Non-Compete Covenants in M&A: Structuring to Bind Sellers and Key Employees

Navigating State Laws and Recent Court Cases Regarding Enforceability

A live 90-minute premium CLE webinar with interactive Q&A


Tuesday, December 17, 2019 (in 7 days)

1:00pm-2:30pm EST, 10:00am-11:30am PST

or call 1-800-926-7926

This CLE webinar will offer guidance in drafting non-compete clauses in contracts for the purchase and sale of a business. The panel will also discuss related non-compete agreements for key employees, sellers, and founders of the target entity, and the limitations associated with each. The panel will examine recent case law regarding the enforceability of non-competes in New York, Delaware, and California.

Description

Covenants not to compete are a critical piece of any M&A transaction. Most states distinguish between the law governing covenants not to compete when incident to the sale of a business, and the law governing non-competition agreements arising solely out of employment. Practitioners should craft covenants not to compete that will stand up to post-closing judicial scrutiny.

The presence of reasonable consideration is essential to the enforceability of non-competition covenants. However, even when reasonable consideration appears to be present, a court may invalidate a non-competition covenant if the nexus between such covenant and the consideration is not sufficiently clear. A merger agreement should incorporate the particular terms of any non-competition covenant --either directly in the text of the contract or by attaching a form letter of transmittal.

Acquirers should include non-competition covenants in employment agreements for key employees who will continue with the surviving entity following the acquisition. The courts generally respect restrictive covenants in employment agreements for the duration of employment, and non-competes can survive the term of employment if drafted to comply with state law.

Where large shareholders and/or founders will be entering into support agreements at the signing of the merger agreement, acquirers should attempt to include in such support agreements a non-competition covenant that will become effective upon the closing. Such an approach not only locks up shareholder support for the transaction but also eliminates the competition risk posed by those that are presumably most able to compete.

Listen as our authoritative panel analyzes covenants not to compete in M&A transactions. The panel discussion will include a comparison of New York, Delaware, and California case law relating to non-competes, and non-competes as they pertain to sellers and key employees.

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Outline

  1. Non-compete covenants incident to the sale of a business
    1. Key documentation
    2. Key provisions
    3. Merger clause
  2. Non-competes for key employees: federal and state law limitations
  3. Including founders and major shareholders in non-compete covenants
  4. Enforceability: comparing New York, Delaware, and California laws

Benefits

The panel will review these and other critical issues:

  • Where and when to address non-competition matters relating to a to-be-acquired business in M&A deal documentation
  • What are some essential requisites to enforceability? How should non-competition covenants be documented?
  • Why are non-compete covenants treated differently when part of an employment agreement?
  • What steps should an acquiring company take to ensure a non-compete agreement also binds significant shareholders, affiliates, and sellers?

Faculty

Springer, Blair
Blair R. Springer

Attorney
Venable

Mr. Springer's practice focuses on corporate finance, mergers and acquisitions, private equity and venture capital...  |  Read More

Stockman, Benjamin
Benjamin E. Stockman

Counsel
Venable

Mr. Stockman practices in all areas of labor and employment law. Ben has handled a range of legal matters involving...  |  Read More

Straga, Daniel
Daniel G. Straga

Attorney
Venable

Mr. Straga is an associate in Venable's Corporate Practice in the Washington, DC office, where he counsels publicly...  |  Read More

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