This article has been written by Ayush Tiwari, a student of Symbiosis Law School, NOIDA. This article aims to discuss what a non-disclosure agreement is, what should be included in a distribution agreement, its advantages and disadvantages, and when it is needed.
It has been published by Rachit Garg.
Anyone who owns or is starting a business is aware that there are several situations in which one may wind up disclosing confidential information to a third party. When one starts to worry about their data or information being misused, only then the non-disclosure agreement comes to the rescue. It is an essential legal tool that brand owners may employ to safeguard sensitive company data. Non-disclosure agreements must be used with workers and brand relationships if one’s company depends on trade secrets or other private information to function. Without this legal safeguard, it’s possible that rivals and the general public may learn about such important trade secrets. Non-disclosure agreements should be easy to understand and unambiguous, even if they are legally enforceable contracts. To effectively safeguard your brand and company information, I will cover everything one needs to understand about non-disclosure agreements in this article.
What is a non-disclosure agreement
Non-disclosure agreements, often known as confidentiality agreements, are formal contracts that safeguard confidential information. If any party violates the terms of the non-disclosure agreement, then it results in specific legal repercussions. The parties that sign a non-disclosure agreement promise to keep the information they learn secret. It establishes a “confidential relationship” between the holder of sensitive information and the person who will have access to it. If a relationship is secret, neither party should divulge that information.
When sharing sensitive company information, it’s critical as a brand owner that you employ non-disclosure agreements. When partnering with other brands, exchanging information with other companies and investors, and employing new staff, the best-protected brands use non-disclosure agreements.
Its best example could be, to safeguard sensitive information belonging to the company, a client or employer could require a new recruit or contractor to sign a confidentiality agreement.
Also, in contrast to conventional business agreements like service or sales agreements, which concentrate on the terms and conditions of services or transactions, a non-disclosure agreement is primarily focused on protecting the privacy of an individual or organization’s information.
What is confidential information
One must specify in the non-disclosure agreement what information they are designating as “confidential.” The explanation is simple: Just picture a boss telling a worker, “Everything I tell you in the next two years is secret.” This cannot be a non-disclosure agreement as a court would never uphold a secret clause with such broad restrictions. However, if one defines it too narrowly, then there runs the risk of unintentionally disclosing private information that the recipient (the person “receiving the information”) will be free to share with anyone.
Types of non-disclosure agreements
Each non-disclosure agreement has a different specific content since it will relate to different facts, proprietary data, or other confidential material depending on who is involved and the subject matter being discussed. Non-disclosure agreements can be divided into two categories:
Unilateral non-disclosure agreement
A unilateral agreement is an agreement in which one of the parties, typically an employee, pledges not to divulge sensitive information obtained through employment. This type of agreement includes the vast majority of non-disclosure agreements. Although many of these agreements are made to safeguard a company’s trade secrets, they can also be made to safeguard the copyright for data derived from employee research. Professors at research universities and contract and corporate researchers in the private sector are occasionally asked to sign non-disclosure agreements that grant the rights to any study they perform to the company or institution that funds them.
Bilateral non-disclosure agreement
In this kind of non-disclosure agreement, two parties are involved, and both of them give sensitive information to one another in order to safeguard it from third parties. A mutual non-disclosure agreement is generally signed by companies involved in a joint venture where confidential information is shared. A chip maker could be obligated to keep the layout secret if they are aware of the top-secret technology used in a new phone. The phone maker could be compelled to keep the new technology in the chip secret under the same agreement. Non-disclosure agreements are also a crucial component of discussions and deal-making for commercial transactions like corporate takeovers and mergers.
When is a non-disclosure agreement needed
Sensitive information needs to be communicated with people or organizations outside of your business at some point, whether you’re looking for investors, employing new workers, or looking for new partners or collaborators. The non-disclosure agreement ensures a business can advance these procedures safely.
Discussing the purchase or license of a technology or product
Avoid letting the prospective buyer use your data or statistics as leverage in subsequent discussions if you’re considering selling or licensing a technology or product you control. Despite the fact that there is nothing to stop them from claiming to have a better deal elsewhere, you don’t want them to reveal any genuine information or even the name of your business, especially to a rival. During negotiations, a lot of financial and business information will be shared; use a non-disclosure agreement to secure your confidential corporate information.
When staff members have access to sensitive and proprietary data
Consider the amount of effort you put into developing your company. Protecting things like confidential customer information, agreements with suppliers and manufacturers, unique business procedures, etc., ensure that it is against the law for your staff to quit and start a rival company utilizing your sensitive information.
One should have a nondisclosure agreement that is tailored to your requirements and created by an attorney. Even though there are many generic non-disclosure agreement forms online, paying for a non-disclosure agreement that is tailored to your needs and region will ultimately save you time and money if it ever needs to be enforced.
Presenting a proposal to a prospective investor or partner
Occasionally, adding a partner or investor may provide your company with fresh energy and opportunities. You will provide a lot of private information to the other party during these discussions, including financial details about your company and your personal life. Make sure the information you offer is secure while speaking with several possible partners or investors.
Startups should exercise caution when it comes to nondisclosure agreements if they want to secure investment from venture capitalists. VCs typically won’t agree to sign a non-disclosure agreement.
When onboarding a new customer, one’s company could get access to sensitive data about that client’s business. By defining which information cannot be released, a non-disclosure agreement can shield your company from unintentional exposure to legal liabilities.
Employing freelancers or independent contractors to work on a project or campaign
Although it is not necessary to have a non-disclosure agreement with every freelancer you deal with, there are a few circumstances in which you should get a signed non-disclosure agreement from the freelancer who is engaged to create a platform or website before giving them access to the source code or your company’s business plan. A non-disclosure agreement should be signed by all freelancers who work on projects that are protected by Intellectual Property (IP) Rights.
Revealing business details to a potential customer
Every piece of financial and operational information will need to be disclosed to the prospective buyer when selling your firm if one ever chooses to accept buy-out or takeover proposals.
When disclosing this much information about one’s company, you should always have a non-disclosure agreement in place since one never knows who is being sincere and who is not. Larger companies considering a sale generally employ an experienced broker who will demand evidence of cash and the capacity to complete the purchase along with a signed non-disclosure agreement before any information is disclosed. Smaller companies may attempt to avoid paying the broker charge.
Understanding non-disclosure agreements
Non-disclosure agreements are frequently used in commercial transactions because they establish a confidential connection that enables parties to discuss information without being concerned that it may be disclosed to rivals. In order to prevent employees from sharing critical information with rivals, non-disclosure agreements may also be included in employment contracts.
Non-disclosure agreements usually encompass sensitive information, including ongoing legal proceedings, client lists, future business strategies, price details, and new product development.
The purpose of non-disclosure agreements
A non-disclosure agreement serves two purposes that are protection and secrecy. A confidentiality agreement may cover everything from product specifications to client lists. A non-disclosure agreement can cover anything from business plans to test findings to embargoed press releases and product evaluations.
A non-disclosure agreement establishes the legal framework necessary to prevent ideas and information from being misappropriated or disclosed to rivals or other parties. A variety of legal repercussions, including lawsuits, financial penalties, and even criminal accusations, result from breaking a non-disclosure agreement. Non-disclosure agreements provide your company with a level of security so that even unintentional breaches are protected.
A non-disclosure agreement must fulfil the following three duties:
- Classifying information: Non-disclosure agreements categorize information by defining what information is secret and what can be shared. This enables parties to collaborate freely while staying within the restrictions imposed by the confidentiality agreement.
- Protecting sensitive information: By signing a non-disclosure agreement, you are obligated legally to maintain the confidentiality of sensitive information. Any disclosure of the data is a contract violation.
- Safeguarding patent rights: An non-disclosure agreement can shield an inventor as they create a new idea or product, since the public disclosure of a pending innovation may occasionally result in the loss of patent protection.
Duration of non-disclosure agreements
Each non-disclosure agreement is distinct, so each one will have a different duration. The typical duration of a non-disclosure agreement is one to ten years, although it may be unlimited depending on the material that has to remain secret. In order for a non-disclosure agreement to be upheld by the courts in some states, it must not be overly general or open-ended.
So we can say that the term actually depends on the sector of the economy one is working in and the nature of the information being given. In some industries, a few years may be sufficient since the technology may advance so quickly that the knowledge becomes essentially useless.
What to include in a non-disclosure agreements
The parties may add clauses to a non-disclosure agreement based on their understanding and the level of security they plan to provide for their private information. When preparing a non-disclosure agreement, it is important to keep in mind that the document should be concise and labelled properly to attract the readers’ attention. In order to prevent further misunderstandings of the provisions, the language used while drafting a non-disclosure agreement should be clear and unambiguous. The following are a few key provisions that define an agreement as a non-disclosure agreement:
The description of what information qualifies as confidential information and what information does not constitute private information is the most important component of the agreement. Only the disclosures listed in the agreement can be considered confidential because not all communications between the parties can be considered private.
To prevent any unintended disclosure, all parties work hard to fully comprehend this clause. The disclosing party must make every effort to keep this clause as broad as possible to prevent the receiving party from exploiting it and using it against the disclosing party. The receiving party must also make an effort to comprehend what information must be kept private. This clause must be carefully and unambiguously written. According to the disclosing party’s desire to keep it as secret as feasible, this clause includes it.
For instance, all proprietary information pertaining to the parties’ company or entity that is shared between parties orally, in writing, or digitally for a clear objective, such as its designs, procedures, methodologies, prices, customer information, trade secrets, intellectual property rights, growth possibilities, business plans, strategies, employee details, etc., must be clearly defined. Additionally, information that is not accessible via a public platform should also be clearly defined.
Information that is not confidential
Equally significant is including language outlining what is not sensitive information. There may be a number of transactions for which certain information cannot be expected to be kept private. Moreover, information that is already public knowledge cannot be considered “confidential information.”
The parties to the agreement
The parties to the agreement must be identified in this section, which must be stated at the beginning of the document. This will determine whether the agreement is unilateral or bilateral and how the remainder of the provisions are written. For further reference throughout the agreement, it is vital to specify which party is disclosing and which party is the receiving party in case the parties are unilateral. Similarly, it should be stated that both parties are the disclosing and receiving parties to the agreement if the parties to the agreement are bilateral.
The date of entry and execution
Since the dates of the agreement’s execution and entry into force can differ based on the parties’ understanding, it is crucial to construct this section carefully to avoid any misunderstandings.
For instance, if Party A and Party B decided on July 1 to enter into a non-disclosure agreement for the fulfilment of a certain purpose, they would have agreed that the agreement would take effect on July 15 instead. The agreement should state that it was entered into on July 1 but that its efficacy would begin on July 15.
The reason for signing the non-disclosure agreement
The reason for entering into a non-disclosure agreement should be stipulated in the agreement since the parties’ intentions must be understood by anybody reading it, preventing any misunderstandings about what the parties intend.
For instance, the agreement must state clearly that Party A and Party B are committing to purchase goods.
Parties’ obligations and duties
This provision lists all of the parties’ responsibilities and obligations, whether mutually agreed upon or imposed by the disclosing party. This clause comprises the following sub-clauses:
- Without prior written consent, the parties are obligated to keep all confidential information between themselves.
- The parties are required to exercise reasonable diligence and take all necessary safeguards to protect sensitive information.
- Parties are required to cooperate in order to secure the information if, even after taking all reasonable precautions, any confidential information is unintentionally disclosed.
- The parties have a duty not to utilize the secret information for their own benefit, profit, or other purposes.
- According to the parties’ preferences, a variety of responsibilities and duties might be included to protect their private information.
Exceptions to disclosing confidential information
Another crucial clause states that the receiving party is immune from liability for disclosing confidential information. The receiving party is not responsible or liable for any violations of this provision.
For instance, if party A and party B have a non-disclosure agreement and B is the receiving party, then B will have access to the private information of party A. With the following exceptions, B shall not be held responsible for disclosing A’s confidential information in the following situations:
- If the information is already available in the public domain or has recently done so.
- If the other party/disclosing party has given prior written consent for the use or publication of the information.
- If any statutory requirement, legal application, or court order requires the disclosure of confidential information.
- Any information that was independently created by the party without using confidential information
- If the information that the party discloses does not fall under the definition of confidential information.
Use of confidential information
The parties hereto shall specify the names of the third parties who will use such confidential information for the accomplishment of the specified purpose, and such third parties shall be bound by this agreement. The purpose of sharing this information with others must be stated in this clause, and they are required to keep it confidential.
Disclosure of confidential information
The receiving party must promptly, following the termination or expiration of the agreement, destroy, remove, erase, or return the provided sensitive information to the disclosing party within the timeframe stated by the disclosing party. This provision is crucial for the disclosing party since it discloses the party’s secret information when it shares it with the receiving party. The receiving party may continue to utilize the confidential information to its advantage after the termination. The disclosing party asks the recipient to return or destroy the given confidential information in order to avoid this being shared (either through physical copies or virtual means). The receiving party is forbidden from accessing such material in the future for any reason, even though entirely destroying or returning the papers electronically is not always practicable.
Consequences for violations and remedies
Another exclusivity clause for the disclosing party or parties is this one. If the receiving party violates any of the non-disclosure agreement’s clauses or provisions, as previously stated, the disclosing party will suffer irreparable losses as a result. This clause must be there in order to safeguard the party’s rights. However, financial assistance is insufficient to repair the harm done to the party. So, the party has access to an injunction and indemnity as remedies. This is an advanced clause that the parties to the non-disclosure agreement agreed to so that the party who violates it is aware of the repercussions. The non-breaching party may ask the court for an injunction order to prevent the receiving party from exposing such secret information in accordance with the agreed clause. Additionally, demand indemnification for any costs, expenses, and damages that result from loss caused to the opposing party, including court costs and legal fees.
Resolution of disputes and jurisdiction
Even when excellent agreements have been drafted and there is mutual understanding between the parties, disputes can still occur while conducting business. Instead of going straight to court, it is required to pre-decide alternative dispute resolution. If the court sees fit, it may even initially advise parties to choose alternative dispute resolution over court proceedings. The majority of people find alternative dispute resolution to be convenient since it is quick, inexpensive, and provides an immediate result. It also follows a straightforward process agreed upon by the parties. In the non-disclosure agreement, the parties mutually agree to address any disputes brought through an alternative dispute mechanism rather than the drawn-out court process. Parties typically prefer the arbitration process to other alternative conflict remedies. In this provision, the parties agree to submit any disputes relating to any breach, termination, or invalidity of a provision to arbitration.
Jurisdiction in the event of a disagreement
If one is a party sharing information, then they should ensure that any disputes regarding whether the other party has fulfilled its duties will only be heard in your city. You don’t want to have to travel far or spend more money to enforce your non-disclosure agreement.
Make sure your contract contains a provision granting you the right to an injunctive remedy to prevent the other party from violating the terms of the agreement. This section only states that, as opposed to just receiving monetary damages when it’s too late, you can obtain a court injunction preventing the other party from committing the breaching act.
What is not included in a non-disclosure agreement
Of course, not every aspect of a company’s operations should be kept secret. A non-disclosure agreement does not apply to information that is publicly available, such as SEC filings or the location of the company’s headquarters.
Depending on the text of the agreement, courts have discretion in how to interpret the non-disclosure agreement’s scope. One party to the agreement could be able to avoid a harsh ruling if they can show they possessed knowledge covered by the non-disclosure agreement before it was signed or that they acquired the knowledge elsewhere.
Additionally, not all knowledge is shielded by a non-disclosure agreement. The person who was wronged might not be able to take legal action if the material was made public as a result of a court-issued subpoena.
Anticipation of a demand to return the disclosed information
If the non-disclosure agreement stipulates that all exposed information must be completely removed from the recipient’s IT environment, the receiver must ensure that it has the technological means to do so. Many businesses use automatic archiving procedures to make duplicate copies of their databases and servers, which are then uploaded to the cloud. In these backups, it is frequently impossible to separate out specific pieces of information. For many, it would be better to change this language to say that sensitive data that is stored “in the ordinary course of business so that archived data will not be available for any commercial purpose” is not included. According to the non-disclosure agreement’s conditions, the recipient will continue to treat any confidential information they have retained as such.
Advantages and disadvantages of a non-disclosure agreement
Advantages of non-disclosure agreements
It establishes expectations for employees
Employees understand the value of safeguarding firm trade secrets from the outset when a non-disclosure agreement specifies precisely what specific business information is protected as well as the penalties for violating the non-disclosure agreement. A clear, comprehensive non-disclosure agreement may also offer employees instructions on how to handle trade secrets.
When information is shared, it helps safeguard trade secrets
While preventing employees from sharing confidential information in the first place is one of a non-disclosure agreement’s goals, it can also help safeguard trade secrets when information is exchanged in the normal course of business. For instance, as was previously indicated, a business may be required to share all or part of a trade secret with vendors and other third parties with whom it conducts business. However, the trade secret will still be safeguarded if the third parties sign non-disclosure agreements.
Provides the employer with additional legal options
In many states, the disclosure of a trade secret by an employee gives rise to a claim of misappropriation on the part of the employer. However, if the employee also signed a non-disclosure agreement, the employer could be able to use that agreement’s legal protections. Furthermore, for employers, prosecuting a breach of non-disclosure agreement suit is much easier than pursuing a trade secret misappropriation action.
Disadvantages of non-disclosure agreements
Some of the disadvantages of non-disclosure agreements are:
Mistakes made by employees
Because they may not completely comprehend the agreement’s contents, employees could unintentionally violate it. This may require the use of legal procedures and the payment of high legal costs.
The lengthy and pricey contracting process
Your non-disclosure agreement may be many pages long, depending on how much information you need to keep private. If you employ a legal expert to draft it for you, it could be expensive and time-consuming to do so. Employees may opt not to read the whole thing, which could result in unintentional contract violations.
What happens if any clause of the non-disclosure agreement is violated
It is essential to swiftly compile evidence to refute any action if you ever learn that any sensitive material protected by a non-disclosure agreement provision is being made public. There are various measures you must take to decide the appropriate course of action if an employee, or non-employee for that matter, breaks their non-disclosure agreement:
- Firstly, examine the non-disclosure agreement’s own terms. Some agreements define what can be done if there are contract violations.
- Second, look into the contract violation to see what data was leaked or how much was misused. Additionally, you will need to provide proof of the breach in order to make your case in court. Find out who was involved and how the information spread.
- Third, you should get legal advice. You could send a cease-and-desist letter, and if it doesn’t stop the violation, you could seek compensation for the information theft in the form of damages or restitution.
Precautions to be taken before entering into a non-disclosure agreement
The non-disclosure agreement may stop serving its main function if it is not correctly drafted. Therefore, various safety measures must be taken by the parties especially by the disclosing party before the nondisclosure agreement draft is finalized. The following are some of the most important safety measures to take:
- One must make sure that all information that is confidential in nature and shared with the other party or will be shared with them is expressly and unmistakably stated in the nondisclosure agreement.
- Make sure that everyone signing the agreement understands what they are agreeing to. The parties must have a mutual understanding of their rights and obligations under the nondisclosure agreement.
- It is not ideal to put unfair conditions in the non-disclosure agreement, but thorough consideration of the other party’s nature must be made beforehand, also known as performing due diligence, and clauses must be included in the agreement as necessary.
- Behaviour during the non-disclosure agreement can serve as a good early predictor of how the negotiations will go overall. While it is not a good idea to include unjust conditions in the non-disclosure agreement, being overly stringent also fosters a challenging workplace.
- No clause in the same nondisclosure agreement may be unclear or in conflict with another clause because this could lead to misunderstandings between the parties.
Non-disclosure agreements are not non-compete agreements
In non-disclosure agreements, non-compete clauses are becoming more and more popular. These clauses can also be found in teaming agreements. However, they are more common in non-disclosure agreements related to acquisitions and in the employment environment. According to the governing legislation, a non-compete clause must undergo a separate investigation of its legality depending on its term and geographic scope. The advocates renaming a non-disclosure agreement with a non-compete clause to a “non-disclosure and non-compete agreement” so that the agreement’s restrictive aim is made clear from the start.
Confidentiality vs. non-disclosure agreement
Instead of a non-disclosure agreement, you may have heard of a confidentiality agreement. The two names are frequently used interchangeably. The two titles are identical in a legal sense.
There are patterns in how organizations often use one or the other, but the choice to use either name comes down to preference.
NDAs are frequently used when:
- The protected information is personal or private.
- The agreement is unilateral or one-sided, like when a firm requests that an employee maintain the confidentiality of certain information.
- You collaborate with independent contractors, suppliers, or vendors.
Confidentiality agreements are frequently used when:
- The need for confidentiality is greater.
- There is a bilateral agreement.
- Instead of just focusing on non-disclosure, you should prioritize the proactive protection of proprietary information.
- You are collaborating with the staff.
What happens if a non-disclosure agreement is not drafted properly
A non-disclosure agreement is a legally recognized right that parties may use to protect the proprietary information of their company. Receiving parties are prevented from abusing the provided confidential information; if violations occur, the parties will also be subject to legal repercussions. Parties may at any time refer to the agreement for explanations, but if the agreement was not properly structured by the counsel, it would be extremely expensive for both the disclosing party and the organization. The disclosing party will fail to secure its sensitive information even after signing a non-disclosure agreement if the non-disclosure agreement is not written clearly enough to prevent misunderstandings, conclusions, interpretations, and exploitation of such information. Simply signing a non-disclosure agreement won’t be sufficient.
Non-disclosure agreements are a crucial legal framework that prevents the recipient of sensitive and secret information from disclosing it. These documents are used by businesses and startups to protect their innovative ideas from being appropriated by the parties they are negotiating with. It is crucial to be as specific as you can when establishing non-disclosure agreements so that all parties are aware of what information can and cannot be shared as well as the repercussions of unauthorized disclosure. Anyone who violates a non-disclosure agreement faces legal action and fines equal to the value of their lost revenues. Even criminal charges could be brought. Non-disclosure agreements can be reciprocal or unilateral, with the mutual agreement requiring both parties to refrain from disclosing each other’s sensitive information.
Frequently Asked Questions (FAQs)
Do non-disclosure agreements come in various forms?
Yes, non-disclosure agreements can be unilateral (when only one party agrees to use or disclose information) or mutual (where everyone agrees to use or disclose information).
Why would someone sign a non-disclosure agreement?
These private documents are used by businesses and startups to protect their concepts, plans, and other forecasts from being appropriated by the parties they are collaborating or negotiating with.
What happens if you violate a non-disclosure agreement?
According to the restrictions set forth in the non-disclosure agreement, a party who violates a non-disclosure agreement runs the risk of being sued and may also be obliged to pay monetary damages and other associated charges.
What is covered under a non-disclosure agreement?
Some agreements contain a provision that limits workers’ use and disclosure of company-owned secret information for a predetermined period of time since a non-disclosure agreement includes confidential information in a legally binding contract.
What is the cost of a non-disclosure agreement?
When issuing or signing a non-disclosure agreement, there are no fixed expenses. Depending on the intricacy of the information that needs to be protected and the number of parties included in the agreement, different non-disclosure agreement preparation costs may apply.
Can a non-disclosure agreement be referenced in court?
Non-disclosure agreements are effective at deterring partners from misappropriation of confidential information and creating a paper trail of confidential information as it relates to partnerships.
Who is qualified to sign a non-disclosure agreement?
Anyone who is willing to reveal and/or obtain some confidential information to and/or from the other party to the agreement, including individuals, organizations, corporate entities, and anyone else who is regarded as a person or separate legal entity in the eyes of the law, may enter into a non-disclosure agreement.
What distinguishes a non-disclosure agreement from an agreement?
All non-disclosure agreements could be an agreement, but all agreements could not be a non-disclosure agreement. Whenever one party accepts the other’s offer and both parties agree to do or refrain from doing the same thing in the same way as agreed upon, an agreement is created. Since an agreement is about a broad transaction, there is typically no need to keep anything secret between the parties. A non-disclosure agreement, on the other hand, is a contract wherein one party agrees to share some secret information with the other party and the other party promises not to divulge the same to any third party for a predetermined amount of time.
Sample non-disclosure agreement
MUTUAL NON-DISCLOSURE AGREEMENT
This is a mutual non-disclosure agreement (this “agreement”), effective as of the date stated below (the “effective date”), between Technology Research Corporation, a Florida corporation (the “company”), and Coleman Cable, Inc., a Delaware corporation (the “counterparty”).
The parties are considering a potential business transaction (the “opportunity”), and are entering into this agreement so that they can share confidential information pertinent to the opportunity with confidence that the other party will use such confidential information only to evaluate the opportunity and will not disclose that confidential information, except in accordance with the terms of this agreement. The counterparty and the company are sometimes referred to individually as “party” and collectively as the “parties.”
The parties agree as follows:
1. These terms have the following definitions in this agreement:
“Confidential Information” means all information concerning or related to the business, operations, results of operations, assets and affairs of a disclosing party, including, but not limited to, financial and accounting information, budgets, projections, forecasts, business plans, operating methods, business strategies, product and service information, product plans, product specifications, product designs, processes, plans, drawings, concepts, research and development data and materials, systems, techniques, trade secrets, intellectual property, software programs and works of authorship, know-how, marketing and distribution plans, planning data, marketing strategies, price lists, market studies, employee lists, supplier lists, customer and prospect lists, and supplier and other customer information and data that the Disclosing Party or its Representatives discloses (or has, prior to the date of this Agreement, disclosed) to the recipient or its representatives in connection with the opportunity, however documented or disclosed, together with any copies, extracts, analyses, compilations, studies or other documents prepared or received by the recipient or its representatives, which contain or otherwise reflect such information.
“Disclosing Party” means the party furnishing confidential information.
“Opportunity” has the meaning set forth in the background.
“Recipient” means the party receiving confidential information.
“Representatives” means the officers, directors, employees, partners, members, managers, agents, advisors, subsidiaries, affiliates, or representatives of a party.
2. Each party, in its capacity as a recipient, agrees to use the confidential information provided by the other party solely for the purpose of evaluating the opportunity.
for no other purpose, and further agrees to keep confidential and not disclose to any third party any confidential information. Notwithstanding the foregoing, each party may disclose such confidential information solely to those of its representatives who:
(a) require such material for the purpose of evaluating the opportunity on behalf of such party, and
(b) are informed by such party of the confidential nature of the confidential information and the obligations of this agreement and agree to abide by the terms hereof as if they were a recipient hereunder. Each party shall take all actions necessary to cause its representatives and affiliates who receive confidential information to comply with the terms of this agreement as if they were a recipient. Each party shall be responsible for any disclosure of confidential information by its Representatives other than in accordance with the terms of this agreement. Each party acknowledges the confidential and proprietary nature of the confidential information provided by the other party and acknowledges and agrees that it is acquiring no rights whatsoever in or to such confidential information. For the avoidance of doubt, if the parties do not consummate a transaction with respect to the opportunity and terminate discussions, neither party nor its representatives may use the confidential information of the other party for any purpose whatsoever. Further, for the avoidance of doubt, the parties acknowledge that they may conduct competing businesses, and nothing in this agreement shall restrict or prohibit either party from continuing to conduct its business and to compete with the other party so long as such action does not violate the terms of this agreement. The counterparty acknowledges that the confidential information that may be disclosed by the company or its representatives may contain material, non-public information. The counterparty acknowledges and understands that federal securities law may restrict the counterparty from pledging, selling, hedging, contracting to sell, short-selling, selling any option or contract to purchase, purchasing any option or contract to sell, granting any option, right, or warrant to purchase or otherwise hypothecating transferring for value, directly or indirectly, any securities of the company while in possession of material non-public information regarding the company.
3. Neither the counterparty nor any current or future affiliate of the counterparty, for a period ending on the earlier of:
(A) the date on which the parties enter into a definitive agreement with respect to the opportunity, and
(B) one year from the date of this agreement (the “standstill term”), shall in any manner, directly or indirectly, without the prior written approval of the company’s board of directors:
- effect or participate in or in any way assist, facilitate, encourage or form, join or in any way participate in a “group” (as defined under the rules and regulations of the Securities and Exchange Commission) with any other person to effect or seek, offer or propose to effect or participate in:
I. any acquisition of any voting securities (or beneficial ownership thereof), or rights or options to acquire any voting securities (or beneficial ownership thereof), or any assets or businesses of the company,
II. any tender or exchange offer, merger, or other business combination involving the company, any of its subsidiaries or affiliates, or the assets of the company or its subsidiaries or affiliates,
III. any recapitalization, restructuring, liquidation, dissolution, or other extraordinary transaction with respect to the company or any of its subsidiaries or affiliates, or
IV. any “solicitation” of “proxies” (as these terms are used in the rules and regulations of the Securities and Exchange Commission) or consents to vote any voting securities of the Company or any of its affiliates; or (b) authorize any of their respective Representatives to, in any manner, directly or indirectly, take any of the actions set forth in (a) above. During the standstill term, the counterparty shall use its best efforts to cause its and its current and future affiliates’ representatives to not take, in any manner, directly or indirectly, without the prior written approval of the company’s board of directors, any of the actions set forth in (a) above. Nothing in this Section 3 shall prohibit the counterparty from making, at any time during the standstill term, confidential proposals to the company’s management or board of directors relating to any of the matters set forth in clause (a) above. Notwithstanding anything to the contrary contained in this agreement, if, at any time during the standstill term, (i) any person (other than the counterparty) or group of persons (A) commences, or announces an intention to commence, a tender or exchange offer for at least 51% of any class of the company’s securities, (B) commences, or announces an intention to commence, a proxy contest or a solicitation of consents with respect to the election of any director or directors of the company, (C) acquires beneficial ownership of at least 15% of any class of the company’s securities or (D) enters into, or announces an intention to enter into, an agreement with the company contemplating the acquisition (by way of merger, tender offer or otherwise) of at least 15% of any class of the company’s securities or all or a substantial portion of the assets of the company or any of the company’s subsidiaries, (ii) the company commences negotiations with any person (other than the counterparty) or group of persons with respect to any transaction of the type referred to in clause (i) above without entering into with such person or group of persons a mutual non-disclosure agreement having provisions no less restrictive than those set forth in this agreement (and the company shall promptly disclose such agreement to the counterparty) or (iii) the company releases any person from restrictions similar to those set forth in this Section 3, then (in any of such cases) the restrictions set forth in this Section 3 shall immediately terminate and cease to be of any further force or effect.
4. Confidential Information does not include information that the recipient demonstrates (a) is in the public domain through no fault of, or disclosure by, the Recipient or its Representatives, subsidiaries, or affiliates, (b) was properly known to the Recipient, without restriction, prior to disclosure by the disclosing party, (c) was properly disclosed to the recipient by another person, but only if such person is not bound by a confidentiality agreement with the Disclosing Party or is not otherwise restricted from providing such information by a contractual, legal or fiduciary duty. Additionally, notwithstanding any other provision of this agreement, if the recipient or any representative of the recipient is, at any time, legally compelled to disclose any confidential information, the recipient will provide the disclosing party with prompt notice thereof so that the disclosing party may seek an appropriate protective order or other appropriate relief, or waive compliance with the provisions of this agreement. In the absence of a protective order or a waiver from the disclosing party, the recipient or its representative may comply with such a legal requirement by disclosing only such confidential information as is legally required.
5. Each party acknowledges and agrees that neither party nor any of its representatives make any representation or warranty (express or implied) as to the accuracy or completeness of the confidential information, except for those express representations and warranties that may be made and set forth in a definitive agreement regarding the opportunity, if any, that is entered into between the parties.
6. If either party decides not to proceed with the opportunity, the parties will promptly return or destroy all confidential information received under this agreement, and all copies, extracts, and other objects or items in which such confidential information may be contained or embodied, and certify in writing that it has complied with this requirement.
7. Without the prior consent of the other party, neither a party nor its representatives will initiate contact with any employee of the other party with respect to the opportunity. Each party agrees that, for a period of one year from the effective date of this agreement, such party will not, and will not permit any controlled representative to whom it has provided any confidential information to, directly or indirectly, solicit for employment or hire any employee of the other party with whom such party has had contact or who became known to such party in connection with consideration of the opportunity; provided that the foregoing shall not prohibit general employment advertisements and other similar employment solicitations that are not targeted at employees of the other party.
8. Each party will promptly notify the other party upon discovery of any unauthorized use or disclosure of the confidential information, or any other breach of this agreement by such party or any of its representatives, and will cooperate with the other party to help the other party regain possession of the confidential information and prevent its unauthorized use or further disclosure.
9. Each party acknowledges and agrees that this agreement does not obligate the other party to disclose any information, including any confidential information, negotiate, enter into any agreement or relationship with the other party, or accept any offer from the other party. Each Party further acknowledges and agrees that (a) the other party and its representatives shall be free to conduct any process for any transaction involving the opportunity, if and as they in their sole discretion shall determine (including, without limitation, negotiating with any other interested parties and entering into a definitive agreement therewith without prior notice to the other party or any other person), (b) any procedures relating to such process or transaction may be changed at any time without notice to the other party or any other person, and (c) unless a definitive agreement is entered into among the parties, neither party shall have any claims whatsoever with respect to the opportunity against the other party or any third person with whom a transaction is entered into by the other party. The counterparty acknowledges that the company may disclose that it is exploring strategic alternatives. Nothing in this agreement shall be deemed to prohibit a party from (a) making a public announcement regarding the discussions (or the termination of such discussions) between the parties regarding the opportunity, provided, however, that, to the extent practicable, a party that intends to make such a public announcement shall discuss any such proposed announcement with the other party prior to making a such announcement; or (b) making any public announcement that may be required by applicable law, fiduciary duties or obligations pursuant to any listing agreement with a national securities exchange. The parties acknowledge that any disclosures made by them before the effective date are not subject to the restrictions in this agreement.
10. The terms of this agreement will remain in effect with respect to any particularly confidential information for a period of two years following the termination of the discussion between the parties. This agreement shall terminate automatically if the company has not given to the counterparty any confidential information within ten days of the effective date of this agreement.
11. Each Party acknowledges and agrees that any breach of this agreement would cause irreparable harm to the other Party for which damages are not an adequate remedy and that the other party shall therefore be entitled (without the posting of a bond or other security) to equitable relief in addition to all other remedies available at law.
12. This agreement is governed by the internal laws of the State of Delaware and may be modified or waived only in writing and signed by the party against which such modification or waiver is sought to be enforced. The parties irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of Delaware in New Castle County, the parties agree not to commence any action, for any actions, suits, or proceedings arising out of or relating to this Agreement (and the parties agree not to commence any action, suit, or proceeding relating thereto, except in such courts), and further agree that service of any process, summons, notice, or document by U.S. registered mail to the other party’s address set forth next to their signature hereto shall be effective service of process for any action, suit, or proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of the venue of any action, suit, or proceeding arising out of this agreement, in the courts of the State of Delaware or the United States of America located in New Castle County, Delaware, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit, or proceeding brought in any such court has been brought in an inconvenient forum.
13. Neither the failure nor delay by any party in exercising any right hereunder will operate as a waiver of such right, and no single or partial exercise of a right will preclude any other or further exercise of such right. The term “person” means any individual, corporation, partnership, limited liability company, joint venture, estate, trust, association, organization, or other entity or governmental body. If any provision of this agreement is found to be unenforceable, such provision will be limited or deleted to the minimum extent necessary so that the remaining terms remain in full force and effect. The prevailing party or parties in any dispute or legal action regarding the subject matter of this agreement (as finally determined by a court of competent jurisdiction) shall be entitled to recover attorneys’ fees and costs.
14. This agreement may be executed and delivered by pdf signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[Counterpart signatures follow]
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