Q&A – 4 June 2012
Maximum number of children
My father in law has been interfering with my marriage for the past many years. He now says that I am putting his daughter under too much stress with constant pregnancies. I don’t believe in condoms and it is beyond my control that God has bestoved us with many children. A lawyer has now written a letter to me explaining that there is some sort of regulation where a family must use contraceptives otherwise there is a limit on the number of children one can have. Is this true?
CI, Tabora
In our many years of experience, we have never seen a law that forces one to use contraceptives. There is also no law that specifies the maximum number of children you can have.
Whilst your lawyer and father in law are misguiding you, it is not a bad idea to think about using some natural ways of preventing pregnancies as birth control might be beneficial after you have had a number of children. That again is subjective and merely a thought.
As lawyers, our knowledge of natural birth control is limited. We advise you contact a sex or gender counselor.
Protection of company secrets
There is a company that I am negotiating a takeover with. However the terms of the agreement are not concluded yet as they need to look at my books and understand how I operate. What happens if they back out after knowing all my secrets? How can I protect myself?
TJ, Dar
This is a very interesting question and is a dilemma for most boards. How do you balance between giving away too much information and not being able to close a deal because of being too conservative leading to the buyers frustration.
The most common method of protecting yourself is through entering into a confidentiality agreement, sometimes referred to as a non-disclosure agreement. In such an arrangement, you will be providing information in return for them not to use such information in any way including in competing against you.
A confidentiality agreement is usually signed in the early stages of a potential M&A transaction for example, prior to a potential buyer being permitted access to the seller’s data or otherwise receiving any non-public information.
This agreement is of primary concern to the you, the seller, as you have confidentiality concerns about both the potential transaction itself as well as disclosure of sensitive, proprietary and/or confidential information about your business.
In drafting this document, you need to make sure that “confidential information” is defined broadly and that the agreement states a limited purpose with which the confidential information may be used. Some exclusions might be demanded by the buyer for example information already in the possession of the recipient; information that becomes publicly available other than through any breach by the recipient of the confidentiality agreement; and information independently developed by the recipient. The problem is if such a demand is made, how would you know what information the buyer had before it came to negotiate with you.
There is typically always an exception to allow disclosure of confidential information when required by law or court order, provided that the recipient of information gives the disclosing party prompt notice of such a request.
As the disclosing party, you may seek to have the recipient agree to be responsible for any breach of the agreement by any of its representatives (typically including officers, directors, employees, affiliates, lenders and legal and financial advisers). You may also seek to limit access to confidential information to a limited group of persons of the buyer and the buyer’s representatives who need to know the information, and should provide that confidential information should not be shared with third party representatives unless those representatives agree to be bound by the terms of the confidentiality agreement.
Another clause that is usual in such agreements is for you to require the right to demand the return or destruction of confidential information if discussions are terminated. During the buyers due diligence, the buyer will also come across your key persons and hence you should have in the agreement an express provision prohibiting the buyer from soliciting or hiring your employees for a specified period of time. A long shot is for you to ask for a non-refundable amount to be forfeited if the transaction collapses. Your attorney can guide you further.
Purposes of Representations and Warranties
I am closing an asset sale agreement and there seems to be a difference from the time I sign the agreement and the closing. Why would there be a difference. Also there are many representations and warranties that the buyer of my company has inserted in the agreement. What should I do?
EF, Dar
The signing of the agreement is when you put your pen to the paper. The closing is when the transaction is actually consummated which may be subject to some conditions. This is normal in contracts especially when substantial assets or a large acquisition is involved. There is nothing to worry about this.
As for the representations and warranties, these provide the buyer with disclosure through the seller’s disclosure schedule, which sets forth information required by and exceptions to the representations and warranties against which the buyer checks the results of its due diligence review. It also serves as a closing condition in that the accuracy of the seller’s representations and warranties will be a condition to the buyer’s obligation to proceed with the transaction, and vice versa. In addition, the representations and warranties form the basis for indemnification claims if the buyer can prove a representation or warranty was untrue. You better read every word of them especially since they have been drafted by the buyer.
Any inaccuracies in a party’s representations and warranties at the time of signing or closing may provide the other party with a right not to consummate the transaction, walk away from the deal and sue you for damages. When a transaction involves a gap between the signing and closing, a buyer will typically require that the seller’s representations and warranties, which were made at the time of signing, be “brought down” at closing.
It is strongly recommended that your lawyer be involved in this to guide you through.