Breaching the confidentiality agreement means one party in the M&A deal has not followed the conditions of the agreement, therefore violating the agreement. Breaches are serious occurrences and should be dealt with head on and immediately.
Here are some common types of breaches:
Speaking out of school: Somebody privy to confidential information starts flapping his gums to his golf buddies or at Friday night cocktails or a lunch meeting.
Buyer making improper contact with Seller’s employees: Buyer contacts one of Seller’s employees, specifically someone who isn’t involved in the potential deal, without Seller’s permission, alerting that employee that the company is for sale.
Involving a loose-cannon advisor: An advisor who knows of the impending deal (usually someone who’ll be brought in only if the deal moves forward) can’t resist making comments to friends and strangers alike.
One of the signers of the confidentiality agreement may cause a breach, but that situation is very rare. The person signing the document is usually acutely aware he just signed a document! More than likely, the weak link occurs elsewhere in the chain.
The two most common weak are advisors and executives or other employees, both of whom can be further broken down into “active” and “hope to get hired” categories. In fact, those employees or advisors who hope to get hired or retained if the deal closes often cause the most problems.
How to confirm a breach
Although some breaches are easy to confirm (people who shouldn’t know about the deal talk to you about it), others are more difficult to nail down if you don’t receive direct knowledge of it. If you suspect a breach, immediately pick up the phone and have a conversation with the other side. (If you’re a Seller represented by an intermediary, call him immediately and have him deal with the situation.)
A phone conversation is important because you can gauge the other side’s tone and reaction to the news. Writing a lengthy, accusatory e-mail (or leaving a length, accusatory voice mail) may end up muddying the waters more than clearing them. You need to hear the other side’s story.
Only send an e-mail to recap your conversation about the breach of confidentiality. If you’re unable to get the other side on the phone, leave a brief message and send a short e-mail. Simply say that you urgently need to speak with the other party as soon as possible; you have some concerns about confidentiality. Don’t go into detail in the message or e-mail.
When you address a breach with the other side through a conversation, the other side might apologize immediately and take steps to correct the problem. If they’re not already aware, the phone call may alert the other side to the problem, in which cases the breaches will likely stop.
Think long and hard about legal action
Although your first instinct may be to sue the pants off the offending cause of the breach, remember that lawsuits can be expensive, lengthy, and time consuming and may end up hurting you more than helping.
In many cases of breaches, the parties are able to eventually complete a transaction without getting the courts involved. Starting a lawsuit would greatly compromise their ability to close a deal.
Talk to your lawyer and your intermediary about a breach or suspected breach. Although you want to avoid legal recourse if possible, doing more than talking to the other side may be the best course of action. It’s a bullet you may have to bite.
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Source:http://www.dummies.com/how-to/content/how-to-handle-a-breach-of-an-ma-confidentiality-ag.html
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