- A “use” restriction, particularly when paired with a restrictive nondisclosure provision, may function as an implicit “standstill” whether or not the agreement contains an explicit standstill provision. This may not be intended. Acquirers, therefore, must focus on the practical impact of use and nondisclosure provisions, particularly if the confidentiality agreement purports to terminate explicit standstill provisions earlier than the use and nondisclosure provisions. Acquirers must carefully consider the wisdom of agreeing to “use” restrictions when the paramount purpose of confidentiality agreements, as the name suggests, is confidentiality. As a practical matter, in an unsolicited transaction it may be impossible to harmonize the disclosure requirements of the tender offer and proxy rules with the use and nondisclosure restrictions of a typical confidentiality agreement. Consequently, an acquirer that does not want to be bound by a standstill may prefer to avoid entering into a confidentiality agreement in the first instance. This generally will be unacceptable to a target.
- If the parties agree that confidential information is to be used only in a contractually negotiated transaction approved by the target’s incumbent board of directors, the confidentiality agreement should expressly so state. This should be easy to do.
- Notwithstanding the above, in light of the great difficulties and risks faced by Vulcan in this litigation, public targets are well-advised to include explicit standstill provisions in almost all confidentiality agreements.
- Public targets should be cautious in agreeing to carve-outs to confidentiality obligations which permit disclosures that are simply “legally required”. This could allow an acquiring party to unilaterally take discretionary actions vitiating the confidentiality protections a target thought it had. Chancellor Strine’s decision reduces this risk, at least in contracts governed by Delaware law.
- Delaware courts will specifically enforce confidentiality agreements and may enjoin an unsolicited overture, at least temporarily, upon a breach. Chancellor Strine accepted, without challenge, the parties’ recitation in the confidentiality agreement that money damages would be an insufficient remedy and that the parties had agreed to the availability of specific performance. It is important for confidentiality agreements (and other agreements) to explicitly state that the parties “shall” be entitled to specific performance, not just that they “may” be entitled to specific performance.
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Delaware Chancery Court finds breach of confidentiality agreement and enjoins Martin Marietta's hostile bid for Vulcan Materials
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