When acquiring a business, the buyer will most always require that the purchase agreement contain a covenant whereby the seller agrees not to compete with the buyer for some period of time. In June 2003, in a case involving the sale of an alarm company, the validity of such a covenant was challenged.
The plaintiff was the president and sole shareholder of a company which was engaged in the business of selling, installing and servicing electronic security and alarm systems. The company was headquartered in Oklahoma. The plaintiff and the defendant entered into a stock purchase agreement whereby the defendant purchased all of the shares of the outstanding capital stock of the plaintiff. Under the terms of the agreement, the plaintiff agreed that for a period of five years from the closing date he would not undertake certain activity which would compete against or devalue the business acquired by the defendant within the defined territory.