VallČe v. Pickard
Paul VallČe and 4205553 Canada Inc., Applicants in
Steven Pickard and 4205537 Canada Inc., Respondents
 O.J. No. 513
28 B.L.R. (4th) 163
155 A.C.W.S. (3d) 323
2007 CarswellOnt 791
Court File Nos. 05-CV-032986 and 05-CV-032402
Ontario Superior Court of Justice
R.J. Smith J.
Heard: December 12, 2006.
Judgment: February 14, 2007.
[Editor's note: Original reasons for judgment were released January 16, 2007. See  O.J. No. 110.]
J. Bruce Carr-Harris and Mandy E. Moore, for the Applicants.
Raymond G. Colautti and Owen D. Thomas, for the Respondents.
re: Terms of Offer to Purchase
R.J. SMITH J.:--
Cash on Closing
1 The parties agree that the purchase price should be paid by way of cash or certified cheque on closing and I so order.
Non-Solicitation/Non-Competition Agreement and Confidential Information
2 Pickard submits that a non-competition agreement and a non-solicitation agreement for a period of five years should form part of the terms of the share purchase agreement. In addition he submits that the unsuccessful bidder should also maintain confidentiality for five years. VallČe submits that the five-year period is too lengthy and would cause significant hardship. He proposes a one-year restraint against soliciting the company's clients, employees, independent contractors and suppliers and a restraint against exploiting the company's confidential and proprietary information, trade secrets and technical information for a term of two years. VallČe is opposed to a period of non-competition or alternatively submits that it should be limited to one year.
3 Both VallČe and Pickard have worked in the computer database administration area since their mid-twenties, both have intimate knowledge of the company's clients, the pricing of their services, and the company's technical information and trade secrets. The parties did not sign a shareholders' agreement, which would normally have contained some restrictions in the areas of non-competition or non-solicitation, in the event that one shareholder purchased the other shareholder's interest in the company.
4 Any non-competition or non-solicitation terms, which are included as part of the offer to purchase, must be reasonable in terms of duration and geographic area, having regard to the nature of the proprietary interests to be protected and must be fair to both parties and to the company.
5 The principal assets of the company, which any reasonable purchaser would reasonably expect to protect, are its technical information and trade secrets, its current clients and its current employees, who are delivering the services to the existing clients. In this case there are also two key employees, who have detailed knowledge of all of the above information. If one party is being paid for his share of the value of the company's assets referred to above, as part of the purchase price, then it would not be fair to allow the unsuccessful bidder both receive payment for the value of the company's assets and then to also appropriate these assets by soliciting the clients or employees for a reasonable period of time. I find that a period of three years would be a reasonable period of time to include a non-solicitation condition in the circumstances of this case due to the vulnerable position of the company, due to the extensive knowledge the unsuccessful party will have of its clients and business operation, there is no evidence that the company is a dominant supplier in the marketplace such that competition would be unduly affected, and the successful bidder will have paid the unsuccessful bidder for the company's assets, including this non-solicitation provision.
6 The unsuccessful bidder, whichever party that may be, will have only worked in the high technology field and I find it would be unfair to prevent the unsuccessful party from working for any party involved with remote technical computer services or in database administration within Canada and the United States for a period of five years, especially when no severance is being paid to the unsuccessful bidder. A shorter period of one year's non-competition, limited to the area of the company's business as proposed by VallČe, would be reasonable in the circumstances.
7 Having considered and attempted to balance the above factors I order as follows:
a) The offer to purchase shall contain a non-competition agreement limited to a period of one year and a competing business shall be defined as "a business substantially similar to the business of the company" and within the geographical area of within Canada and the United States of America. Paragraph number 2 of Pickard's proposed non-competition term will be included and is amended accordingly.
b) The offer to purchase shall also contain a non-solicitation clause similar to that set out at paragraph 4 of Pickard's submissions, except that the effective period will be for three years and not five years and in addition the unsuccessful bidder is not permitted to directly or indirectly hire any company employee during the three-year period.
c) The offer shall contain a Confidential Information clause similar to paragraph number 3 of Pickard's submissions amended to reflect a period of three years. The non-competition and non-solicitation agreement shall also contain the terms set out in paragraph 6, 7, 8, 9 and 10 of the Pickard submissions. I have chosen different time periods as the degree of restraint imposed on the unsuccessful bidder is greater for a non-competition than a non-solicitation term and the proprietary interest of the company is correspondingly greater in protecting its employees and clients and confidential information.
d) The offer shall contain clause (c) and (d) of the VallČe submissions concerning the confirmation that the company owns the intellectual property and that no severance be paid to the unsuccessful bidder.
e) The sum of $630,809.12 is owing to the company, $315,404.56 is owed by Pickard personally and $315,404.56 is owed by VallČe's holding company 4205553 Canada Inc. The unsuccessful bidder or the holding company controlled by the unsuccessful bidder, if this occurs, shall pay the amount of any outstanding shareholder loan on closing in the manner proposed in paragraph (c) of Schedule "C" of Pickard's submissions. The shareholder loans are not cancelled and the unsuccessful bidder, or his holding company, must pay the amount owing on the shareholder loan on closing.
f) A dividend of $200,000.00 ($400,000.00 total) has been declared on the common shares to both Pickard and VallČe, but has not been paid. The right to receive the dividend attaches to the common shares which are owned by the individual shareholders. I order that the provisions of paragraph (b) of Schedule "C" of Pickard's submissions be followed, which is agreeable to VallČe, namely that any dividends owing would be paid on closing.
g) The additional terms set out in paragraph (a), (b), (d), (e), (f), (g) and (h) of Schedule "C" to Pickard's submissions shall also form part of the offer to purchase.
Failure to Close
h) In the event the successful bidder fails to complete the purchase in accordance with the Court order, the unsuccessful bidder shall be entitled, but not obligated to purchase the other parties' shares at the unsuccessful bidder price and the originally successful bidder will be obligated to pay all costs associated with the failed closing. The costs to be agreed and failing which, the costs would be fixed by me after hearing submissions.
i) In view of the fact that additional submissions had to be made the bids shall be opened on March 9, 2007 as set out in my original decision at 9:00 a.m. at the courthouse. The closing is then set for April 13, 2007 or such other date as is mutually agreed.
Transition of Management
j) I adopt the provisions of paragraph (h) of the VallČe submissions.
k) As proposed in paragraph (i) of VallČe's submissions.
l) As proposed in paragraph (j) of VallČe's submissions.
m) As proposed in paragraph (k) of VallČe's submissions.
8 I will await receipt of Pickard's submissions on costs of the applications.
R.J. SMITH J.