Show Menu
Cheatography

Non-Disclosure Agreement Clauses Cheat Sheet (DRAFT) by [deleted]

Essential parts of NDA Agreement

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Introd­uction

In most cases, NDAs act as first step towards subsequent business agreements and contracts, which include additional provisions to cover comple­xities of business transa­ctions between the parties.

While drafting a confid­ent­iality (non-d­isc­losure) agreement, it is crucial to ensure interests of both the parties is adequately secured by including the required provisions in a well-d­efined manner and excluding provisions that are not required

Types of NDA

One-way NDA, also known as a unilateral NDA: only one party is disclosing inform­ation and the receiving party of the confid­ential inform­ation is bound to protect that inform­ation.

Mutual NDAs, also known as bilateral NDAs: both parties disclose confid­ential inform­ation and both are held accoun­table for that confid­ential inform­ation. These types of agreements are more approp­riate for joint ventures or strategic invest­ments

Definition of Confid­ential Inform­ation

Definition of ‘confi­dential inform­ation’ can and should vary based on the specific transa­ction. As such, it is critical for every NDA to first and foremost clearly define the materials that should (and should not) be considered confid­ential. Materials include, but are not limited to, oral conver­sat­ions, written notes, analysis, and documents produced with the use of the confid­ential inform­ation. Special mention should be made for any materials that are considered to include ‘trade secrets’.

2) Term of Confid­ent­iality

All NDAs should also clearly define a time limit for the agreement. The term can be one year, two years, five years, or for an indefinite term. Whatever the choice term, it is critical to clearly define it.

3) Disclosure / Repres­ent­atives

In this clause, the NDA should define with whom the confid­ential inform­ation may
be disclosed.

4) Use of Confid­ential Inform­ation

One of the trickiest clauses in the NDA. This section is meant to provide clarity around the intended use of the confid­ential inform­ation. For most standard M&A NDAs, the confid­ential inform­ation is limited only for evaluation and negoti­ation of the potential transa­ction.
 

5) Compel­led­/Legal Obligation to Disclosure

While an NDA is signed to prevent the disclosure of confid­ential inform­ation to third parties, such an event is occasi­onally unavoi­dable. Necessary exceptions to the NDA must apply when disclosure is mandated by admini­str­ative or legal procee­dings. For example, if a financial sponsor is being invest­igated by the SEC, it may have no choice but to share the confid­ential documents.

6) Return/ Destru­ction of Confid­ential Info

It is important to include a clause that defines how all of the disclosed confid­ential inform­ation should be handled. Tradit­ion­ally, the return­/de­str­uction of the material must occur at the end of the negoti­ations or within a certain time frame.

The strategy and timeframe of handling the confid­ential inform­ation largely depends on the nature of the shared inform­ation, but usually matches the duration of the NDA

7) Remedies

In the event of a breach of the NDA, the disclosing party is entitled to either monetary damage or injunctive relief. While monetary damage is first consid­ered, the presence of a Remedies clause represents mutual agreement between both parties that the cost of a breach is difficult to assess or prove -- or the monetary damage is viewed insuff­icient -- and the discloser is allowed to pursue an injunction as an altern­ative remedy for the breach.

8) Intera­ction with Employees

In the early stages of a deal, many business owners are concerned that news of the transa­ction will spill to employees and third parties. To prevent such inform­ation leaks, many disclosers require the NDA to limit intera­ction with employees, especially in regards to solici­tation or hiring.

9) No Binding Agreement for Transa­ction

NDAs should also include a clause that clearly states that neither party is under legal obligation to continue negoti­ations. The NDA does not indicate any formal relati­onship or partne­rship and either party can terminate discus­sions at any point.

Inclusion of Related Clauses in NDA

It is a common practice to include various other related clauses in a NDA. However, in some cases, inclusion of such clauses may lead to issues as described below:
Non-Co­mpete Clause: including a non-co­mpete clause in a NDA is not advisable as it can become proble­matic for both the parties. If the parties intend to include a non-co­mpete provision, it should be a part of separate business agreement between both the parties.
Assignment of Intell­ectual Property Rights (IPR): it is strongly advisable to specif­ically define IP assignment or non-as­sig­nment if such clause is included. In case it is decided to include IP assignment clause, approp­riate care must be taken to ensure that the clause is not generic (broad) and its full scope and intent should be defined. A disclosing Party should specif­ically disclaim grant of any kind of IP rights.
No Warran­ties: it is always advisable to state in NDA that confid­ential inform­ation is shared “As is” without any warran­ties.
Non-so­lic­ita­tion: a non-so­lic­itation clause can be included in the agreement with proper definition of scope, intent and duration, all of which can be practi­cally enforced and justified. For example, such non-so­lic­itation clauses can prevent each party from hiring and soliciting employees from other party for a certain period of time. In certain cases, non-so­lic­itation clauses can be replaced by no-hire clauses as well.