I am often asked to review NDAs 🤫 even after they have been signed (www.djm.legal/NDA.html). NDAs are often neglected, despite them often containing obligations going beyond the general confidentiality undertakings⁉️. Here are some 🗝️ key considerations for reviewing an NDA from the recipient's perspective:
👉 Ensure that the purpose for which you may use the confidential information (CI) is sufficient for your needs.
👉 Carefully examine the definition of CI ⚠️ to verify that it only pertains to information provided by specific persons and in connection with the transaction to which the NDA relates only. It should also provide for certain exceptions (such as information that was already or becomes publicly available or was in your possession before the NDA was signed).
👉 Determine if you are authorised to disclose CI to other parties, such as affiliates, advisers, shareholders (committees), financing sources (often defined as Representatives or Permitted Recipients) and ensure that any obligatory disclosure to third parties under legal requirements is addressed. 🤔
👉 Clarify your responsibility regarding breaches by Permitted Recipients, ensuring that you are not obliged to guarantee their compliance but only need to inform them about the confidentiality. The counterparty may require Permitted Parties to accede to the NDA. As this is often only an administrative burden 📃, the counterparty may be satisfied with you agreeing to be responsible for a breach by the Permitted Recipients. Negotiating a back-to-back NDA with your Permitted Recipients may then be a suitable approach for limiting your overall liability.
👉 Review the disposal language to ascertain what triggers the requirements for disposing of CI. Ensure that you have at (at your election) the choice to return or destroy the CI. Assess whether sufficient exceptions allow you to retain CI, such as legal obligations or CI stored on automatic back-up systems and consider the duration of the confidentiality obligation applicable to CI so retained.
👉 Does the NDA contain a non-solicitation clause that prohibits contacting or hiring the counterparty’s employees? If so, it should be applicable to you and your affiliates only. Identify the specific (groups of) employees who fall under this clause. Ensure that adequate exceptions exist, such as allowances for general job advertisements. Furthermore, confirm the duration of non-solicitation commitment, which typically should not exceed the duration of the NDA.
👉 Does the NDA contain any other no-contact obligations, such as in relation to customers, suppliers etc.? Ensure that such no-contact obligation is not too broad and applies only to contacts in connection with the transaction. Depending on the transaction, you may require exceptions for market due-diligence on a no-name basis or in the ordinary course of business.
👉What are the consequences of a breach of the NDA? Generally, injunctive relief, i.e. a court order requiring the recipient to honour the terms of an NDA is the most commonly used remedy. While rarely seen in practice, you may want to avoid a contractual penalty.
👉 What is the term of the NDA? A normal time period is 1 – 3 years. In this context, you may also want to ensure that, if you enter into the transaction any confidentiality obligations in the transaction agreements take precedence.