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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 …

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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  • 1. Planning for Exit Events Mick Bain Attorney Advertising
  • 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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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