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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
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Experience:  30 years of corporate, litigation and international law
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this is another situation from the same company and the question

Resolved Question:

this is another situation from the same company and the question i asked on 6/21/2011:

This comapny that my wife and I are invested in as a private placement and have a stock transfer agreement as well as in my own LLC, my partner and I also have a sales/marketing agreement (he too is invested in the private placement we are in). In an Addendum to the Stock Transfer Agreement, in Article II, there is a Non-compete and Non-disclosure Agreement as part of the document.

We are now engaging with another company, per the CEO/majority shareholder, who we are now planning to jointly work and go to market with. He wants me to work directly with the CEO of this company in a go-to-market strategy, share information and jointly sell our products.

To me, this is a conflict of interest based on the non-compete/non-disclosure language. I want to keep the stock and contract in place but protect us from violating this. To rescind this Article II what language should I use to openly work with this new company or any company (as they have joint production, marketing etc with other companies)?

my # XXXXX goal is to eliminate the non-compete and # XXXXX be able to openly discuss sales and marketing strategy and produce sales and revenue with the new company regardless of which products I ( we ) are selling.

Here is the language of Article II:


Article II
NON-COMPETE AND NON-DISCLOSURE AGREEMENT
The Seller and Buyer are interested in exchanging business and technical information for the purpose of discussing and evaluating whether to enter into a commercial relationship (“Purpose”).

The parties agree that all information that may be disclosed to, received or passively observed by the Recipient in connection with the Purpose is considered to be “secret information” covered by this agreement, including but not limited to, business model, customer information and lists, specifications, design plans, prototypes, drawings, software, and software documentation.

For (3) years after disclosure of the secret information, each party agrees to protect the secret information with the same degree of care as the recipient employs for the protection of its own trade secrets and secret information; not use, copy or record any secret information for any reason other than the purpose; to limit access to the secret information to its employees, agents, or independent contractors on a “need to know” basis; and not disclose the secret information to any third party without the consent of a majority vote of the Board of Directors.

Each party agrees that it shall not acquire any right, title, license or any other intellectual property right in respect to the secret information of the other party. None of the secret information shall constitute any representation, warranty, assurance, guarantee or inducement by the disclosure to the recipient of any kind. Upon the expiration of the obligations under this agreement or an earlier request by the Board of Directors of the company, the recipient shall have no right to keep or use and shall promptly destroy or return to the other party all secret information in the recipients possession or control.

NON COMPETE - After review of information, acceptance or rejection of any part of the introduced business model or any of its components, the receiving party agrees not to compte in any way shape or formed.
Submitted: 2 years ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 2 years ago.

bizlaw :

I do not have access to the earlier posts from last year so I will need some clarification. Is the CEO who wants you to do this go to market effort with another company, the company in which you invested through the private placement? Are you also employed by that company? Would the work you are being asked to perform violate your non compete if you attempted to do it on your own with the private placement company approval?

Customer:

The previoius post was regarding getting out of the agreement based on falsified information to get us to invest and if the SEC viewed that as fraud and federal offense. Management has changed and we are not attempting to get out of the agreement, just out of Article II, the non-compete (so we can sell with anyone and not be constrained by an investment clause vs employment) and non-disclosure so we can openly talk to the other company.

bizlaw :

Tell me if I understand properly. You have a non compete with the company you invested in called company A. You do not work for Company A. You have been asked by Company A to work out a joint marketing strategy with Company B. You do not want to restrict your efforts for Company B to just those products Company A sells but to assist Company B in marketing any of its products. Finally, you would like to get out of the non compete non disclosure agreement with Company A. Is my understanding correct?

Customer:

Yes, correct.To add to it, we do have a sales agreement with Company A and will need to create a new agreement with Company B to sell their products and our joint products and however Company A & B form a new venture. Regardless, we see this as an opportunity to get out of the Article II as it was an investment that contained language that prohibited our ability to sell in this market space. We want to get out of non compete agreement for any company we wish to work with, not just limited to Company B.

bizlaw :

There are two things to distinguish, one is to work with competitiors the other is disclosure of confidential information. You want to eliminate any interpretation that says you cannot work with a competitor. You cannot get out of the confidentiality agreement. You should take the position that the non disclosure applies and continues to apply. However, the non compete which is ambiguous and overly broad if read literally should be eliminated. You want to delete the non compete section of the agreement. On the non disclosure, you want to exclude from the non disclosure confidential information you reasonably believe necessary in connection with the joint marketing effort. You should create a new agreement that replaces what you have and covers each company individually and their joint effort. It should restrict you to disclosing the confidential information of A and B to A and B to the extent that you consider necessary or reasonable in connection with the joint marketing effort. You agree that you will keep the confidential information of each company confidential except to the extent it is disclosed to one another for the joint marketing effort. There would be no non compete and no restriction on your ability to work for anyone so long as there is no disclosure of confidential information. This type of situation is very common so they are not in a unique situation.


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This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.


Customer:

the reasoning is there. to my origninal question, how is this worded? i.e. This replaces the language in Article

Customer:

whoops, hit the return, will reply shortly.

bizlaw :

I will wait to hear from you.

Customer:

Do you think it is suffice to have this detailed in document on thier letter head and notarized laying out the various details of our arrangement. identifiying there no longer is a non compete for myself, partner and LLC., that we will need to work with several companies to co market and sell as joint products and others not part of Company A's product line and leave the stock agreement in place.

bizlaw :

Yes you can do the letter which will effectively amend the original stock purchase agreement.


If this answer is responsive to your question, please accept it. That is how we are compensated. It would also be appreciated if you provided feed back on your view of the answer. Finally, if the answer was especially helpful you can provide a bonus. If I can be of further assistance or you have other questions in the future you can ask for me and reach me at this site.



This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.


Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 8763
Experience: 30 years of corporate, litigation and international law
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