A nondisclosure agreement (NDA) or confidentially agreement is often the first step when businesses are conducting business together or considering a merger or acquisitions transaction. The purpose of this agreement is to protect sensitive business information that will be disclosed during the exchange and due diligence process from being used in an inappropriate fashion.
When reviewing an NDA, there are certain details you should look for before signing to determine if it is fair to you and sufficient to meet the needs of the engagement. If you’re unsure about anything, your attorney can provide a quick review of the document and give you feedback on how best to proceed. Further, sophisticated and experienced counsel may notice additional issues to those listed below.
- Definition of Confidential Information: Every NDA will contain a clause that defines the information it covers. Some are very broad and cover information that may pertain to the transaction, however it is shared, while others require information to be clearly marked or noticed as confidential before it is covered by the agreement. The latter can be more difficult as people forget to mark something appropriately or exchange the information in a format that doesn’t lend itself to labeling. Either way, you want to ensure that the definition of confidential information is sufficient to cover the material you expect to exchange. You may also want to ensure that your agreement specifies that the fact that the parties are having discussions is itself confidential information. Your NDA may also cover previously provided confidential material or have a subset of material that is identified and marked as extremely confidential and which comes with higher burden of care on both parties to protect.
- Use of Information: Obviously, you’re exchanging information for a purpose, so you want to make sure that both parties are allowed to use the information they’re gathering for the proper reasons and not for any others. Further, you should ensure the nondisclosure agreement specifies that the use of the information is limited to the transaction and that the receiving party is not entitled to continue to use information or intellectual property outside of the contemplated purposes. If necessary, the agreement can stipulate that certain procedures are put in place to limit who has access to the information and how it is being shared.
- Legally Required Disclosures: Sometimes, you may find yourself in a situation where you are ordered by a court of law to disclose information you received under a nondisclosure agreement. In these situations, you want the NDA to contain a clause allowing you to comply with the court’s request without incurring contractual ramifications.
- Return of Materials: After the transaction is complete, or when it is cancelled, the NDA agreement should spell out whether confidential materials should be returned to the providing party, destroyed, or can be retained as part of the businesses records.
For help drafting or negotiating nondisclosure agreements and M&A transactions, look to the experienced team at Virtus Law Firm. Call 612.888.1000 or email firstname.lastname@example.org today. We have helped hundreds (if not thousands) of businesses comfortably exchange confidential information and structure complex transactions.