Planning for Exit Events
Mick Bain
Attorney Advertising
WilmerHale 2© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
What to do now? Isn’t it too early?
 Focus on Certain Cost-E...
WilmerHale 3© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Carefully Select Entity
 Tax concerns
 Limited liability
 ...
WilmerHale 4© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Properly Maintain the Corporate Form
 Observe corporate form...
WilmerHale 5© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Properly Maintain the Corporate Form
 Adopt policies in key ...
WilmerHale 6© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Provide for Proper Equity Allocation/
Incentives
 Capital co...
WilmerHale 7© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Provide for Proper Equity Allocation/
Incentives
 Watch out ...
WilmerHale 8© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Carefully Allocate Ownership
 Non-accredited investors and t...
WilmerHale 9© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Provide for Good Title to Intellectual
Property
 Robust form...
WilmerHale 10© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Provide for Good Title to Intellectual
Property
 Take reaso...
WilmerHale 11© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Check Out Prospective Employees
Carefully
 Background check...
WilmerHale 12© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Review Tax Treatment for Employees
and Plans Carefully
 Cul...
WilmerHale 13© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Risk Management
 Central person, often CFO
 Any complaint,...
WilmerHale 14© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Be Vigilant in the “Big” Contract Context
 Unfavorable prov...
WilmerHale 15© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Carefully Allocate Ownership
 Watch out for conflicting pro...
WilmerHale 16© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Select Advisors Carefully
 Lawyer, at a minimum, should pro...
WilmerHale 17© 2014 Wilmer Cutler Pickering Hale and Dorr LLP
Select Advisors Carefully
 Public accountants critical if I...
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Planning for Exit Events

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Explores timing of exit planning, carefully selecting an entity, proper maintenance of the corporate form, proper equity allocation/incentives, allocation of ownership, IP, handling prospective employees, risk management, and advisor selection.

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Planning for Exit Events

  1. 1. Planning for Exit Events Mick Bain Attorney Advertising
  2. 2. WilmerHale 2© 2014 Wilmer Cutler Pickering Hale and Dorr LLP What to do now? Isn’t it too early?  Focus on Certain Cost-Effective Things Too Often Not Done or Not Done Well – Select proper form of entity – Select experienced advisors – Equity allocation – Tax, tax, tax – Observe formalities – Protect intellectual property – Watch for problematic contract provisions – Conduct employee checks – Risk management
  3. 3. WilmerHale 3© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Carefully Select Entity  Tax concerns  Limited liability  Keep things simple  Typically a “C” corporation  Take care with respect to board composition  Clarity as to equity ownership at all times  Example: closely-held company with no records
  4. 4. WilmerHale 4© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Properly Maintain the Corporate Form  Observe corporate formalities – Have good records – Hold regular board meetings; keep minutes  Properly authorize stock issuances and major contracts
  5. 5. WilmerHale 5© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Properly Maintain the Corporate Form  Adopt policies in key areas such as – trade secrets – non-discrimination – corporate communications/confidentiality – harassment – securities compliance
  6. 6. WilmerHale 6© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Provide for Proper Equity Allocation/ Incentives  Capital constrained; need to use equity to attract and retain  Consider how to allocate property  Avoid the “woodwork”  Need compliant equity plans – tax reasons
  7. 7. WilmerHale 7© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Provide for Proper Equity Allocation/ Incentives  Watch out for “hidden” tax and accounting problems – 409A – 123R – 83(b) elections – Cheap stock
  8. 8. WilmerHale 8© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Carefully Allocate Ownership  Non-accredited investors and the securities laws  Don’t use non-registered capital raisers  Proper records are a must  Offer letters/oral promises  A shareholders agreement can help
  9. 9. WilmerHale 9© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Provide for Good Title to Intellectual Property  Robust form of agreement for inventions and NDA  Make sure everyone signs it  Need advice from a labor/IP lawyer here
  10. 10. WilmerHale 10© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Provide for Good Title to Intellectual Property  Take reasonable steps to protect your trade secrets, such as sensibly limiting access  Perform trademark search early
  11. 11. WilmerHale 11© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Check Out Prospective Employees Carefully  Background checks  Are they subject to a non-compete?  Are they subject to a non-disclosure?
  12. 12. WilmerHale 12© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Review Tax Treatment for Employees and Plans Carefully  Cultural inclinations vs. IRS positions  Use of independent contractors  Be sure all filings are being made, e.g., forms 5500
  13. 13. WilmerHale 13© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Risk Management  Central person, often CFO  Any complaint, threat or demand should be centrally filed  Disaster recovery plan – off-site storage and back up; consider IT infrastructure  Insurance e.g., D&O, casualty, etc.  Privacy Laws  Document Retention  Policies – whistle blower, etc.
  14. 14. WilmerHale 14© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Be Vigilant in the “Big” Contract Context  Unfavorable provisions can have significant impact  Exclusive distribution arrangements  Consents required in a change of control  Use of the term “affiliate” in non-compete or a license  Right of first offer in public offerings CONFIDENTIAL TREATMENT
  15. 15. WilmerHale 15© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Carefully Allocate Ownership  Watch out for conflicting promises, e.g., registration rights agreements, rofr’s, etc.  Make sure promises terminate at the right time, e.g., guarantees for founders, ability to nominate to board, etc.  Problems with big/controlling shareholders
  16. 16. WilmerHale 16© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Select Advisors Carefully  Lawyer, at a minimum, should provide good form files to save you money and time – Need SEC and M&A experience – Ask about experience dealing with liquidity events – Can perform audits to minimize future problems
  17. 17. WilmerHale 17© 2014 Wilmer Cutler Pickering Hale and Dorr LLP Select Advisors Carefully  Public accountants critical if IPO is an option – Need SEC and M&A experience – Can help avoid big problems in areas such as revenue recognition and earnings charges Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/code- of-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP
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