One of the first steps in an M&A transaction is the signing
of a non-disclosure agreement (NDA), also referred
to as a confidentiality agreement. Although NDAs can be used in
many different situations, in the M&A context these agreements
are an essential prerequisite to the sharing of company information
and the formal due diligence process.
An NDA can be either 'one-way' or 'mutual'. A
one-way NDA is structured so that only one party will be disclosing
information and the other party receiving it. In contrast, a mutual
NDA contemplates that either party may disclose or receive
information, and imposes mutual obligations of confidentiality.
There are a number of terms that should be included in an NDA,
including the following essentials:
Parties: An NDA can be crafted to apply
narrowly (e.g. to specific individuals only), or broadly
(e.g. an entire company, including its employees,
professional advisors and other related parties). Consider whether
these additional persons or entities should also formally agree to
be bound by confidentiality obligations.
Definition of "confidential
information": The typical approach is to define
confidential information broadly, subject to exclusions (see next
point). However, parties can also impose specific requirements,
such as labelling documents "Confidential".
Exclusions: For practical purposes, most NDAs
exclude certain information from the definition of confidential
information. Typical exclusions include: (1) information that was
already publicly available, other than through a breach of the NDA;
(2) information received from a third party who was not subject to
any confidentiality obligations; and (3) information that the
receiving party already had.
Permitted purpose: An NDA should state
for what purpose the confidential information is being shared, and
restrict the use of the confidential information to that purpose.
For example, in an M&A context, a company looking to attract
prospective bidders would limit the use of confidential information
to considering and possibly completing a transaction.
Non-disclosure: Similarly, an NDA should make
clear that the confidential information cannot be used for any
other purpose or disclosed for any reason whatsoever, unless
required by law. It is typical to request that prior notice of such
forced disclosure be given to the other party, if possible, so that
precautionary measures can be taken.
Non-solicitation of employees: NDAs used in an
M&A context often include a provision that restricts a
potential bidder from poaching the disclosing party's
employees. This is especially important when the parties operate in
the same competitive space and the employees in question are
particularly experienced or otherwise valuable.
Term: The obligations created by an NDA will
usually last for a specified amount of time, as negotiated by the
parties. A disclosing party will benefit when protective provisions
last longer, while a receiving party will prefer that potentially
restrictive obligations expire sooner than later.
Although standard form NDAs are frequently used, parties should
always consider whether the agreement fits the particular
circumstances and risks. Also, as with all contract law, when
drafting or negotiating an NDA remember that seemingly innocuous
changes can sometimes have unintended consequences (see, for
example, this blog's recent post regarding "time is of the
essence" clauses and what they really mean).
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global legal practice. We provide
the world's pre-eminent corporations and financial institutions
with a full business law service. We have more than 3800 lawyers
based in over 50 cities across Europe, the United States, Canada,
Latin America, Asia, Australia, Africa, the Middle East and Central
Recognized for our industry focus, we are strong across all
the key industry sectors: financial institutions; energy;
infrastructure, mining and commodities; transport; technology and
innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global
business principles of quality, unity and integrity. We aim to
provide the highest possible standard of legal service in each of
our offices and to maintain that level of quality at every point of
Norton Rose Fulbright LLP, Norton Rose Fulbright Australia,
Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South
Africa (incorporated as Deneys Reitz Inc) and Fulbright &
Jaworski LLP, each of which is a separate legal entity, are members
('the Norton Rose Fulbright members') of Norton Rose
Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein
helps coordinate the activities of the Norton Rose Fulbright
members but does not itself provide legal services to
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).