Home / Corporate / Swearing Omerta – The Investor Nondisclosure Agreement

Swearing Omerta – The Investor Nondisclosure Agreement

Feb 17, 2015 | Corporate, Form Documents, Securities

Wall street

Wall street

“The most valuable commodity I know of is information.” – Gordon Gekko, Wall Street

Another common form of Nondisclosure Agreement (NDA) is one we refer to as an “investor” NDA. Typically, a company will have a standard form of investor NDA it uses prior to engaging in discussions with a third party interested in making an investment.

I have created an example of the basic form we use as a starting place in crafting an investor NDA for our corporate clients. You can download a copy of this form by entering your email address on the form at the bottom of this post. Again, this is a general form of agreement and it should be tailored to suit the needs of a particular context.

To begin with, Investors are reluctant to sign NDAs. Anything they sign will need to be limited in time and scope. The key lever to have your investor sign NDAs, especially if you are a public company, is to specifically limit the investor’s ability to use the information to trade.

Key Provisions:

• Definition of Confidential Information – as mentioned in our prior post, what is confidential is often more important than the purpose and the duty. Definitions are always a key element of any contract, especially in the investor NDA. The tension will be between the definitions of what’s confidential versus what is not confidential because it is otherwise public information. If you are a public company, investors should not want nonpublic information since nonpublic information will prevent them from trading the stock in the open market.

• Duties of Non-Disclosure – The other area of great pushback from the investor in the investor NDA is the duty of non-disclosure. Investors want to buy low and sell high. Any information that you hold confidential will prevent an investor from buying or selling the stock. The key provision that is added to the investor NDA is the limitation to trade and invoking the securities laws.

In the investor-specific form, the investor acknowledges that, during the course of his discussion and any future performance, he or she has or will receive material nonpublic information that, if known to the public, would affect the Company’s stock price. Then the investor agrees to not purchase or sell the Company’s stock, equity instrument related to the Company’s stock or any of the Company’s Securities “on the basis of,” as such term is defined in Rule 10b5-1 of the Securities and Exchange Act of 1934, any material nonpublic information until such material nonpublic information is disclosed to the public.

This language singles out the investor as being subject to insider trading rules.

We call these provisions 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: When representing the investor, either don’t let them receive nonpublic information or require the company to release the nonpublic information in a specific time period – i.e. by the next filing or by the annual filing.

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I formerly worked as a satellite employee from my home state of New Jersey. I ended my employment with my former employer in 2016. In 2018, I was sued by my former employer for $1.1 million in Illinois State Court. I was referred to Brinen & Associates, LLC by a friend who is a client of the firm. Brinen & Associates, LLC came highly recommended. I contacted Joshua Brinen and then had a consultation at his office with his colleague Mark White. Together, Messrs. Brinen and White explained my options...

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