Corporate Law Counseling Group Commercial Law Counseling Group DELAWARE MEMO

FEBRUARY 2014

SEALING THE DEAL parties intend to create a contract under seal. Although such a statement should be sufficient to demonstrate the parties’ intent, it would be advisable to include an CONTRACTS SIGNED UNDER SEAL ARE SUBJECT express reference to the twenty-year limitations period TO A TWENTY-YEAR LIMITATIONS PERIOD applicable to contracts under seal so that it is clear that the parties understood the consequence of creating a UNDER DELAWARE LAW contract under seal:

n many jurisdictions, a statute of limitations may not be The parties hereby acknowledge and agree that, Iextended by contract.1 Delaware follows this rule, so its to the fullest extent permitted by law, they intend three-year statute of limitations for contract claims generally that this Agreement be, and that it will be treated may not be extended.2 Moreover, under Delaware’s borrowing and construed as, a contract under seal under statute, contract claims arising outside of Delaware but Delaware law with all of the consequences of litigated in a Delaware court are subject to the shorter of that such a contract under Delaware law, including three-year period or the time established by the jurisdiction causing the Agreement to be subject to the twenty- where the cause of action arose.3 Notwithstanding these year limitations period applicable to sealed default rules, the statutory limitations period can be reduced instruments[; provided, however, that the parties by contract.4 While many private company acquisition hereto agree that, notwithstanding the application agreements do in fact shorten the statute of limitations for of such longer limitations period under Delaware many breaches of certain representations and warranties by law, the parties hereby agree to reduce the providing that such representations and warranties “survive” applicable limitations period for all claims arising for a shorter period, it is also often the case that buyers want out of or relating to this Agreement to ______certain representations and indemnification obligations to years from the date of Closing].8 “survive” longer, and in some cases, beyond the statutory period.5 In order to achieve such a result, parties may, under Testimonium clause. Include a statement in the Delaware law, use a so-called “specialty” contract, i.e., a testimonium clause referring to execution under “seal:” contract that is entered into under seal, which will be subject to a twenty-year limitations period.6 IN WITNESS WHEREOF, the parties have affixed their signatures and seals on the date first n order to do so, buyers should ensure that the contract set forth above. Iincludes an indication that it is sealed in the signature block and certain other indicia of an intent to be bound by the Signature lines. Include the word “SEAL” below rules applicable to a sealed instrument. In addition, in order or beside the signature lines. In addition, have the to ensure that the parties receive the intended benefit of the agreement attested to by a witness (the “attestation” extended limitations period, they should specifically choose portion of this step may not be essential, but is advisable): Delaware law and Delaware courts so that the Delaware rules applying to statutes of limitations are applied in any ATTEST/WITNESS: ABC CORPORATION (SEAL) 7 litigation. Examples of such provisions are set forth below. /s/ John Doe By: /s/ Jane Doe John Doe, Secretary Jane Doe, President Recitals. Include a statement in recitals that the parties intend to create a contract under seal: Forum selection clause. Include a forum selection clause selecting Delaware as the exclusive forum for litigating WHEREAS, the parties intend to create a contract actions arising out of or relating to the agreement: under seal; In any action or proceeding between any of the Express agreement to create a sealed instrument. parties arising out of or relating to this Agreement or Include a statement in body of the agreement that the any of the transactions contemplated hereby, each

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Corporate Law Counseling Group Commercial Law Counseling Group DELAWARE MEMO FEBRUARY 2014 PAGE 2 OF 2

of the parties: (a) irrevocably and unconditionally Notes consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of 1. See generally 15 Corbin on Contracts § 83.8 at 289-90 Delaware or, to the extent such court does not have (“Because the purpose of a statute of limitations is to prevent the subject matter jurisdiction, the Superior Court of bringing and enforcement of stale claims, involving extra danger the State of Delaware or the United States District of fraud and mistake, courts do not enforce parties’ agreements Court for the District of Delaware, (b) agrees that to lengthen the limitations period.” (internal quotation marks omitted)); but cf. 51 Am. Jur. 2d Limitation of Actions § 82 all claims in respect of such action or proceeding (“Contracting parties may be permitted to extend limitation periods shall be heard and determined exclusively in . . . . There is also authority, however, . . . that contractual periods accordance with clause (a) of this Section, (c) that lengthen the applicable limitations period are invalid.”). waives any objection to laying venue in any such 2. 10 Del. C. § 8106(a). See GRT, Inc. v. Marathon GTF action or proceeding in such courts, (d) waives Tech., Ltd., 2011 WL 2682898, at *15 & n.80 (Del. Ch. July 11, any objection that such courts are an inconvenient 2011) (noting that generally parties to a contract may not extend the forum or do not have jurisdiction over any party, statute of limitations in Delaware); Shaw v. Aetna Life Ins. Co., 395 and (e) agrees that service of process upon such A.2d 384, 386-87 (Del. Super. Ct. 1978) (same).

party in any such action or proceeding shall be 3. 10 Del. C. § 8121.

effective if such process is given as a notice in 4. ENI Holdings, LLC v. KBR Group Holdings, LLC, 2013 9 accordance with Section __ of this Agreement. WL 6186326, at *7 (Del. Ch. Nov. 27, 2013); GRT, Inc., 2011 WL 2682898, at *6, *12 n.59.

Choice of law provision. Include a choice of law 5. Where the cause of action involves a claim to indemnify provision specifying Delaware law and specifically the buyer for third party liability, the statutory limitations period noting that it applies to the determination of the may not pose an issue if the contract is drafted so that the claim applicable statute of limitations: does not accrue until the liability to the third party is incurred. See Certainteed Corp. v. Celotex Corp., 2005 WL 217032, at *5 (Del. This Agreement and any claim, controversy or Ch. Jan. 24, 2005). dispute arising out of or related to this Agreement, 6. Whittington v. Dragon Group, L.L.C., 991 A.2d 1, 10 any of the transactions contemplated hereby, the (Del. 2009). As noted above, the parties can shorten the limitations relationship of the parties, and/or the interpretation period for non-sealed instruments, see, e.g., ENI Holdings, 2013 and enforcement of the rights and duties of the WL 6186326, at *7; presumably, the same rule applies to contracts under seal. parties, whether arising in contract, tort, equity or otherwise, shall be governed by, and construed in 7. The applicable statute of limitations is typically accordance with, the laws of the State of Delaware considered a procedural rather than substantive issue for conflict of laws purposes. As a result, the statute of limitations of the forum (including in respect of the statute of limitations will generally govern. See Norman v. Elkin, 2007 WL 2822798, or other limitations period applicable to any such at *3 (D. Del. Sept. 26, 2007). When the chosen forum is a court claim, controversy or dispute), without regard to of equity such as the Delaware Court of Chancery, the equitable any applicable principles of conflicts of law that doctrine of laches rather than a statute of limitations will apply to might require the application of the laws of any determine whether an action is time-barred. Whittington, 991 A.2d other jurisdiction. at 8. In applying laches, however, courts of equity often look, and give “great weight,” to the analogous statute of limitations, if any. * * * Id. at 9. 8. Cross-references to any different survival periods should This Memo provides general information and should not be be included in this provision. used or taken as legal advice for specific situations, which 9. Based upon the American Bar Association’s Model depend on the evaluation of precise factual circumstances. Merger Agreement for the Acquisition of a Public Company, § 8.7 For a more complete or detailed discussion, please contact (2011). any member of Morris Nichols’ Delaware Corporate Law Counseling Group or Commercial Law Counseling Group.

Morris, Nichols, Arsht & Tunnell LLP combines a broad national practice of corporate, intellectual property, business reorganization and restructuring and commercial law and litigation with a general business, tax, estate planning and real estate practice within the State of Delaware. The firm’s clients include Fortune 500 companies, smaller firms and partnerships, financial institutions, government agencies, commercial law and litigation firms and not-for-profit organizations.

1201 NORTH MARKET STREET - P.O. BOX 1347 - WILMINGTON, DELAWARE - 19899-1347 - T. 302 658 9200 - F. 302 658 3989 www.MorrisNichols.com