Q: My agency has important contracts with key travel suppliers, technology vendors and corporate clients. Every one of these agreements contains a confidentiality clause prohibiting us from disclosing the terms of the agreement to third parties. In some cases, the agreement even prohibits us from disclosing its mere existence. Now a potential buyer of our agency wants to see copies of these agreements. Wouldn't disclosure to a potential buyer be a breach of all these contracts? If so, what can we do to avoid the breach?
A: You would probably be breaching the express terms of many of your agreements by disclosing their terms to a potential buyer.
For example, Delta commission and override agreements have this clause: "Except as required by law, no Party shall disclose the existence or terms and conditions of this Agreement or the attached Exhibits to any person (other than Agency's employees) without each other Party's prior written consent."
Similarly, Carnival commission agreements state, "Each party shall keep strictly confidential the terms of this Agreement ... except that the first party may disclose the Confidential Information to its employees and agents who have a need to know such Confidential Information for the purpose of this Agreement and may use such Confidential Information only for the purpose of fulfilling its obligations under this Agreement."
Many of these agreements also have exceptions to their confidentiality clauses, allowing disclosure in listed circumstances, such as a court order. However, I have rarely seen an exception allowing disclosure to potential buyers.
Nevertheless, I recognize that you must disclose both the existence and the terms of these agreements at some stage in the acquisition process. Otherwise, most potential buyers will feel that they are unable to proceed with an acquisition.
You could ask each contracting party for permission to disclose its confidential information to each potential buyer, but you wouldn't get very far with this approach. Large suppliers would probably never give you any answer at all, and small ones might very well refuse to grant permission.
Interestingly, I have never seen this dilemma addressed in any of the law books and articles on mergers and acquisitions. I would probably never have thought of it but for the fact that an exceptionally ethical client asked me what to do in order to protect a supplier's confidential information.
My answer is that, in addition to any express exceptions in each agreement, there is an implied exception allowing disclosure to potential buyers and merger partners under limited conditions. Those conditions would be as follows:
First, the selling agency and potential buyer would need to have a confidentiality agreement in place prohibiting the latter from disclosing the information or using it for any purpose other than the acquisition. Although it is hard to enforce this type of agreement, merely having it in place tends to deter the receiving party from breaching it.
Second, the selling agency would need to be at the stage where it is reasonably certain that the acquisition will take place. As many experts advise, you should postpone disclosure of your most sensitive information until you have a signed purchase agreement or at least a signed letter of intent.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].