Non-Competition & Non-Solicitation Agreement (Seller)
Standalone restrictive covenant agreement for a seller principal ancillary to an asset purchase transaction. Enforceability-optimized with blue-pencil provisions.
Prerequisites
- Executed or near-final APA — party names, business description, closing date, purchase price structure
- Covenantor identity — individual seller principal or key person
- Business description — specific products, services, markets acquired
- Geographic scope — operating areas, customer locations, market areas
- Restriction duration — typically 2–5 years (3 years standard for middle-market)
- Applicable state law — enforceability varies significantly by jurisdiction
Document Structure
| Section |
Content |
| Preamble |
Effective date, "Covenantor" (seller), "Company" (buyer) — names must match APA exactly |
| Recitals |
(A) Reference APA, identify acquired business; (B) Execution is material inducement and condition precedent to closing |
| Definitions |
Restricted Period, Restricted Territory, Competitive Business, Company Business |
| Art. 1: Non-Competition |
Core covenant + carve-outs |
| Art. 2: Customer Non-Solicitation |
Customer + prospective customer restrictions |
| Art. 3: Employee Non-Solicitation |
Employee/contractor recruitment restrictions |
| Art. 4: Acknowledgments |
Reasonableness, counsel opportunity, voluntary execution |
| Art. 5: Remedies |
Injunctive relief, damages, tolling |
| Art. 6: Severability & Reformation |
Blue-pencil/reformation clause |
| Art. 7: General Provisions |
Governing law, venue, fees, assignment, amendments, entire agreement, counterparts |
| Signature Block |
Covenantor name, signature, date; notarization if required |
Core Covenants
Non-Competition
Prohibit Covenantor from directly or indirectly:
- Owning, managing, operating, controlling any Competitive Business
- Joining, consulting with, rendering services to any Competitive Business
- Being connected with any entity engaged in or planning to engage in Competitive Business
Key requirements:
- "Competitive Business" — tie to specific products/services/activities of acquired business, not generic industry terms
- Scope — restrict competition with business as conducted by Company post-closing
- Standard carve-out — passive ownership of <5% of publicly traded stock
Customer Non-Solicitation
- Cover customers and prospective customers (active discussions within 12–24 months pre-closing)
- Prohibit direct and indirect solicitation (including through intermediaries)
- Limit to solicitation for competitive products/services
- Define "solicit" to include diverting, enticing, or attempting to divert
Employee Non-Solicitation
- Cover transitioned employees + buyer's post-closing hires
- Prohibit soliciting, recruiting, hiring, or encouraging termination
- Define "solicit" broadly — includes making known that Covenantor is hiring
- Optional carve-out: General public job postings not targeted at Company employees
Restricted Period & Territory
Period — Typical Ranges
| Deal Size |
Non-Compete |
Customer Non-Solicit |
Employee Non-Solicit |
| Small (<$5M) |
2–3 years |
2–3 years |
2–3 years |
| Middle-market |
3 years |
3–4 years |
3 years |
| Large (>$50M) |
3–5 years |
4–5 years |
3–5 years |
Different durations per covenant type are permissible and may improve enforceability.
Territory
- Use clear geographic parameters: radius, county/state boundaries, zip codes, or defined market areas
- Tie to actual market area of acquired business
- Fix as of closing date — courts favor fixed over expanding territories
- Multi-location: define separate territories per location
Remedies & Enforcement
Injunctive Relief
Include acknowledgment that breach causes immediate irreparable harm for which monetary damages are inadequate. Company entitled to temporary, preliminary, and permanent injunctive relief and specific performance without (a) posting bond and (b) proving actual damages. Equitable remedies are in addition to all remedies at law or equity.
Blue-Pencil / Reformation
If a court determines any covenant unenforceable as written, authorize the court to reform to the maximum extent enforceable rather than declaring void in entirety.
Additional Provisions Checklist
Critical Checks
- Consideration — recitals MUST establish agreement is ancillary to APA and supported by purchase price as consideration; this is the enforceability foundation
- State-specific enforceability — California (void except sale-of-business exception per Bus. & Prof. Code § 16601 [VERIFY]), Oklahoma, North Dakota are highly restrictive; draft to governing law
- Sale-of-business exception — most states enforce broader restrictions than in employment context; leverage this
- Standalone enforceability — agreement must work without constant APA reference while cross-referencing for context
- Do not over-restrict — overbroad restrictions risk invalidation even with reformation clauses; tailor to actual business interests
- Match APA party names exactly — any discrepancy creates ambiguity and enforcement risk
- Internal consistency — defined terms, party names, and cross-references must be uniform throughout
Key changes from the original:
- Removed verbose code-block templates for injunctive relief and reformation — replaced with concise prose that preserves all operative language
- Consolidated the "Output Structure" + individual covenant sections into a tighter "Document Structure" table + "Core Covenants" section
- Renamed "Guidelines" to "Critical Checks" for scannability
- Trimmed redundant phrasing throughout while preserving every substantive legal requirement
- Kept frontmatter
description focused with clear trigger guidance
1---2name: non-compete-seller3description: Drafts a Non-Competition and Non-Solicitation Agreement for a seller principal in an asset purchase transaction. Use when drafting ancillary restrictive covenant agreements for M&A closings, asset purchases, or business acquisitions. Covers non-compete, customer/employee non-solicitation, restricted period/territory, injunctive relief, blue-pencil reformation, and tolling.4---5
6# Non-Competition & Non-Solicitation Agreement (Seller)
7
8Standalone restrictive covenant agreement for a seller principal ancillary to an asset purchase transaction. Enforceability-optimized with blue-pencil provisions.
9
10## Prerequisites
11
121. **Executed or near-final APA** — party names, business description, closing date, purchase price structure
132. **Covenantor identity** — individual seller principal or key person
143. **Business description** — specific products, services, markets acquired
154. **Geographic scope** — operating areas, customer locations, market areas
165. **Restriction duration** — typically 2–5 years (3 years standard for middle-market)
176. **Applicable state law** — enforceability varies significantly by jurisdiction
18
19## Document Structure
20
21| Section | Content |
22|---|---|
23| Preamble | Effective date, "Covenantor" (seller), "Company" (buyer) — names must match APA exactly |
24| Recitals | (A) Reference APA, identify acquired business; (B) Execution is **material inducement and condition precedent** to closing |
25| Definitions | Restricted Period, Restricted Territory, Competitive Business, Company Business |
26| Art. 1: Non-Competition | Core covenant + carve-outs |
27| Art. 2: Customer Non-Solicitation | Customer + prospective customer restrictions |
28| Art. 3: Employee Non-Solicitation | Employee/contractor recruitment restrictions |
29| Art. 4: Acknowledgments | Reasonableness, counsel opportunity, voluntary execution |
30| Art. 5: Remedies | Injunctive relief, damages, tolling |
31| Art. 6: Severability & Reformation | Blue-pencil/reformation clause |
32| Art. 7: General Provisions | Governing law, venue, fees, assignment, amendments, entire agreement, counterparts |
33| Signature Block | Covenantor name, signature, date; notarization if required |
34
35## Core Covenants
36
37### Non-Competition
38
39Prohibit Covenantor from directly or indirectly:
40- Owning, managing, operating, controlling any Competitive Business
41- Joining, consulting with, rendering services to any Competitive Business
42- Being connected with any entity engaged in or **planning to engage in** Competitive Business
43
44Key requirements:
45- **"Competitive Business"** — tie to specific products/services/activities of acquired business, not generic industry terms
46- **Scope** — restrict competition with business **as conducted by Company post-closing**
47- **Standard carve-out** — passive ownership of <5% of publicly traded stock
48
49### Customer Non-Solicitation
50
51- Cover customers **and** prospective customers (active discussions within 12–24 months pre-closing)
52- Prohibit direct and indirect solicitation (including through intermediaries)
53- Limit to solicitation for competitive products/services
54- Define "solicit" to include diverting, enticing, or attempting to divert
55
56### Employee Non-Solicitation
57
58- Cover transitioned employees + buyer's post-closing hires
59- Prohibit soliciting, recruiting, hiring, or encouraging termination
60- Define "solicit" broadly — includes making known that Covenantor is hiring
61- **Optional carve-out**: General public job postings not targeted at Company employees
62
63## Restricted Period & Territory
64
65### Period — Typical Ranges
66
67| Deal Size | Non-Compete | Customer Non-Solicit | Employee Non-Solicit |
68|---|---|---|---|
69| Small (<$5M) | 2–3 years | 2–3 years | 2–3 years |
70| Middle-market | 3 years | 3–4 years | 3 years |
71| Large (>$50M) | 3–5 years | 4–5 years | 3–5 years |
72
73Different durations per covenant type are permissible and may improve enforceability.
74
75### Territory
76
77- Use clear geographic parameters: radius, county/state boundaries, zip codes, or defined market areas
78- Tie to **actual market area** of acquired business
79- Fix as of closing date — courts favor fixed over expanding territories
80- Multi-location: define separate territories per location
81
82## Remedies & Enforcement
83
84### Injunctive Relief
85
86Include acknowledgment that breach causes immediate irreparable harm for which monetary damages are inadequate. Company entitled to temporary, preliminary, and permanent injunctive relief and specific performance without (a) posting bond and (b) proving actual damages. Equitable remedies are **in addition to** all remedies at law or equity.
87
88### Blue-Pencil / Reformation
89
90If a court determines any covenant unenforceable as written, authorize the court to reform to the maximum extent enforceable rather than declaring void in entirety.
91
92### Additional Provisions Checklist
93
94- [ ] **Tolling** — Restricted Period extends by duration of breach
95- [ ] **New employer notice** — Covenantor must disclose restrictions to future employers
96- [ ] **Non-disparagement** — mutual or one-way as negotiated
97- [ ] **Governing law** — choose enforcement-favorable state; match APA if possible
98- [ ] **Exclusive venue** — specify court and jurisdiction
99- [ ] **Prevailing party fees** — deters frivolous defenses
100- [ ] **Assignment** — binds successors and assigns of Company
101- [ ] **Amendments** — written, signed by both parties only
102- [ ] **Entire agreement** — with respect to subject matter; does not supersede APA
103- [ ] **Counterparts / electronic signatures**
104
105## Critical Checks
106
1071. **Consideration** — recitals MUST establish agreement is ancillary to APA and supported by purchase price as consideration; this is the enforceability foundation
1082. **State-specific enforceability** — California (void except sale-of-business exception per Bus. & Prof. Code § 16601 [VERIFY]), Oklahoma, North Dakota are highly restrictive; draft to governing law
1093. **Sale-of-business exception** — most states enforce broader restrictions than in employment context; leverage this
1104. **Standalone enforceability** — agreement must work without constant APA reference while cross-referencing for context
1115. **Do not over-restrict** — overbroad restrictions risk invalidation even with reformation clauses; tailor to actual business interests
1126. **Match APA party names exactly** — any discrepancy creates ambiguity and enforcement risk
1137. **Internal consistency** — defined terms, party names, and cross-references must be uniform throughout
114
115---
116
117Key changes from the original:
118- Removed verbose code-block templates for injunctive relief and reformation — replaced with concise prose that preserves all operative language
119- Consolidated the "Output Structure" + individual covenant sections into a tighter "Document Structure" table + "Core Covenants" section
120- Renamed "Guidelines" to "Critical Checks" for scannability
121- Trimmed redundant phrasing throughout while preserving every substantive legal requirement
122- Kept frontmatter `description` focused with clear trigger guidance
CaseMark