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A Few Key Issues In Review and Approval Of Non-Disclosure Agreements

Wednesday, September 17th, 2014

By Thomas C. Grella

The following is not intended to be a comprehensive review of non-disclosure agreement (sometimes also referred to as “confidentiality agreements”), and should not be taken as an indication that these are the only issues to be concerned with in review of such agreements.  Even though it is always recommended that non-disclosure agreements be reviewed by a qualified licensed attorney, to follow are a few common issues or concerns regarding typical non-disclosure agreements that you might consider as you make your preliminary review or analysis.

  1. Unilateral vs. Bilateral Agreement. There are basically two types of agreements.  The unilateral agreement is one where one party will be providing the information, and the other will be receiving information, and the party providing information is the only party with an interest to be protected in the agreement.  The bilateral (or mutual) agreement is used where both parties may be providing information to each other (such as, for example, in merger negotiations) and therefore both parties have an interest in protection. This type of agreement between parties may come in the form of stand-alone agreements (a document entitled “Non-Disclosure Agreement”, for instance), or they may come as one provision, or a series of provisions, found within a larger contractual agreement (such as an employment agreement or an asset purchase agreement).  The determination of which type of agreement to use (unilateral or bilateral) will depend upon the circumstances, however presentation of a unilateral agreement from the other party in a contract negotiation should not be assumed to be the correct form that is required.  Many situations may seem like circumstances where only one party needs confidentiality protection, however each party should closely examine their interests, and if there is any doubt, this is one type of agreement where the party with a greater interest in obtaining protection is likely to allow an agreement that reciprocates protection.
  2. Description of Confidential Information.  In many cases, the definition of the “confidential information” to be protected can be the longest paragraph in a non-disclosure agreement.  Though it is fair for the party desiring protection to include all of the possible types of information that might be disclosed, those being are asked to sign these types of agreements should be careful to assure that the descriptions are not too broad or vague.  
  3. Covenant of Non-Use.  Each non-disclosure or confidentiality agreement can be expected to have terms where one or both parties agree not to disclose to third parties information obtained, and to return information received once the term of the agreement is terminated or expires.  Agreements among competitors (such as in merger negotiations) should also contain terms where the parties agree that they will not use the information disclosed to them by the other party.  In addition, but related, every non-disclosure agreement should clearly spell out the purpose of the disclosures (ie. merger negotiations, employment negotiations, business sale, etc.); and it should be a narrowly defined purpose.  A properly defined, and very specific, purpose provision might also be the basis for restricting unintended future use of information by a competitor. 
  4. Exclusions from Disclosure Agreement. To follow is a typical provision that is usually found in every agreement:

“Confidential Information shall not include any information which (i) is or becomes available to the public other than as a consequence of a breach of any obligation of confidentiality; (ii) is or becomes known, from a source other than the Party hereto to which it belongs and without breach of any obligation of confidentiality by the other Party hereto prior or subsequent to its receipt from the Party to which it belongs; or (iii) is independently developed by either Party hereto without reference to any information disclosed pursuant to this Agreement.”

 These types of exclusions are very broad. It can be difficult to prove they do not exist. A party to such an agreement might desire to protect its interest by adding one or more conditions to the operation of the exclusions.  Some conditions to consider as requirements to be provided to the party otherwise protected by the terms of the Agreement prior to disclosure are: 1) prior notice of any proposed disclosure, 2) submission of documentary evidence proving a basis for application of the exclusion, and 3) a requirement that the party making a disclosure be able to show that the exclusion was necessary and is defensible upon some elevated evidentiary standard of proof.       

Please feel free to contact any one of our Corporate Practice Group attorneys  if you should be in need of help in interpretation or review of a non-disclosure agreement (or a confidentiality provision within a legal document).

Will there be a ban on cell phone use while driving in NC?

Tuesday, March 1st, 2011

The Legislature Begins To Make its Move Against Cell Phone Use In Motor Vehicles

I am well aware that there are many different views on cell phone use while driving.  The legal arguments revolve around Safety vs. Freedom.  The practical arguments by some claim that distracted drivers using cell phone are more likely to be involved in an accident due to the cell phone use (the distraction) and that is avoidable.  Some claiming that argument are likely just annoyed by the way folks drive when they are on their cell phone. The cell phone user seems to overcompensate for the distraction by overly cautious maneuvering, which in fact is annoying, and arguably more dangerous.  There have been a few legal blogs of note over the past few days mentioning the recent introduced legislation in the NC General Assembly.  Most of these blogs are by personal injury lawyers.  But this is a business law blog, so why am I telling you about it here.  Regardless of how I may or may not personally feel about the ban from a safety or freedom standpoint, our business clients need to be aware of this legislation.  Regardless of the “main” concerns of safety or freedom, it is my belief that a good amount of commercial transactions, including important business negotiation, are now conducted in a manner which is not face to face, and is in some type of electronic form.  I believe that a large percentage is by use of the cell (or mobile) phone, and I presume that much of this is also in moving vehicles.  If any of the current bills pass, there may be a huge impact on the way you conduct your business on a day to day basis.  I am not telling you, or encouraging you, to contact your legislator to tell them how you feel. I will leave that up to you to decide if you are interested in doing so.  I do think you should know about it, and that you should know how to find out what these proposed laws say.  A House and Senate Bill would prohibit all use of cell phones in a moving vehicle, including hands free devices.  An alternate House Bill allows hands free devices, while prohibiting all other use.

Here is a link to each of the bills, at the official NC Legislature sight, so that you can link there any time and see the status.

House Bill 31: bans use of cell phones by all drivers, including hands-free operation. Includes “cameras, music, the Internet and games.”

Senate Bill 36: bans use of cell phones (hands-free included) and related devices by all drivers (similar to HB 31).

House Bill 44: Bans use of handheld cell phones, but allows use of hands free phones.

HUD -The Only Game in Town??

Tuesday, May 19th, 2009

HUD Multifamily Construction Financing

Over the past few months I have received several calls from existing and potential clients about legal representation for HUD apartment new construction financed transactions. The HUD apartment program is described in Section 221 (d) (4) of HUD’s Federal Housing Administration (FHA) multifamily mortgage insurance program. For several years (especially in the first few years of this decade), I had one of these types of construction projects going on all the time. Clients had found the process cumbersome, but it allowed for a longer amortization, and more favorable terms than conventional loans. Many developers were open to wading through the added time and expense to realize longer term benefits. In more recent years, however, this type of representation had basically dried up for me, with conventional mortgage loans readily available for all types of new construction. Though the amortization period in the HUD loan has always been favorable, other less desirable characteristics (such as unbelievably long processing times, and cumbersome underwriting issues) steered clients away from this financing mechanism because of the relative ease of finding alternative quick conventional sources.

Because of the way the process works, if you move forward on this type financing, you will be dealing with a special HUD approved lender from the outset. Though these special lenders charge high fees for the services they provide, your need to have direct contact with the HUD office, and the need to know the minutiae of the government program will be reduced. Your legal counsel will handle most of the extensive legal paperwork needed.

I have read in recent months that developer inquiries are way up for this HUD program, one claim being that it is sevenfold. In two recent articles I have read, due to the difficulty in obtaining new construction financing of any sort, this program has been represented as “the only game in town” for multifamily housing acquisition and refinancing. If you are a developer who has considered and developed condominium in the past years but now find that lending options are limited, you might consider this HUD program for financing a slightly different type of ownership and occupancy.

The process is represented generally as taking 10 months, but in fact a developer considering this process should understand that it might take up to 12 months. In any event, without the option of conventional sources, unless a developer has a pool of rich accredited friends (see my other blogs on private placements), this truly may be the only game in town.

Tom Grella