Cleansing Disclosure
(Confidentially Marketed Public Offering)

Summary

This clause contains cleansing disclosure that may be used to satisfy an issuer's disclosure obligations in the event a confidentially marketed public offering (CMPO) is abandoned or otherwise does not proceed. This clause includes practical guidance and drafting notes. In a typical CMPO (which may also be referred to as a "wall-crossed" or "pre-marketed" offering), an underwriter approaches a discrete number of specific institutional investors who may have an interest in purchasing an issuer's securities. Without identifying the issuer, the underwriter asks each potential investor if it wants to be "brought over the wall" (in other words, whether or not the potential investor is willing to receive confidential information about the issuer, to keep that information confidential, and to not trade in the issuer's securities for a certain period of time). Typically, the confidentiality agreement is solicited orally pursuant to a standardized script and then later confirmed in writing via email. For a template of script, see Investor Wall-Crossing Script and Email Confirmations. Some investors will agree to the confidentiality restrictions only if the issuer agrees to make a public disclosure of any material nonpublic information in the event the offering is abandoned or does not proceed within a certain timeframe, which is known as a cleansing disclosure. The cleansing disclosure would allow investors to resume regular trading in the issuer's securities. Note that in a typical CMPO, marketing materials shared with potential investors are typically limited to an issuer's filings under the Securities Exchange Act of 1934, as amended (e.g., Form 10-K and Form 10-Q), and the issuer's general investor presentations that are already in the public domain. By avoiding disclosure of nonpublic information and new written materials, the issuer can avoid the need to publicly file such information or materials or make any other cleansing disclosure if the offering is abandoned. If any new materials are prepared or nonpublic information is shared, however, then the issuer may be obligated to make the disclosure. Issuers typically provide cleansing disclosure in a Current Report on Form 8-K (or Form 6-K, in the case of a foreign private issuer) submitted to the Securities and Exchange Commission (SEC). This clause contains disclosure language that may be included in a Form 8-K (or 6-K), but is not meant to be a complete, standalone template. As with all public company disclosure, you should tailor this language to reflect the specific circumstances of the issuer. For more information on drafting and filing Form 8-K and Form 6-K, see Form 8-K Drafting and Filing and Report on Form 6-K Preparation, respectively. For more information on confidentially marketed public offerings generally, see Confidentially Marketed Public Offerings. For more information on disclosure of material nonpublic information, see Disclosure of Material Nonpublic Information.