Confidentiality Agreements – Drafting Points

 

The downloadable file is a helpful article entitled “Confidentiality Agreements: How to Draft Them and What Do They Restrict” by Byron F. Egan, a partner of Jackson Walker LLP in Dallas, Texas.

Mr. Egan explains that while some parties to a deal might underestimate the importance of the terms of a confidentiality agreement, those terms can have far reaching consequences.

In this article, Mr. Egan provides a form of confidentiality agreement (which the author admits is favorable to a disclosing party) as well as a discussion of the significance of certain provisions.  The following are my summaries of these discussions:

1.  No Representations and No Reliance

Both parties to a confidentiality agreement should carefully draft the language around what is being represented by the buyer and on what the buyer can rely.  Mr. Egan provides several cases illustrating how the language has been viewed by courts.

2. De Facto Standstill

Mr. Egan cites a well-known case, Martin Marietta Materials, Inc. v. Vulcan Materials Co., to illustrate the value of carefully drafting the language which limits how a recipient can use information disclosed pursuant to a confidentiality agreement.  In this case, the restriction on Martin Marietta Materials served as a de facto standstill.

3. Don’t Ask, Don’t Waive

The controversy around this provision centers on whether it is a) a useful tool to prompt bidders to submit their highest offer knowing it is their last chance or b) an impediment to sellers board’s fiduciary duty to learn of potentially topping bids. As described in my post (link), courts have upheld the use but warned that sellers should be aware of its potential consequences.