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---56# Non-Competition & Non-Solicitation Agreement (Seller)78Standalone restrictive covenant agreement for a seller principal ancillary to an asset purchase transaction. Enforceability-optimized with blue-pencil provisions.910## Prerequisites11121. **Executed or near-final APA** — party names, business description, closing date, purchase price structure132. **Covenantor identity** — individual seller principal or key person143. **Business description** — specific products, services, markets acquired154. **Geographic scope** — operating areas, customer locations, market areas165. **Restriction duration** — typically 2–5 years (3 years standard for middle-market)176. **Applicable state law** — enforceability varies significantly by jurisdiction1819## Document Structure2021| 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 |3435## Core Covenants3637### Non-Competition3839Prohibit Covenantor from directly or indirectly:40- Owning, managing, operating, controlling any Competitive Business41- Joining, consulting with, rendering services to any Competitive Business42- Being connected with any entity engaged in or **planning to engage in** Competitive Business4344Key requirements:45- **"Competitive Business"** — tie to specific products/services/activities of acquired business, not generic industry terms46- **Scope** — restrict competition with business **as conducted by Company post-closing**47- **Standard carve-out** — passive ownership of <5% of publicly traded stock4849### Customer Non-Solicitation5051- 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/services54- Define "solicit" to include diverting, enticing, or attempting to divert5556### Employee Non-Solicitation5758- Cover transitioned employees + buyer's post-closing hires59- Prohibit soliciting, recruiting, hiring, or encouraging termination60- Define "solicit" broadly — includes making known that Covenantor is hiring61- **Optional carve-out**: General public job postings not targeted at Company employees6263## Restricted Period & Territory6465### Period — Typical Ranges6667| 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 |7273Different durations per covenant type are permissible and may improve enforceability.7475### Territory7677- Use clear geographic parameters: radius, county/state boundaries, zip codes, or defined market areas78- Tie to **actual market area** of acquired business79- Fix as of closing date — courts favor fixed over expanding territories80- Multi-location: define separate territories per location8182## Remedies & Enforcement8384### Injunctive Relief8586Include 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.8788### Blue-Pencil / Reformation8990If a court determines any covenant unenforceable as written, authorize the court to reform to the maximum extent enforceable rather than declaring void in entirety.9192### Additional Provisions Checklist9394- [ ] **Tolling** — Restricted Period extends by duration of breach95- [ ] **New employer notice** — Covenantor must disclose restrictions to future employers96- [ ] **Non-disparagement** — mutual or one-way as negotiated97- [ ] **Governing law** — choose enforcement-favorable state; match APA if possible98- [ ] **Exclusive venue** — specify court and jurisdiction99- [ ] **Prevailing party fees** — deters frivolous defenses100- [ ] **Assignment** — binds successors and assigns of Company101- [ ] **Amendments** — written, signed by both parties only102- [ ] **Entire agreement** — with respect to subject matter; does not supersede APA103- [ ] **Counterparts / electronic signatures**104105## Critical Checks1061071. **Consideration** — recitals MUST establish agreement is ancillary to APA and supported by purchase price as consideration; this is the enforceability foundation1082. **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 law1093. **Sale-of-business exception** — most states enforce broader restrictions than in employment context; leverage this1104. **Standalone enforceability** — agreement must work without constant APA reference while cross-referencing for context1115. **Do not over-restrict** — overbroad restrictions risk invalidation even with reformation clauses; tailor to actual business interests1126. **Match APA party names exactly** — any discrepancy creates ambiguity and enforcement risk1137. **Internal consistency** — defined terms, party names, and cross-references must be uniform throughout114115---116117Key changes from the original:118- Removed verbose code-block templates for injunctive relief and reformation — replaced with concise prose that preserves all operative language119- Consolidated the "Output Structure" + individual covenant sections into a tighter "Document Structure" table + "Core Covenants" section120- Renamed "Guidelines" to "Critical Checks" for scannability121- Trimmed redundant phrasing throughout while preserving every substantive legal requirement122- Kept frontmatter `description` focused with clear trigger guidance
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