All the words for uncertainty and inconsistency apply when discussing non-compete laws in 2025. On the federal level, the FTC’s rule prohibiting most non-competes remains blocked on a nationwide basis, still making its way through the courts. But, since that injunction just over a year ago, there’s been a lot of movement at the state level. This Morgan Lewis alert describes the “growing divergence” in how states regulate non-competes.
Some states, such as Minnesota, Oklahoma, and North Dakota, have joined California in effectively banning noncompetes, subject to limited exceptions.
Many states have adopted statutes that cap noncompete temporal durations. Colorado has taken a unique approach, setting a formula to calculate the permissive duration of noncompetes for individual minority owners in the sale-of-business context: the maximum duration of a noncompete is determined by the consideration the individual received from the sale divided by the average annual cash compensation received by the individual from the business (including income received on account of their ownership interest) during the prior two years or the period the individual was affiliated with the business if shorter.
California recently adopted anti-noncompete legislation that purports to extend with a broad reach across jurisdictions if there is some connection to California. Recent cases in non-California jurisdictions have severely limited this “long-arm” aspect of the law, finding it not enforceable in respect of agreements entered into outside of California. It remains to be seen how a California court might rule in a similar case brought inside of the state.
Other states, including Kansas and Florida, have gone the opposite direction, adopting legislation making it easier to enforce noncompetes. Florida’s new CHOICE Act, for example, expands the permissible duration of noncompetes to up to four years and requires that a court issue a preliminary injunction simply upon motion by a covered employer seeking enforcement of a covered agreement.
There have also been a number of important developments beyond federal rulemaking and state legislation surrounding sale- and equity-based noncompetes, some of which we’ve already bloggedabout. Here are some from the alert:
– Auction NDAs now regularly include nonsolicits of employees, and we have observed that the market practice in this area has been to increase the reach and duration of these restrictive covenants. Private equity professionals should note that these agreements have antitrust law implications; a potential buyer signing up to such a restrictive covenant could be exposing itself to liability.
– The Delaware Supreme Court has recently weighed in on forfeiture-for-competition provisions, finding that these provisions, which do not enjoin competition but rather require forfeiture of certain enumerated benefits (whether compensation or equity), are enforceable if they satisfy standard contract law principles and are not subject to the more rigorous “reasonableness” test that applies to traditional noncompetes.
– On the other hand, the Delaware Court of Chancery recently questioned, in striking down a noncompete, the adequacy of consideration to support a noncompete in certain equity-based noncompete contexts, albeit many practitioners would consider this a departure from historical and expected interpretations of the law (and so it is unclear as to whether this decision will be followed in future cases). In another case, the Delaware chancery court declined to reform and enforce what it deemed to be an overly broad noncompete.
Check out our “Antitrust” Practice Area for more. Lots more, in fact! Our section on State Non-Compete Legislation is lengthy and growing.
Multiple tax regimes and financial standards. Added regulatory hurdles. Legal differences ranging from IP to comp and benefits. Not to mention various time zones and possibly languages. Cross-border deals are not for the faint of heart. Having an understanding of transactional differences and what’s customary in other jurisdictions can help avoid headaches, misunderstandings, and ultimately mean getting to closing more quickly amidst all this complexity. To that end, this recent Sheppard Mullin blog explores material differences in legal frameworks and market practices for transactions in the US v. UK so, if you’re new to UK deals, you can better navigate transactions and work with your UK counterparts.
For example, US transactions commonly employ a purchase price adjustment to ensure the financial condition of the target matches agreed-upon metrics at closing. In the UK, you’re more likely to see a “locked-box” approach where the purchase price is fixed based on accounts drawn up to the pre-signing/exchange “locked-box” date with provisions against leakage (value extraction). The blog says this difference reflects broader cultural and legal distinctions:
The US approach emphasizes flexibility and accuracy through post-closing adjustments, allowing for dynamic financial realities at closing. However, this flexibility can lead to disputes and extended negotiations.
Conversely, the UK locked-box mechanism prioritizes certainty and simplicity, offering a fixed price that reduces the need for post-closing negotiations. This method aligns with the UK’s preference for predictability and reduced legal complexity, albeit requiring greater upfront diligence and assurance.
Another significant difference is the approach to sandbagging. US agreements may include a pro-sandbagging clause — allowing a party to recover for breaches of reps and warranties even if it had prior knowledge — or remain silent on the topic — in which case recovery may also be possible depending on the governing state law — with anti-sandbagging provisions being often sought by sellers, but less often included in the final agreement. Across the pond, English law tends to favor “anti-sandbagging” clauses.
English case law supports this position, suggesting that a buyer who knows of a breach is considered not to have relied on the warranty’s accuracy, or to have no or minimal damages, as they are assumed to have assessed the value of the shares or assets knowing the warranty was false. Anti-sandbagging clauses typically restrict the attribution of knowledge to the buyer’s core deal team, excluding knowledge held by external advisors.
MAC or MAE closing conditions allowing the buyer to terminate if a material adverse change or effect occurs, a staple in the US, are also less likely in UK agreements, so that a deal will close absent a failure to receive regulatory clearance, other express condition or a fundamental breach — also giving more deal certainty to sellers.
The blog also addresses differences in due diligence processes/disclosures, equity incentives, third-party reliance on diligence reports and auction processes. This Winston & Strawn article also discusses RWI, restrictive covenants and tax. For even more, check out our “Cross-Border” Practice Area.
You’ve undoubtedly heard a lot about the deal struck by Intel and the Department of Commerce, but last week on TheCorporateCounsel.net, Liz shared some of the corporate governance and activism implications of this development and the possibility for more deals of its kind:
With the President hyping it up on social media that the government’s acquisition of Intel stock will not be the last we see of its equity stake in Corporate America (see this Reuters article and this WSJ article about remarks from Kevin Hassett, the National Economic Council director), all eyes are on the first few companies who are striking deals. Yesterday, Intel filed this Form 8-K to disclose details of its agreement with the Department of Commerce – through which the US Government is becoming the company’s largest stockholder, with a 9.9% interest.
In addition to providing a description of the transaction, which I’m sure many folks are reading with interest, the 8-K updates the Company’s previously disclosed risk factors to reflect the deal’s conditions and impact. Here are a few that jumped out from the Item 8.01 disclosure:
•The transactions are dilutive to existing stockholders. The issuance of shares of common stock to the US Government at a discount to the current market price is dilutive to existing stockholders, and stockholders may suffer significant additional dilution if the conditions to the Warrant are triggered and the Warrant are exercised.
•The US Government’s equity position in the Company reduces the voting and other governance rights of stockholders and may limit potential future transactions that may be beneficial to stockholders. The transactions contemplated by the Purchase Agreement may result in the US Government becoming the Company’s largest stockholder. The US Government’s interests in the Company may not be the same as those of other stockholders. The Purchase Agreement requires the US Government to vote its shares of common stock as recommended by the Company’s board of directors, subject to applicable law and exceptions to protect the US Government’s interests. This will reduce the voting influence of other stockholders with respect to the selection of directors of the Company and proposals voted on by stockholders. The existence of a significant US Government equity interest in the Company, the voting of such shares either as directed by the Company’s board of directors or the US Government, and the US Government’s substantial additional powers with respect to the laws and regulations impacting the Company, may substantially limit the Company’s ability to pursue potential future strategic transactions that may be beneficial to stockholders, including by potentially limiting the willingness of other third parties to engage in such potential strategic transactions with the Company.
•The Company’s non-US business may be adversely impacted by the US Government being a significant stockholder. Sales outside the US accounted for 76% of the Company’s revenue for the fiscal year ended December 28, 2024. Having the US Government as a significant stockholder of the Company could subject the Company to additional regulations, obligations or restrictions, such as foreign subsidy laws or otherwise, in other countries.
As this NYT article notes, the government isn’t acting like a traditional hedge fund activist in the arrangements it has struck to-date – and the typical playbook doesn’t apply. One wrinkle is considering how director duties play out. This 2017 article discusses director duties in the context of the government ownership interests that resulted from TARP.
Public communications & disclosure may also need extra thought. Outside of its SEC filings, Intel is of course praising the deal, and its stock rose the day the deal was announced. While it’s not a novel concept to be enthused about a deal while also having to warn investors of the downsides, it’s less common to include quotes from other companies in the press release. And companies may need to take into account not only the threat of securities litigation from traditional stockholders, but also the pros & cons of this new flavor of “government backing” – and how their comments (or lack of comments) might impact the company’s ranking on the loyalty list.
A recent Farrell Fritz blog flags a new decision from New York’s Second Department holding that the broad “exclusive remedy” language in New York’s appraisal statute precluded a shareholder from bringing a claim for damages based upon share ownership, even if that claim related to another shareholder’s misappropriation of proceeds from the transaction. Here’s an excerpt from the blog:
The conventional path to a fair value appraisal proceeding under Section 623 of the Business Corporation Law (the “BCL”) involves deliberate invocation of the statute by the business entity, the dissenting owner, or both.
For corporation mergers and asset sales, the process ordinarily involves the entity’s transmission of written notice to shareholders of their right to dissent from the transaction and pursue an appraisal remedy (BCL § 605 [a]; BCL § 623 [l]), the shareholder’s written exercise of the right to dissent (BCL § 623 [a], [c]), the entity’s offer to purchase the dissenting shareholder’s interest for fair value (BCL § 623 [g]), a statutory negotiating period (BCL § 623 [h]), and, if the entity and shareholder cannot reach agreement on price, commencement by one side, or the other, of an appraisal proceeding (BCL § 623 [h], [1], [2]).
If, after all of that activity, neither side files an appraisal proceeding within the statutory timeframe, then “all dissenter’s rights shall be lost unless the supreme court, for good cause shown, shall otherwise direct” (BCL § 623 [h] [2]).
Under BCL § 623 (k), the “exclusive remedy” provision of the fair value appraisal statute, “[t]he enforcement by a shareholder of his right to receive payment for his shares in the manner provided herein shall exclude the enforcement by such shareholder of any other right to which he might otherwise be entitled by virtue of share ownership,” except an action for “equitable relief” to enjoin, set aside, or rescind “unlawful or fraudulent corporate conduct” (Breed v Barton, 54 NY2d 82 [1981]).
Can a shareholder lose all rights as shareholder under BCL § 623 (k) where neither the corporation, nor shareholders, did anything to invoke the fair value appraisal statute, and where all parties consent to the transaction?
Can that loss of rights include a shareholder’s ability to challenge a co-shareholder’s post-closing withholding of the proceeds from the very transaction that gave rise to potential dissenters’ rights?
The blog takes a deep dive into the trial court and appellate court decisions in the case and also highlights seemingly conflicting case law. It says that the key takeaway from Klein is that where a corporate transaction potentially triggers appraisal rights under New York law, the failure to exercise those rights “can lead to severe consequences, even for unknown, future events post-dating the closing, like misappropriation of the cash consideration from the very transaction itself creating dissenters’ rights.”
Here’s something that Liz blogged on TheCorporateCounsel.net yesterday:
I was a little surprised to read in this recent NYT DealBook newsletter that of the 59 companies that went public in the U.S. last quarter, 41 of them were SPACs – according to data from S&P Global. I blogged last month that the SPAC/de-SPAC route has been useful for digital asset treasury companies, but these stats show there may be room in the tent for other types of companies as well. This Dealmaker newsletter from The Information (sign-up required) points to cloud providers and defense tech firms as potential de-SPAC candidates.
Meanwhile, this SPAC Insider article says that part of the reason for the SPAC resurgence is the “SPAC-truism” that they tend to thrive when the general IPO market is also improving. Additionally, it attributes this year’s first-half stats to the view that SPACs offer an attractive middle-of-the-road approach for small and mid-cap companies. Here’s more detail:
While SPACs have enjoyed two strong quarters of IPO issuance, Traditional IPOs have lagged that momentum. However, not for long. May and June saw eToro, Circle, and Chime IPO use the traditional route to great success. Interestingly, two of those deals, eToro and Circle, were previously SPAC combination companies. However, the previous administration severely curtailed any crypto-related deals leading to both of these combinations becoming terminated SPACs.
Nonetheless, going the traditional IPO route was the shot in the arm the IPO market needed. As a result, the window is opening only for large, well established companies. On the other hand, the Traditional IPO has also become the provenance of micro and nano-cap companies, which continue to see strong numbers opt for this route as well. For the small and mid-cap companies sandwiched in between these two IPO sizes, perhaps the SPAC route provides a viable option.
However, it should be noted that tariff announcements starting in April significantly curtailed all traditional IPO activity. As a result, SPACs are currently accounting for a larger share of the overall IPO market than we’ve seen in recent quarters. In fact, in Q1-2025, SPACs accounted for 26% of all IPOs, whether that was via Traditional or SPAC route. As of the end of Q2-2025, that percentage is now 39%. However, it is anticipated there should be increased traditional IPO activity in Q3 and the percentage comprised by SPACs should come down to a more normalized level.
It seems like every day there is either a boom or bust predicted for IPOs, so we will stay tuned on how this all shakes out. While I’m not advocating for one path or another here, part of any securities lawyer’s “IPO readiness toolkit” should be understanding the different options and how they might be a fit for different clients and different market conditions. Meredith had shared potential benefits of SPACs a few months ago. And we’ve shared variousthoughts over the past year about being ready to hit the ground running!
In our latest Deal Lawyers Download Podcast, Honigman’s Matthew VanWasshnova joined Meredith to discuss the implications of the ongoing changes in US tariff policy for M&A transactions. Topics covered in this 28-minute podcast include:
– Why significant tariff uncertainty remains and is on the minds of M&A practitioners
– The tariff-related risks deal teams have been navigating in 2025, including pricing risk, deal risk and timing pressure, regulatory and enforcement risk and the greater potential for post-closing disputes that comes with uncertainty and complexity
– How buyers are front-loading trade diligence and carefully scrutinizing supply chains, mapping both supply- and demand-side risks, and why it’s crucial to involve commercial transactions attorneys in this process
– How buyers have attempted to tailor representations to address certain trade risks, while maintaining the breadth of representations and warranties that have been adopted as market
– Tips for buyers seeking RWI policies, which generally exclude tariff-related risks
– Common earnout structures and the use of rollover equity or seller notes to allocate tariff risk
– How parties are seeking to manage risk between signing and closing (e.g., tariff-based closing conditions, walkaway rights if certain cost thresholds are hit, some reversion to a financing out and interim covenants that address operations and the supply chain)
We’re always looking for new podcast content, so if you have something you’d like to talk about, please reach out to me at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com. We’re wide open when it comes to topics – an interesting new judicial decision, other legal or market developments, best practices, war stories, tips on handling deal issues, interesting side gigs, or anything else you think might be of interest to the members of our community are all fair game.
As I’ve mentioned before, cases dealing with disclosure schedules are like catnip to me, and those schedules featured prominently in the Chancery Court’s recent decision in SAM 1 Aggregator v. Mars Holdco, (Del. Ch.; 8/25). In that case, Chancellor McCormick cited the seller’s disclosure letter delivered in connection with the parties’ stock purchase agreement in rejecting the buyer’s post-closing fraud and aiding and abetting allegations.
The stock purchase agreement included a provision disclaiming any representations and warranties not contained in Section 2.2 of the agreement and an explicit reliance disclaimer from buyer with respect to any reps & warranties not contained in the agreement. The agreement also provided that the buyer could only bring claims for breaches of the reps & warranties “based on an actual and intentional fraud with respect to any statement in any representation or warranty made by [the seller].”
After the closing, the buyer discovered what it contended were undisclosed internal controls issues and undisclosed liabilities at the target relating to the migration of its credit card services business to Amazon Web Services (AWS). It filed a lawsuit asserting a fraud claim against the seller and aiding and abetting claims against the seller’s controlling stockholder based on alleged breaches of “Accounting Process Representations” with respect to the adequacy of its internal controls and a “Liabilities Representation” concerning the absence of undisclosed liabilities contained in Section 2.2 of the stock purchase agreement.
The buyer’s fraud allegations relating to the Accounting Process Representations centered on information contained in demand letter sent by counsel for the target’s former CAO Peter Owino. The demand letter claimed that the former CAO had been instructed to improperly capitalize certain expenses in violation of GAAP and that his employment had been terminated in retaliation for raising these concerns. The buyer also alleged that the seller committed fraud by falsely representing that it had no undisclosed liabilities despite its knowledge of commitments associated with the AWS migration.
In rejecting these allegations, Chancellor McCormick cited the reliance disclaimer and language limiting contractual fraud claims to those “based on actual and intentional fraud” with respect to statements in the reps & warranties. She then noted that the buyer’s claims based on the Accounting Process Representation had a fatal flaw:
The problem with Buyer’s theory is that the parties expressly qualified the Accounting Process Representations by the allegations in the Owino Letter. Section 2.2(f)(iii) states that, “[s]ince January 1, 2019, except as set forth in Section 2.2(f)(iii) of the Disclosure Letter, [Seller] has not” identified deficiencies covered by the Accounting Process Representations. Section 2.2(f)(iii) of the Disclosure Letter identifies the “Peter Owino Matter” as an express limitation on the representations in Section 2.2(f)(iii) of the Purchase Agreement. And the Disclosure Letter defines “Peter Owino Matter” as the “allegations against [Seller].”
The buyer tried to work around this problem by contending that the disclosure of the Peter Owino Matter should be construed to apply to employment issues only, and that the seller didn’t adequately disclose the demand letter’s “allegations of pervasive accounting improprieties.” The Chancellor dismissed this argument by asking “why would Seller expressly qualify its Accounting Process Representations with reference to something that was solely an employment matter?”
Chancellor McCormick also noted that the “Peter Owino Matter” was referenced a total of five times in the stock purchase agreement, further undercutting the buyer’s fraud allegations. With respect to the claims surrounding the AWS migration, she concluded that the estimated costs associated the future AWS migration weren’t “liabilities” as of the closing, and dismissed that claim as well.
In a private target market that seems to have been picked clean by VCs and PE firms, this a recent white paper by Lateral Investment Management says that founder-led “bootstrap” companies represent the “last untapped opportunity” for PE funds Here’s an excerpt from the intro:
Founder-led companies have been the foundation of the U.S. economy since the Industrial Revolution. Founders have built and led enduring businesses through profitable growth and, often, decades of evolution and development.
Before there was an institutional private equity market, founder-led bootstrapped businesses funded by personal savings were the norm in the U.S. From Andrew Carnegie (U.S. Steel) and Henry Ford (Ford Motor) to Larry Ellison (Oracle), founder-led businesses have a rich tradition of success in the U.S.–and for good reasons. More recently, software behemoths Atlassian and SAP never took outside investors and strong-willed founders Elon Musk (Tesla, SpaceX) and Mark Zuckerberg (Meta) have built distinctively founder-led companies despite taking institutional money.
Successful founder-led businesses are hardy organizations that have developed robust corporate cultures and loyal customers. They have a sense of mission and corporate identity. They are innovative and scrappy. They have survived through growing pains, business cycles, shared challenges, and setbacks. They are built on the sweat of their founders who have reinvested profits in growth from hard-won customers rather than going through rounds of VC funding.
The white paper says that founder-led companies represent a huge untapped market for PE, and that most can be found in the $9 trillion U.S. middle market sector. According to the white paper, there are 95K lower middle market bootstrapped companies, including 34K in the technology or technology-enabled service sub-sectors, and represent a high-value opportunity “hidden in plain site.” The white paper says that middle market founder-led companies have historically realized higher returns and lower loss rates than other entities and points out that lower middle market targets have entry valuation multiples that are 40-70% less than other targets.
The July-August issue of the Deal Lawyers newsletter was just sent to the printer. It is also available online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– Long Live the Term Sheet — When Term Sheet Provisions Survive the Execution of Definitive Agreements
– Termination Fees: Breaking Up Usually Comes with a Price
– M&A Due Diligence: What You Miss Can Cost You
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at info@ccrcorp.com or call us at 800-737-1271.
This HLS Blog from Diligent says there was an uptick in success rates for U.S.-based activists in 2025, with stronger director candidates and new tactics contributing to the outcomes. Here are some notable stats and takeaways from the blog:
– Of the 112 board seats won in the U.S. in the first half of the year, 92% were negotiated agreements (the highest proportion won through settlement in the last five years).
– Time to settlement was also down — averaging 16.5 days in the second quarter of 2025 compared to 26 days in the second quarter of 2024.
– One of the surprise developments of the season saw activists revise their playbook to hold directors to account with less costly withhold or “vote-no” campaigns.
– The first half saw activists that typically seek settlements persevere to bring high-conviction campaigns all the way to shareholders for decision.
– Common demands related to governance, personnel removal, changes in capital structure and executive compensation.
– M&A demands were flat year-over-year due to uncertainties, while moves to oppose transactions increased by over 60%.