One of the most basic agreements contained in a typical non-disclosure agreement is the agreement to keep “confidential information” confidential and to use that information only for the purpose of evaluating the potential transaction. However, in order to properly assess such information, that party to the NDA must be permitted to share such information with its funding sources, advisors and certain of its “affiliates” whose contribution or approval is required to complete the proposed transaction. Sharing this information with these representatives or other recipients is usually one of the “critical points” actually negotiated in the NDA. But the distinction between granting access to confidential information to certain “affiliates” to help that party assess the proposed transaction and effectively linking those “affiliates” to the NDA is even more critical, particularly in the private equity world. Nothing is more fundamental to private equity transactions than protecting the private equity firm and its funds from any liability for the obligations of acquisition vehicles and holding companies associated with the fund; and that certainly includes liability for violating an NDA. [1] The confidentiality (or non-disclosure) agreement is the most slandered and most likely to fall short of the many contracts involved in the M&A process. Because a confidentiality agreement must be negotiated and signed just to gain access to information that can lead to a quick decision not to waste additional effort in pursuing a particular transaction, it is difficult for most private equity buyers and their holding companies to invest a lot of time in understanding the potential pitfalls that an NDA can represent. long after they have moved away from a potential transaction. In most cases, the approach is to limit negotiations to the most critical points (although there is not always a full assessment or agreement on these points) and to have the NDA signed as soon as possible. Once the NDA is signed and the information is obtained that arouses real interest in pursuing a transaction, private equity buyers are much more willing to invest the time and effort to negotiate each additional contract that is a necessary part of the M&A process. But whether you like it or not, the agreements made in this ill-conceived NDA, which were quickly signed to gain access to information that allowed you to determine that you were not at all interested in a transaction, remain just as binding as the more thoughtful agreements negotiated as part of an actual takeover agreement that took place.

And the risk of claims arising when a non-disclosure agreement is executed with an “intermediary” promising access to another party is particularly acute if the transaction is not settled through that intermediary. The Sixth District upheld the judgment of the Court of First Instance. While Henkel Parent Co. was clearly a “subsidiary” of a “party” of the NDA (i.e., “any person, company or other business entity that directly or indirectly controls, is controlled by a party, or is under common control with a party”) and therefore has the right to receive the Confidential Information as a “receiving party” defined under the NDA, Henkel Parent Co. was not actually bound by the NDA and was responsible for violations of the NDA as a contracting party, but only Henkel US. In other words, only Henkel US was responsible for the alleged violations of the NDA, whether they were the result of its own actions or of Henkel Parent Co., its parent company. And this formulation is the common approach in the private equity world, where the acquisition/tracking vehicle or holding company is the only party named to the NDA, but a defined group of authorized agents or recipients, including some affiliates, is identified as persons with whom that party is authorized to share confidential information. and the Designated Contractor agrees to be held liable for any violation of the NDA by such other authorized recipients. But NDAs sometimes claim to bind affiliates, and this is certainly a possibility, depending on whether the entity or persons signing on behalf of the entity, i.e.

the designated part of the NDA, have the actual or apparent authority to do so. [2] “I find lexology very relevant and I have registered other companies for which I offer a library service to obtain lexology, because I think it is a very rewarding legal resource.” Knight Capital Partners Corp. v. Henkel AG & Co., KGaA, No. 18-2189, 2019 WL 3162486 (6th Cir. 16 July 2019) is a recent example of the significance of this distinction, as well as the nightmare that can result from claims of a non-disclosure agreement made with an intermediary when an actual transaction never takes place. Henkel Corporation (Henkel US) was the U.S. subsidiary of Henkel AG & Company, KGaA (Henkel Parent Co.). Knight Capital Partners Corporation (KCP) held a license from AI Sealing, LLC (AIS) in connection with AIS`s alleged patent for a citrus compound designed for cleaning oil rigs and refineries. KCP approached Henkel S for a potential marketing and distribution activity of products based on this citrus technology.

But before negotiations began, Henkel US and KCP concluded an NDA. During the negotiations with KCP, which involved representatives of Henkel US and Henkel Parent Co., a representative of Henkel Parent Co. was allegedly invited to “direct access” to AIS, which KCP allegedly refused. Negotiations between the Henkel and KCP companies subsequently cooled down, and AIS terminated its license with KCP, which was apparently conditional on the distribution agreement between KCP and Henkel US being concluded on time. AIS then reportedly turned to Henkel Parent Co., and Henkel Parent Co. told KCP that its negotiations with KCP would be suspended until the possibility of a direct agreement between AIS and Henkel US was negotiated. Although Henkel US or Henkel Parent Co. Ultimately failing to reach an agreement with KCP or AIS, KCP sued Henkel Parent Co. (not Henkel US) for violating the NDA, claiming that Henkel Parent Co. “used confidential information it acquired through the NDA to develop the product itself.” The trial court indicated that the evidence was that neither Henkel US nor Henkel Parent Co. had violated the NDA. However, the trial court rendered a summary judgment in favor of Henkel Parent Co, the sole defendant, on the simple premise that Henkel Parent Co.

was not a party to the NDA, but only Henkel US and KCP. Although a summary verdict was eventually obtained, this dispute was argued for more than three years because an intermediary with whom a potential counterparty had entered into an NDA apparently felt cut off from an agreement that was never reached. This is the potential nightmare that must be taken into account whenever these interim agreements are considered. The right language in the NDA is, of course, of paramount importance, but avoiding these situations unless absolutely necessary is even better. .