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Keep Your Enemies Close – the Transactional Nondisclosure Agreement

transactional NDA“Keep your friends close and your enemies closer.”
― Mario Puzo, The Godfather

Our third variant on a Nondisclosure Agreement (NDA) is one that you might use in connection with negotiations for a potential transaction.

The transactional NDA is a hybrid between the General NDA and the Investor NDA. Unlike these other two situations, a transactional NDA will more typically be set up as a mutual agreement, since there may be more need for give and take of information on both sides of a potential transaction.

One significant difference in the transactional NDA is that the purpose and the permitted use will usually be oriented to doing a single transaction. That transaction may include a situation in which an investment is being contemplated by a strategic investor (and potential competitor), whereas with a financial investor you would more typically use a one-way Investor NDA. Often the transaction being considered entails a larger corporate transaction – such as a joint venture, sale or acquisition of a division or a merger.

Key Provisions:

  • All key provisions revolve around the concept of the transaction and the ability to delegate the duty of confidentiality to subordinates and service providers, like accountants, consultants and lawyers.
  • The recipient acknowledges that in the course of evaluating the potential transaction, the recipient will receive nonpublic information and is subject to a “no trade” provision just like the investor NDA.
  • The NDA expressly does not obligate either side to proceed with a transaction and that any such transaction will be evidenced by a separate agreement or set of agreements.
  • The NDA will usually provide that the parties agree to keep confidential the terms and existence of the NDA itself, the discussions of the parties, and the status of any potential transaction.
  • The time frame of the NDA is limited in scope, or will fall away upon the consummation of the transaction.

This variant also has the “over the wall” provisions. Once you bring an investor “over the wall,” the investor should be treated as an insider with inside information until such time as that information is made public through disclosure either in a Form 8K, a 10Q or 10K.

Practice Point: Make sure that before entering into a transactional NDA, you prepare and execute a Letter of Intent with breakup provisions to protect yourself from your competitor “fishing.”

We have created an example of a transaction NDA for you to use. To download the sample transactional NDA, simply fill out the form below and you will be redirected to a page where you can download it:

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