Archive for the ‘Mergers & Acquisitions’ Category

Sale of a Business – North Carolina Courts May Do More Than Just Use Their Blue Pencils When Considering a Non-Compete Clause

Friday, November 7th, 2014

By:  John N. Fleming

Non-Compete clauses have long been an important part of transactions involving the purchase of a business.  Much of what is often purchased in a business acquisition includes the relationships, contracts and goodwill built-up and established by the seller.  Often, the non-compete restrictions imposed upon and agreed to by the seller and its owner protect and preserve the value of what is being purchased. 

North Carolina courts have held that a non-compete restriction that is part of the sale of a business is valid and enforceable if the written non-compete restriction: (1) is reasonably necessary to protect the legitimate interest of the purchaser; (2) is reasonable with respect to both time and territory; and (3) does not interfere with the interest of the public.  Further, traditionally in North Carolina, when courts have been asked to interpret overly-broad restrictive covenants, they have been limited to applying what is called the strict blue pencil doctrine.  Under the blue pencil doctrine, a court may cross out or choose not to enforce a distinctly separable part of a covenant to render the remainder of the provision reasonable.  However, under this theory, a court may not otherwise revise or rewrite the restrictive covenant to make it reasonable.  

Recently, in the case of Beverage Systems of the Carolinas, LLC  v. Associated Beverage Repair, LLC, Ludine Dotoli and Cheryl Dotoli, the North Carolina Court of Appeals went beyond, the  strict blue pencil doctrine because the buyer and seller had expressly granted the court the power to revise the restrictive covenant in the asset purchase agreement.  More specifically, the non-compete clause in the agreement gave the court the authority to revise the restrictive covenant to cover the maximum period, scope and area permitted by the law.  The North Carolina Court of Appeals found that the trial court had the power to revise the restriction regarding territory to make it reasonable and thus enforceable.  As a result of this decision, and when expressly directed by the buyer and the seller, the court could do more than cross out a distinct provision, but it could now revise or re-write a restrictive covenant to determine reasonableness.  It is important to note that this expansion of a court’s authority from the limitations of the blue pencil doctrine to allowing revisions by the court is limited to the interpretation of restrictive covenants that are part of the sale of a business and in situations where the purchaser and seller expressly grant the court such authority.  At present, the expansion of a court’s authority so that it may revise a restrictive covenant has not been interpreted in the context of an employment agreement.      

Although this expansion of court authority has yet to be interpreted by the North Carolina Supreme Court, it does have implications for buyers and sellers of businesses and their attorneys.  When negotiating the agreement to buy or sell a business, attention should be placed on whether a clause should be included to empower the court to revise an otherwise unenforceable provision of a restrictive covenant.  Including such a provision may result in a court revising an overly-broad restrictive covenant and preserving for the buyer the value of what was purchased.

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John Fleming is a general practitioner in corporate law with an exceptional knowledge of Health Care Law.  For help concerning the sale or purchase of a business, or for more information, contact John Fleming at jfleming@mwbavl.com or (828) 254-8800.

Posted in Business Purchase/Sale Transactions, Mergers & Acquisitions, Non-compete Provisions, Small Business | Comments Off on Sale of a Business – North Carolina Courts May Do More Than Just Use Their Blue Pencils When Considering a Non-Compete Clause

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).  http://www.mwbavl.com/businesscorp.php.

Posted in Business Purchase/Sale Transactions, Intellectual Property, Mergers & Acquisitions, Non-disclosure Agreement, Small Business, Uncategorized | No Comments »