NDA as Poison Pill

Just catching up to the news of a Delaware court opinion that shows, in yet one more way, how important a confidentiality agreement (or "NDA") can be.

The case involves a hostile tender offer by Martin Marietta Materials, Inc. for control of Vulcan Materials Company. The tender offer was enjoined (stopped) by court order this month, though from googling I can see that perhaps that order has been or may be appealed.


But the instant fascination with the case is how a mutually negotiated confidentiality agreement - one that we're told contained no "standstill" clause or other express prohibition of a hostile tender offer - can be enough to prompt a court to intervene and stop an unwanted bid.

The basic proposition is that Martin Marietta had signed an NDA under which it had agreed not to use the material Vulcan had disclosed to it, except in furtherance of a transaction. (I put that word in italics because we have already gotten to the juncture where exact words can have exacting consequences. Hold that thought.) Martin Marietta then used Vulcan's confidential information to help it formulate a hostile tender offer. The question presented: was Martin Marietta's use of Vulcan's information a use permitted by the NDA, or was it a breach of that NDA?

The court's opinion gives us this telling glimpse into the drafting history of a key section of the NDA:

Screen shot 2012-05-29 at 9.50.11 PMThe wordsmithing makes a real world difference. Had "Transaction" remained defined as "a possible transaction . . . involving" the two companies, Martin Marietta's use of Vulcan's information to plan a unilateral (as opposed to mutually agreed) takeover might well have been a permitted use under the NDA. But "Transaction" was not defined that way; instead, it was narrowed to mean a "business combination . . . between" the parties.

The choice of the preposition, "between," is pivotal. Unlike "involving," which allows that one party may be passive or even uncooperative, "between" implies mutuality.

Bet we'll all look just a bit more closely at that next "boilerplate" confidentiality provision that crosses our screens!

Picture from Wikimedia: Venus at Vulcan's Forge by Frans Floris.

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