group" with any such
third party) to do, or enter into any discussions or agreements with any third party with respect to,
any of the actions set forth in clause (a) above;
(c) take any action which would reasonably be expected to require the Company or any of
its affiliates to make a public announcement regarding any of the actions set forth in clause (a)
above; or
(d) acquire (or propose or agree to acquire), of record or beneficially, by purchase or
otherwise, any loans, debt securities, equity securities or assets of the Company or any of its
subsidiaries, or rights or options to acquire interests in any of the Company's loans, debt securities,
equity securities or assets[, except that Recipient may beneficially own up to ___% of each class of
the Companys outstanding loans, debt securities and equity securities and may own an amount in
excess of such percentage solely to the extent resulting exclusively from actions taken by the
Company].
[The foregoing restrictions shall not apply to any of the Recipient's Representatives effecting or
recommending transactions in securities (A) in the ordinary course of its business as an investment
advisor, broker, dealer in securities, market maker, specialist or block positioner and (B) not at the
direction or request of the Recipient or any of its affiliates.]
(e) Notwithstanding the foregoing provisions of this Section 9, the restrictions set forth in
this Section 9 shall terminate and be of no further force and effect if the Company enters into a
definitive agreement with respect to, or publicly announces that it plans to enter into, a transaction
involving all or a controlling portion of the Companys equity securities or all or substantially all of
the Company's assets (whether by merger, consolidation, business combination, tender or
exchange offer, recapitalization, restructuring, sale, equity issuance or otherwise).]
Hide Note

Standstill
Disclosing Party
This optional provision is called a standstill. It should only be included if the target company is
public or about to go public. A standstill provision restricts a prospective buyer from purchasing
the target company's stock or taking certain other actions that may lead to a business

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combination unless the target company's board participates in the process. A standstill can
help the target company to control the deal process. Most importantly, the standstill can
prevent the prospective buyer from making a hostile takeover attempt after the parties fail to
complete a friendly deal when the buyer has had access to the target company's confidential
information.
Buyers can be very sensitive to the restrictions imposed by a standstill and it is sometimes one
of the most heavily negotiated provisions of the confidentiality agreement. Some buyers may
also object to having any type of standstill on the basis that they do not want to set a precedent
of accepting standstills. The disclosing party should work with its counsel to determine how
important this provision is in light of the circumstances surrounding the deal. In its analysis, the
disclosing party should keep in mind that its board might be required to waive a standstill in
order to comply with its fiduciary duties (Revlon, specifically) if a bidder makes a offer that is
financially superior to any other existing offers. For more information on the fiduciary duties of
directors (including Revlon duties), see Practice Note, Fiduciary Duties of the Board of
Directors (www.practicallaw.com/6-382-1267).
The target company wants the duration of the standstill to be as lengthy as possible, with two
to three years being a commonly requested period. When negotiating the length of the
standstill the target will consider, among other things, who the prospective buyer is (a financial
or strategic buyer) and its history with prior acquisitions (whether it has made hostile bids).
This Standard Document includes what is known as a "fall away" provision (see Section 9(e))
which means that the standstill restrictions automatically terminate on certain events. In this
Standard Document the fall-away is triggered if either:
The target has entered into a definitive agreement for all or a controlling interest in the
target.
The target publicly announces its plans to complete a deal for all or a controlling interest in
the target.
If the disclosing party elects not to include a fall-away provision in the standstill and strikes
Section 9(e), it may be more willing to accept a slightly shorter standstill term than initially
proposed. While a stronger pro-target version of a standstill would not include a fall-away
provision, the disclosing party should be prepared for the recipient to resist a standstill that
does not include a fall-away.
If the recipient is a hedge fund or other entity in the business of making swap or other similar
arrangements, it would be prudent for the disclosing party to directly prohibit the recipient from
entering into swaps or similar arrangements concerning the target company's underlying
securities during the course of the standstill period.

Recipient
This provision should be deleted if the target company is not a public company.
The standstill usually has a limited term, but the recipient should request that the term be
reduced (unless what is initially proposed is acceptable). One year is a common term for a

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standstill provision, but sometimes the parties will agree to a shorter or longer period. If the
agreement does not include a fall-away provision (see Section 9(e)), the recipient should
request one. The recipient would argue that it needs the ability to submit a topping bid in an
auction scenario, and the standstill is therefore too restrictive. However, the target company may
not be persuaded by that reasoning and suggest that the bidder make its best offer during the
course of the auction process. As a compromise the parties may agree to insert the following
language permitting the bidder to make a private (not public) topping bid instead of the fall-away
provision:
"Nothing in this Section 9 shall restrict the Recipient or any of its Representatives from
making any proposal regarding a possible Transaction directly to the board of directors of
the Company on a confidential basis if such proposal does not require the Company to
make a public announcement regarding this Agreement, a possible Transaction or any of
the matters described in this Section 9."

The standstill in this Standard Document applies to the recipient and its representatives.
"Representatives" includes affiliates of the buyer and other third parties who are not under the
control of the buyer (see Definition of "Representatives" in Section 1(d)). While the buyer may
resist a standstill including anyone outside of its immediate control, the language in this
Standard Document should give more comfort to the recipient because it captures those
representative that are "...acting on behalf of or in concert with the Recipient..." rather than the
recipient and its representatives without any qualification. With this structure, the recipient will
not be in violation of the standstill for actions by its representative(s) as long as the
representative is acting on its own volition and not in cooperation with the buyer. This may be
viewed as a fair compromise.
The recipient may want to request that the standstill only apply to the acquisition of equity
securities and strike all references to loans and debt securities if it wants to have the flexibility
to trade in the target's debt securities.
If the recipient is a large conglomerate, or if the recipient (through a pension or similar benefit
arrangement) or its representatives (such as a hedge fund or other investment company)
frequently trade in securities, it should request the addition of the bracketed language in
Section 1(b) that permits the recipient to acquire a limited amount of securities (for example,
less than 5%). Because persons who acquire direct or indirect beneficial ownership of more
than 5% of a class of equity securities must file either form Schedule 13D or Schedule 13G,
the target company may not want to trigger this type of filing out of concern of the potential
message that it could send to the market of an impending change of control. For more
information on the requirements of filing Schedule 13D and Schedule 13G, see Practice Note,
Filing Schedule 13D and 13G Reports (www.practicallaw.com/1-501-2832). The recipient may
also want to request the language in the second set of brackets in Section 1(b), which is an
additional carve-out to permit the trade of securities by the recipient's representatives in the
ordinary course of business (if any of the representatives or affiliates is a hedge fund or other
investment company).

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Don't Ask, Don't Waive

The standstill in this Standard Document includes a common restriction in Section 9(a)(v) that
prohibits the recipient from privately or publicly requesting a waiver of the standstill from the
board in order to make a topping bid. The Delaware Court of Chancery has referred to this
type of provision as a "Don't Ask, Don't Waive" standstill.
On November 27, 2012, Vice Chancellor Laster of the Delaware Court of Chancery issued a
bench ruling in In re Complete Genomics, Inc. Shareholder Litigation enjoining a target
company from enforcing a "Don't Ask, Don't Waive" standstill provision agreed to in a
confidentiality agreement for a public-company auction process. In enjoining the Don't Ask,
Don't Waive provision of the standstill, the Court reasoned that the provision has the same
disabling effect as a no-talk clause, although on a bidder-specific basis, because it
impermissibly limits certain of the board's ongoing statutory and fiduciary obligations. For more
information about the decision in In re Complete Genomics, see Legal Update, Court of
Chancery Enjoins Enforcement of "Don't Ask, Don't Waive" Standstill
Provision (www.practicallaw.com/6-523-2676).
The Court's ruling is not the first time the Court of Chancery has addressed the issue of
blanket prohibitions on a party's ability to privately seek a waiver of a standstill agreement.
Earlier, Vice Chancellor Parsons discussed the potential breach of fiduciary duty that can arise
if a board agrees to a no-shop provision after it has already entered into broad Don't Ask, Don't
Waive standstills, opining that it can undermine the no-shop's fiduciary out and create a
problematic "information vacuum" for the board (see Legal Update, In re Celera: Fiduciary Out
is Ineffective if Potential Bidders Have Agreed to Standstills that Forbid Requests for
Waiver (www.practicallaw.com/2-518-6921)).
In light of the concerns about blanket Don't Ask, Don't Waive standstill provisions recently
raised in multiple Delaware Court of Chancery cases, practitioners should be mindful that their
use can place the board of a target company at risk of violating its Revlon duties following the
announcement of a deal.

Hide Note
10. The parties agree that money damages would not be a sufficient remedy for any breach of
this Agreement by the Recipient and that in addition to all other remedies it may be entitled to, the
Disclosing Party shall be entitled to seek specific performance and injunctive or other equitable
relief as a remedy for any such breach.
Hide Note

Remedies
Disclosing Party
The disclosing party should include language providing for equitable remedies (such as
specific performance). The disclosing party can also ask that the recipient post a bond in

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connection with an equitable remedy, but the recipient often objects to that requirement. Often
the disclosing party requests that the recipient pay any fees and expenses (including legal
fees) in the event of a breach. If the recipient objects to this shifting of fees, a compromise is
that the non-prevailing party will reimburse the prevailing party for its fees and expenses.
Sometimes the disclosing party includes an obligation for the recipient to indemnify the
disclosing party for any breaches of the agreement. The recipient usually objects to any
indemnification provision and they are commonly negotiated out of the agreement.

Recipient
Provisions for equitable remedies (including specific performance) are common and generally
acceptable. The recipient should object to the following:
Any requirement to indemnify the disclosing party.
Any obligation to post bond in connection with an equitable remedy.
Any obligation to reimburse the disclosing party for legal fees and expenses (often
recipients eventually agree to this).
Any provision which entitles the disclosing party to a remedy without proof of damages.

Hide Note
11. To the extent that any Evaluation Material includes materials subject to the attorney-client
privilege, none of the Company or the Disclosing Party is waiving, and shall not be deemed to have
waived or diminished, its attorney work-product protections, attorney-client privileges or similar
protections and privileges as a result of disclosing any Evaluation Material (including Evaluation
Material related to pending or threatened litigation) to the Recipient or any of its Representatives.
Hide Note

No Waiver of Privilege
This provision attempts to preserve the attorney-client privilege that protects any litigationrelated documents that are disclosed as evaluation material during the course of due diligence.
Sharing privileged information with third parties breaks privilege under most circumstances, so
the seller should be aware of those documents that are "privileged" and consider the
implications of disclosure. Some sellers may elect to withhold those materials from the due
diligence investigation altogether, depending on the facts and circumstances surrounding the
litigation. Other sellers will weigh the buyer's need to analyze this information in order to move
forward with the deal and agree to disclose the information only when the transaction has
advanced and there is more certainty of closing.

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Including this provision may not be enough to preserve privilege, depending on the jurisdiction,
but it may bolster the parties' arguments that the seller's intent was to preserve privilege. As a
fall back, some sellers may use the common-interest doctrine (also called the joint-defense
doctrine) to try to retain the privilege. This doctrine allows separately represented parties with
common legal interests to share information with each other and their respective attorneys
without destroying the privilege. The common-interest doctrine is not a separate privilege, but
rather stands as a notable exception to the general rule that the attorney-client privilege does
not attach to communications with, in the presence of, or later shared with third parties.
If preserving privilege is an important concern for the seller, it should consult with litigation
counsel to determine the best way to protect its materials. A litigator may recommend that the
parties enter into a separate common-interest agreement (see Standard Document, Joint
Defense and Confidentiality Agreement (www.practicallaw.com/2-501-9461)) or revise the
subject confidentiality agreement to include language that supports the common-interest
exception.

Hide Note
12.

This Agreement shall continue for a period of [NUMBER] year[s] after the Effective Date.
Hide Note

Term
Disclosing Party
If the disclosing party does not provide a termination date, the recipient will likely ask for one
(somewhere between one and two years is common). However, the term should be the same
as, or longer than, the term of the standstill provision and non-solicitation provisions (if they are
included). If any of the Evaluation Material are particularly sensitive, a longer term may be
advisable for at least that portion of the Evaluation Material.

Recipient
The recipient should insert a termination date if none is provided (one year for example).

Hide Note
13. [The terms of this Agreement shall control over any additional purported confidentiality
requirements imposed by any offering memorandum, web-based database or similar repository of
Evaluation Material to which the Recipient or any of its Representatives is granted access in
connection with the evaluation, negotiation or consummation of the Transaction, notwithstanding
acceptance of such an offering memorandum or submission of an electronic signature, "clicking" on
an "I Agree" icon or other indication of assent to such additional confidentiality conditions, it being
understood and agreed that its confidentiality obligations with respect to Evaluation Material are

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exclusively governed by this Agreement and may not be enlarged except by a written agreement
that is hereafter executed by each of the parties hereto.]
Hide Note

Data Site Provision

This provision is an optional provision that provides that the terms of the confidentiality
agreement supersede any of the boilerplate language that is customarily included in offering
memoranda and when logging on to an electronic data room. It should not be a controversial
addition to the agreement.

Hide Note
14.

This Agreement shall be governed by the laws of the State of [NAME OF STATE].
Hide Note

Governing Law
Unless the parties are located in the same state, they will generally disagree about which state
law should govern. The parties should consider which state has more favorable contract law as
well as each party's familiarity with a particular state's laws. Because all of the transaction
documents are typically governed by the same law, the parties should consider that what they
agree to in this provision may impact their choice of law for the definitive agreement. New York
is a common choice for governing law because its body of contract law is particularly well
developed.

Hide Note
15. This Agreement sets forth the entire agreement regarding the Evaluation Material, and
supersedes all prior negotiations, understandings and agreements. No provision of this Agreement
may be modified, waived or changed except by a writing signed by the parties hereto.
Hide Note

Entire Agreement Provision

If the parties want the confidentiality agreement to survive the execution of the definitive
agreement, the parties should include a reference to this confidentiality agreement in the entire
agreements provision in the definitive agreement.

Hide Note
16. If any provision of this Agreement, or the application thereof to any Person, place or
circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void,

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the remainder of this Agreement and such provision as applied to other Persons, places or
circumstances shall remain in full force and effect.
17. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any
party without the prior written consent of the non-assigning party. Any purported assignment without
such consent shall be void and unenforceable. Any purchaser of the Company or all or substantially
all of the assets of the Company shall be entitled to the benefits of this Agreement, whether or not
this Agreement is assigned to such purchaser.
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the
date first above written.
[RECIPIENT NAME]
By_____________________
Name:
Title:
[DISCLOSING PARTY NAME]
By_____________________
Name:
Title:
[Exhibit A - Permitted Co-bidders]
[Exhibit B - Lenders]

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Resource information
Resource ID: 6-381-3253
Products: PLC US Commercial, PLC US Corporate & Securities, PLC US Corporate and M&A,
PLC US Intellectual Property & Technology, PLC US Law Department
This resource is maintained, meaning that we monitor developments on a regular basis and update
it as soon as possible.

Resource history
In re Complete Genomics, Inc. Shareholder Litigation
We have added to reflect the Delaware Court of Chancery's November 27, 2012 bench ruling In re
Complete Genomics, Inc. Shareholder Litigation.

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Martin Marietta v. Vulcan Materials (Delaware Supreme Court)

We have reviewed this Standard Document in light of the Delaware Supreme Courts decision in
Martin Marietta Materials, Inc. v. Vulcan Materials Co., 2012 WL 2783101 (Del. July 10, 2012),
affirming the Delaware Court of Chancerys ruling in Martin Marietta Materials, Inc. v. Vulcan Materials
Co., 2012 WL 1605146 (Del. Ch. May 4, 2012). We do not consider any further amendments to this
Standard Document necessary. See .

Martin Marietta v. Vulcan Materials (Delaware Court of Chancery)

This Standard Document has been revised to reflect the decision of the Delaware Court of Chancery in
Martin Marietta Materials, Inc. v. Vulcan Materials Co., 2012 WL 1605146 (Del. Ch. May 4, 2012). The
following drafting notes are either new to the Standard Document or have been revised: , and .

Anti-clubbing and Other Provisions

This Standard Document has been revised to include anti-clubbing and lock-up provisions (see ). Also,
the following provisions and related drafting notes are either new to the Standard Document or have
been substantially revised: Standstill ( and ), Disclosure Required by Law ( and ), Non-solicitation
( and ), No Waiver of Privilege ( and ), and Data Site Matters ( and ).

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Martin Marietta: Delaware Court of Chancery Holds Use of Confidential Information in Hostile Bid Breaches
Confidentiality Agreements (http://us.practicallaw.comtopic4-519-3553)

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