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Loading ...A non disclosure agreement (NDA) is a confidentiality agreement between two parties. This basically prevents one of the parties from disclosing the information specified in the agreement. This helps to ensure proprietary and sensitive material is kept confidential. A NDA usually contains the following key items.
- Definition of Confidential Information
- Buyers will usually want to include language that does protect information they find out prior to or independent of any information exchange with the target. Typically, this is agreed to by Sellers. However, Sellers will try to put language in protecting against a Buyer disclosing information that is non-public even if the Buyer discovers it through independent sources.
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Non-Disclosure of Discussions
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Both Buyers and Sellers should ensure that a NDA contains language clarifying that any and all discussions between the parties regarding the transaction are confidential. This confidentiality should also ensure that the identities of both Buyers and Sellers are kept private. In addition, Buyers do not want any terms of its bids being made public so that is a typical clause.
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If the Buyer (aka acquiring company) needs financing for the transaction, there should be language allowing information to be disclosed to financing sources.
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Legally Required Discussions
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Both sides should always want language that allows each to disclose information if required by law. There should also be language ensuring each side must provide notification to one another in the event that one must disclose information.
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Return / Destruction of Materials
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This always seems to be a sticking point. The Buyer will usually want to retain a copy of all materials for any possible legal issues arising later. Basically, having a hard copy of the information allows the Buyer to demonstrate what information it was actually provided. Sellers do not like that the Buyer is going to retain its confidential information. A potential compromise could be that the Buyers legal representation retain this one copy for archival/evidentiary purposes.
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Buyers and Sellers will also differ on whether materials need to be returned or just confirmed destroyed. This should be explicitly stated so that there is no confusion.
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Non-solicitation / Employment
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Buyers want this to be as minimal as possible. Generally, the Buyer will seek to have language that only specifies “key” employees from the Seller that cannot be hired by the Buyer. This way, the Buyer or a company the Buyer already owns won’t be restricted from hiring lower level employees. In either event, it’s good practice for a Seller to ensure that anyone the Buyer meets during a process may not be hired.
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Buyers also will want a clause that allows for them to hire employees from the Seller that reply to a general solicitation (e.g., newspaper add, internet posting). Ultimately, the Seller needs to decide how hard it will push on these terms.
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Term
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Buyers want a term as short as possible while Sellers want a much longer term. The average term is between 12 to 24 months. A good compromise is generally 18 months.
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A NDA also allows you to share information with your service providers (e.g., accountants, attorneys). However, when working with such providers, be sure to get a signed due diligence engagement letter.
