#15692 - Confidentiality Agreements - Mergers and Acquisitions (Private Acquisitions)

1. Protect commercial position

• ensures confidential information is only used in connection with the proposed purpose ("permitted purpose")

• ensures certainty and contractual remedies in the event of breach

3. No statutory framework to protect confidential information

• Both parties know where they stand.

• Do not have to rely on the equitable duty not to take advantage where you come into contact with confidential information and you knew or ought to know it was confidential information.

5. Protect clients, customers and employees being solicited

1. Obligations on B

1. undertakes to keep the information secret and confidential

2. undertakes to only use the information for the permitted purpose (i.e. for the purpose of the acquisition)

3. Restrict making copies of confidential information.

4. Restrict disclosure of the confidential information by listing the allowed persons (e.g. employees/advisers).

5. Ensure third parties enter into a confidentiality agreement.

6. Prohibit B from making any commercial use or gain from the confidential information.

3. Ensure that obligations/definitions are not too wide

e.g. confidential information should not include information in the public domain or information known by B prior to the negotiations otherwise = unlawful restraint of trade.

5. Remedies

1. Indemnity - much better than contractual damages which requires (a) damages, (b) which are not too remote, and (c) mitigation of loss. An indemnity bypasses remoteness and the duty to mitigate loss (can also claim all costs irrespective of loss)

2. Injunctions and specific performance orders

3. B waiving right to oppose the granting of any equitable relief? = 'estoppel' - cannot defend if go for an injunction (which is at the discretion of the court) - no legal precedent if such a clause would be upheld in court.

6. General

1. Give no warranties in relation to confidential information - this is OK and any such warranties will go in SPA

2. Exclude rights conferred on 3rd parties by the Contracts (Rights of Third Parties) Act 1999

3. Law and disputes clause - to ensure certainty of law/jurisdiction in the event of a dispute.

1. Check the definition of confidential information carefully - clause protecting financial and commercial information is preferable to one specifying all information. Other problem phrases include:

1. "Oral"

• will B recognise confidential information when he hears it?

• hard to establish what is or isn't confidential

• no evidence/records is problematic.

2. "before the date of this agreement"

• if B has already disclosed information told to it by S then it will already be in breach of the agreement.

• past-consideration is not good consideration, so further confidential information will need to be given after the agreement.

3. "obtained by observation by B" - difficult to prove what is or isn't confidential.

2. Check the definition of the "B" and "permitted disclosures"

1. B in an acquisition is the company, which cannot operate by itself but operates through its employees etc.

2. There must therefore be permitted disclosures which must also be wide enough to cover all disclosures necessary for the acquisition (e.g. employees, non-executive directors, advisers).

3. S can then limit the amount of people that receive that information so long as they treat that information as confidential...

3. Limit the obligations of B

ensure that the definition is not too restrictive, e.g. if it includes information disclosed prior to the confidentiality agreement,...