Pursuant to an agreement for the sale of the shares of a private company (the SPA”), various shareholders were required to agree to a non-competition covenant (“NCC”) and a non-solicitation covenant (“NSC”). In finding that the NSC essentially also was a non-compete covenant as described in the preamble to s. 56.4(7)(b), CRA stated:
Essentially, the terms of the NCC and NSC, which are in the same section of the SPA, also appear to reflect the conditions that one might normally expect to see in a typical non-competition agreement. Thus, the NSC and NCC could be treated as a single RC [restrictive covenant] that is in respect of a non-compete covenant.
After noting that s. 56.4(7)(a)(i) (respecting an arm’s length purchaser) appeared to apply, CRA indicated that the ss. 56.4(7)(d) to (g) conditions also were met: no proceeds were received for granting the RC (s. (d)); the disposition was not a redemption etc. transaction (s. (e)); the covenant maintained the share value (s. (f)); and it pertained to shares so that no election was required (s. (g)). Accordingly, s. 68 did not apply.