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Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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Meet the Faculty
MODERATOR:
Robert Londin – Jaspan Schlesinger LLP
PANELISTS:
Leslee Cohen - Hershman Cohen LLC
Bob Dekker - Balmoral Advisors
Michael D. Weis – Firsel Ross & Weis
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About This Webinar – The M&A Process
Buying, selling, or merging a company typically follows a similar set of steps from deal to deal.
The amount of time each step takes varies but the order of the steps is fairly uniform because the
steps follow a certain logic: before the parties share meaningful information, they should sign a
confidentiality agreement (a/k/a “non-disclosure agreement,” or “NDA”); once a baseline amount
of information is known by the would-be buyer, it commonly presents a letter of intent or term
sheet to the target or its owner, which serves as an outline for a deal but does not necessarily
bind the parties to consummate the transaction; additional due diligence and the negotiation,
drafting and signing of definitive documents comes next. The parties then obtain any needed
regulatory and/or contractual third party approvals; followed by closing; and finally by post-
closing tasks. This webinar will discuss all these steps from a macro perspective so that you can
see the forest for the trees, but does not do a deep dive into any single topic. Think of this
webinar as a road map or timeline for a typical deal.
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About This Series – M&A Boot Camp
This series features leading M&A attorneys and other deal professionals speaking about private
company M&A in roughly chronological order, guiding the audience through a conversation that spans
from deal origination, the LOI (letter-of-intent) or term sheet, due diligence, document drafting and
negotiation, closing, and post-closing. Issues addressed include tax planning and structure; corporate
governance; negotiating deal points and common pitfalls and challenges; closing conditions;
representations and warranties; indemnification provisions; earn-outs; restrictive covenants; antitrust;
intellectual property; and employment. While many of the topics covered apply also to public company
M&A, the focus of this webinar series is on M&A involving a privately owned company or business.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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Episodes in this Series
#1: Structuring and Planning the M&A Transaction
Premiere date: 8/25/22
#2: Key Provisions in M&A Agreements
Premiere date: 9/22/22
#3: The M&A Process
Premiere date: 10/27/22
#4: Post-Closing Issues: Integration & Potential Buyer/Seller Disputes
Premiere date: 11/17/22
#5: Negotiating an M&A Deal
Premiere date: 12/15/22
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Episode #3
The M&A Process
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Understand the Process
• Confidentiality Agreements
• Letters of Intent and Term Sheets
• Definitive Agreements
• Due Diligence
• Consents and Regulatory Approvals
• Closing
• Post-Closing Tasks
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Confidentiality Agreements
• Arise in various contexts, including M&A, employment, sharing of IP, JVs and other
business relationships
• Protect sensitive information and transaction details from disclosure
• Prevent improper use of Information
• Significance:
✓ Often viewed as “standard” or “boilerplate” but may have unintended consequences,
restricting Buyer’s activities in the industry and Buyer’s options as the negotiations
progress, even if a transaction never materializes
• Mutuality: One-Way or Two-Way?
✓ Seller often “holds the pen” on CA, resulting in Buyer receiving proposed CA that is
“one-way”
✓ Buyer often modifies CA to restrict Seller if Buyer will be disclosing information to Seller,
and to make other provisions “symmetrical”
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Definition of Confidential Information
• “Confidential Information” is usually defined broadly to include:
✓ “any information concerning the Seller (whether prepared by the Seller, its
Representatives or otherwise and irrespective of the form, manner or nature of
communication) which is furnished to Buyer [before the date hereof,] now or in the future
[by or on behalf of the Seller] … and any notes, analyses, compilations, studies,
interpretations or other documents prepared by Buyer to the extent that they contain,
reflect or are based upon, in whole or in part, the information furnished to Buyer
pursuant hereto.”
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Definition of Confidential Information
• Buyers often include “to the extent” language for derivative materials to prevent
entire documents from being tainted by a single piece of Confidential Information
• Broad definition of Confidential Information makes it important to focus on
exclusions to definition
• Where trade secrets are involved, consider nature and extent of confidentiality
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Competitively Sensitive Information/Antitrust
• Transactions and business relationships involving competitors pose special concerns
– Sensitivity about sharing pricing, marketing and other competitive commercial
information
– Antitrust laws and business implications
• Varied approaches
– Sellers may exclude sensitive information from disclosure or defer disclosure until later
in process
– Disclosure may be limited to advisors and/or select individuals
– Disclosures may be limited to aggregated information or otherwise masked
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Exclusions from Confidential Information
• Buyers seek to add the exclusions to definition of “Confidential Information”
• “Confidential Information shall not include:
✓ information that is or becomes generally available to the public [other than through the
fault of the receiving party] [other than through a breach of this Agreement];
✓ information that was within Buyer’s possession prior to its being furnished to Buyer by
or on behalf of the Seller pursuant hereto or becomes available to Buyer from a source
that was not [known by Buyer [after due inquiry] to be] bound by an obligation of
confidentiality [prohibiting disclosure of such information to Buyer] [with respect to such
information]; or
✓ information that is independently developed by Buyer or its Representatives without the
use of any Confidential Information.”
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Permitted Uses of Information and Use Restrictions
• Sellers try to limit permitted uses of Confidential Information:
✓ “Buyer [will not disclose] [will keep confidential] the Confidential Information to any
person and will not use the Confidential Information either for any purpose other than to
evaluate, [negotiate, finance and/or consummate] a possible [negotiated] Transaction [or
in any way detrimental to the Company]; [provided, however, that Buyer may disclose
Confidential Information to its Representatives ...].”
✓ “Will not disclose” vs. “Will keep confidential”
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Permitted Uses of Information and Use Restrictions
• Buyers generally seek to ensure that they may disclose information to their
Representatives
• Buyers may also seek to expand permitted uses of Confidential Information beyond
“evaluating” a potential Transaction, to include negotiating, financing and consummating
it
• Buyers tend to resist vague limits on use of Confidential Information:
✓ Prohibitions on “detrimental” usage may expose Buyer to unknown liabilities and
restrictions (e.g., backdoor non-solicit or non-compete?)
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Letters of Intent & Term Sheets
• Purpose
– Establish a list of material terms to be agreed upon during the negotiation process
• Process
– Draft term sheets go back and forth between parties
– Beware of offer and acceptance issues
– Balance needed:
o If too detailed then moving straight to definitive agreements may be better
o Ambiguity of terms leads to later disputes with the document drafter taking “upper
hand”
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Responsibility for Representatives
• Sellers seek to make Buyers liable for breaches by its Representatives:
✓ Buyer will [cause][direct] its Representatives to observe the terms of this agreement,
and will be responsible for any breach of this agreement by any of its Representatives.”
• Variations
✓ Provide Representatives with a copy of the CA and direct Representatives to comply
with the CA’s confidentiality provisions
✓ Have Representatives sign a “joinder” to provide Seller with a direct remedy against
Representatives.
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Non-Solicitation of Employees
• Sellers often seek to limit Buyer’s ability to solicit employees:
• “Buyer agrees that, until the [third] anniversary of this Agreement, without the prior
written consent of the Seller, Buyer will not solicit to hire [or hire] any [officer or
management-level] employee of the Seller [to whom Buyer is [first] introduced in
connection with the evaluation of a Transaction] ...”
✓ Non-Solicit vs. No-Hire
✓ When Seller is in same business/industry as Buyer, both parties are likely to have
heightened sensitivity
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Non-Solicitation of Employees
• Term: Buyers generally seek to limit term of non-solicit to one year, depending on
business needs
• Scope: Buyers may seek to limit scope of the non-solicit to minimize substantive
restrictions and lessen the administrative burden. Alternatives include:
✓ Limiting scope to “officers or management-level” employees
✓ Limiting scope to employees (first) introduced to Buyer in connection with evaluating
Transaction
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Non-Solicit Carve-Outs
• Buyers generally seek to further limit the scope of the non-solicit by including some
or all of the following exclusions:
✓ provided, however, that the foregoing will not prohibit Buyer from:
o using solicitations not targeted at employees of the Seller, or employing any person
who responds to such solicitations;
o using search firms, or hiring any persons solicited by such search firms, so long as
such firms are not advised by Buyer [after the date hereof] to solicit employees of
Seller;
o hiring, employing or discussing employment with any person who contacts Buyer
independently without any solicitation by Buyer; or
o soliciting any person who has left the employment of the Seller prior to Buyer
soliciting such person.”
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Enforcement and Remedies
• “It is further understood and agreed that money damages would not be a sufficient
remedy for any breach of this letter agreement and that [the Company] [both parties]
shall be entitled to seek equitable relief, including, without limitation, injunction and
specific performance, as a remedy for any such breach.
• Such remedies shall not be deemed to be the exclusive remedies for a breach of this
letter agreement but shall be in addition to all other remedies available at law or equity
to the non-breaching party.”
• Equitable relief is key
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Key Binding Provisions of Letters of Intent
• Exclusivity/Standstill/No Shop
✓ Restricts Seller from engaging in negotiations with any other party for a specified
period
✓ Buyer’s consideration is money spent on investigating potential transaction
✓ Usually 30-90 days in length
✓ May require Seller to report any other offers or even contact from interested parties
• Breakup Fee
✓ Obligates the Seller (very rarely applies to Buyers) to pay Buyer a specified amount,
usually 1-5% of value of transaction, if Seller doesn’t close transaction
✓ Very limited outs for Seller
✓ Relatively rare and very disadvantageous to Seller, as it will limit Seller’s flexibility
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Definitive Agreements
• Provide the governing terms for the transaction and supersede the letter of intent
• Primary document is either a stock or asset purchase agreement or merger agreement
• Typically drafted by Buyer’s counsel and includes how liabilities will be handled,
purchase price paid, covenants, and closing conditions, among other matters
• Usually begun immediately after signing of the letter of intent
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Key Provisions of all Definitive Agreements
• Purchase Price (Amount; Mix of Cash, Stock and Note; Any Escrow Provisions)
• Representations and Warranties (What the Seller is telling the buyer about itself, and
to a lesser extent, the Buyer is telling the Seller)
• Indemnifications (Consequences for breaches of representations and warranties,
among other things)
• Closing Conditions (What each party must do for the transaction to be completed).
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Due Diligence: Definition
• “Due Diligence” generally refers to the investigation, examination and verification by a
multidisciplinary team of the material factual and legal circumstances of target
• “By conducting due diligence, Buyer seeks review information sufficient to enable it
to make informed decision on whether to proceed
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Goals of Due Diligence
• Evaluate and quantify legal and business risks.
• Determine purchase price.
• Spot timing issues and deal breakers.
• Identify other important issues.
• Assist in structuring transaction and drafting documents.
• Identify known contingent liabilities to be subject to specific indemnity.
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Preparation
• Diligence Request List
– Form - tailor to transaction
– Deal or industry specific
– Allow for follow-up questions
• Prepare
– Background research
– Understand purpose of review
– Line up specialists
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Preparation
• Learn about transaction & parties:
✓ Confidential Informational Memorandum
✓ Search Internet and Public Files
✓ Search LEXIS/WESTLAW for lawsuits involving the Target
✓ Review SEC filings (if Target is a public company):
o Form 10-K (Annual)
o Form 10-Q (Quarterly)
o Proxy Statement (March)
o Form 8-K (Amendments)
o Press Releases
o Prospectuses
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The Data Room
• The Seller or Target generally collects and organizes the documents which Buyer
wishes to review and houses such documents in a “data room.”
• Data room can be a physical room in which hard copies of relevant documents are
made available.
• A virtual data room is a secure website which prospective purchasers can access to
review relevant documents in an electronic format.
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Document Review
• Before you begin actual document review:
✓ Know how each type of document relates to transaction
✓ Understand timing constraints
✓ Clarify scope of review (i.e., materiality thresholds)
✓ Categorize the documents:
o Employment Agreements
o Real Property Agreements
o Loan Agreements
o Merger Agreements
o Asset Purchase Agreements
o Distributorship / Sales Agent Agreements
o Customer Agreements
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Disclosure Schedules
• Reflective of seller’s operations and due diligence
• Seller to weigh holding back certain proprietary information until later in deal process
• Describe key aspects of seller’s business
✓ i.e. key customers and suppliers
• Allocation of risk of loss for events which occur after closing date related to events which
occurred before closing date
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Document Review: General Contract Concepts
• Purpose: Parties, relationships, substance of agreement (i.e., goods, services, etc.)
• Economics: Review payments
• Term: Term, renewal terms
• Change of Control: Describe provisions
• Termination: Early termination provisions
• Assignment: Assignment and transfer provisions
• Continuing Obligations (Covenants): i.e., product warranties
• Acceleration of Rights: Any rights triggered?
• Identify contractual geographic restrictions on target business
• Governing Law: Which state?
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The Due Diligence Memorandum
• Format: Use proper format – many law firms have a standardized format
• Executive Summary:
✓ Scope of review and limitations
✓ Summarize transaction
✓ Summarize open issues
• Main Body:
✓ Avoid legalese
✓ Recognize audience
✓ Use charts
✓ Follow outline or index
✓ Simplify drafting
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Consents and Regulatory Approval
• Many transactions sign and close (see following slides) at the same time; these are known as
“One Step Transactions”
• In others, though, the parties sign the primary definitive agreement, then wait to sign the other
agreements and exchange the purchase price until a specified action or actions occur
• These actions may include the Buyer obtaining financing, the Seller obtaining third party
consents (particularly in an asset purchase) and/or the transaction receiving regulatory approval
• Consents may be required from, among others, vendors, customers or Seller’s landlord
• Regulatory approval may be required based on transaction size, market share, sensitivity of the
nature of the business being sold, etc.
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Closing Checklist Items
• Closing conditions from acquisition agreement
• Closing deliveries by each party
✓ i.e. employment agreements; non-compete agreements
• Share/asset transfer mechanics or certificate of merger
• Consents/approvals of regulatory bodies
• Third party consents (cross check disclosure schedules)
• Corporate approvals (board, stockholder)
• Lien releases
• Funds flow memorandum
• Target officer/director resignations
• Press releases
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Ancillary Closing Documents
• Escrow agreement
• Opinions
• Side letters
• Closing balance sheet (for purchase price adjustments)
• Bring-down certificates and Secretary’s certificate
• Good standing / tax clearance certificates
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Proposed Transactions which Do Not Close
• General rule: parties go back to the pre-transaction status quo, with each bearing its own
costs
• But if a purchase agreement has been signed, it could grant, or otherwise implicitly
give, a party an equitable right to close the transaction or a legal right to money
damages
• And some purchase agreements and/or letters of intent provide for a breakup fee,
which requires the seller(s) to pay the buyer (it is occasionally reciprocal, but usually not)
a specified amount if the transaction does not close for some reason due to seller’s
actions or lack thereof
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The Closing
• Buyer gives seller the purchase price via wire(s), check(s), promissory notes, and/or stock-
or any combination thereof
• Both parties sign transaction documents and make closing deliveries
• Commonly “electronic” today
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Post Closing Tasks
• Net Working Capital Adjustments
✓ Purchase Price is often adjusted after closing for difference between expected or target
net working capital number at closing and actual net working capital number at closing
• Purchase Agreement Obligations
✓ Net Working Capital Adjustments
✓ Earnout
✓ Indemnification Claims
✓ Post-Closing Covenants
✓ Required Filings and Notices
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Post Closing Tasks
• Other Post Closing Arrangements
✓ Transition Agreements
✓ Employee/Consulting Agreement
✓ Escrow Agreements
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About the Faculty
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About The Faculty
Robert Londin - rlondin@jaspanllp.com
A partner in his firm’s Corporate and Commercial Transactions Group, Mr. Londin counsels
numerous companies in connection with their mergers and acquisitions (both strategic and
financial), financing needs and the execution of their business plans; financial concerns in capital
markets transactions; emerging-growth companies; seed and venture capital clients in connection
with the formation of their investment vehicles and making of their portfolio company investments;
borrowers and lenders in secured financings; and companies and highly compensated executives
in connection with their compensation and separation arrangements. Rob serves as general
counsel to many clients and their senior executives and advisory boards. This general corporate
representation covers day-to-day legal issues as well as strategic planning and business
development extending to acquisition and financing concerns. He also represents technology and
emerging-growth clients in connection with their strategic alliances, technology licensing, mergers
and acquisitions, corporate finance, venture capital, banking transactions and general corporate
needs.
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About The Faculty
Leslee Cohen - LCohen@hershco.com
Leslee Cohen, Principal at Hershman Cohen, concentrates her transactional practice in securities law,
corporate finance and general corporate law. She counsels a variety of entities, from small entrepreneurs
and start-up companies to large established businesses, across many industries from real estate to
technology in connection with private placements of both equity and debt securities, including venture
capital, private equity and “friends and family” investments. Leslee also structures, negotiates and
documents significant business transactions, including mergers and acquisitions, tender offers, joint
ventures and other business combinations and financial transactions. In addition, she handles general
corporate matters including commercial contract drafting and review, stockholder and limited liability
company agreements and structuring, business restructurings, employment and consulting agreements,
and equity incentive plans and agreements, on behalf of a diverse group of clients. Leslee’s practice
encompasses Securities and Exchange Commission (SEC) compliance for microcap public companies
and committees of their boards of directors, providing counseling regarding disclosure and regulatory
obligations under the Securities Exchange Act of 1934 and the requirements of the Sarbanes-Oxley Act,
including corporate governance, ethics and executive compensation issues. Leslee also represents
broker-dealers and investment advisors in connection with securities law issues.
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About The Faculty
Bob Dekker - bdekker@balmoraladvisors.com
Bob is a career capital markets professional and operating executive with extensive experience working with companies ranging from
emerging growth to large, publicly traded enterprises. He specializes in developing and implementing creative capital formation
strategies and advising clients on alternative approaches for maximizing shareholder value in connection with merger and acquisition
activities. Bob has been an advisor to a wide assortment of public and private companies in the food and consumer products industries
including independent and franchise restaurants, food retailers and food packaging companies.
Prior to joining Balmoral, Bob co-founded Insight Advisory Partners, a boutique investment banking firm based in Chicago focused on
the food and beverage sector. Previously he was a senior banker with ABN AMRO, Inc. and its predecessor, The Chicago Corporation,
where he managed the firm’s private placement activities in North America. Bob began his career with Prescott, Ball & Turben, Inc. (an
affiliate of Kemper Insurance Company) in Cleveland, OH. During his investment banking career, he has arranged over $2 billion of
private market transactions.
Bob is a member of the Association for Corporate Growth where he co-chairs the committee responsible for hosting ACG’s Annual Food
Conference. For the past five years, he has served as a Super Mentor to several emerging growth food companies that have been
accepted into the Good Food Business Accelerator (part of the 1871 incubator) mentoring program. He is also a faculty member of
Financial Poise, a Web-based information platform that provides financial and legal education to individual investors and private
business owners. Bob holds a BA in Economics from Denison University. Bob is a registered principal with Bridge Capital Securities
(62, 63, 79).
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About The Faculty
Michael D. Weis - mweis@firselross.com
Michael is a principal of Firsel Ross & Weis, representing privately and publicly held entities in business and
commercial transactions. He has handled the negotiation and closing of hundreds of complex corporate and
commercial real estate transactions both domestically and internationally. Michael's clients span a number of
industries including manufacturing, distribution, real estate, health care, food and beverage, technology, and
professional services. Armed with a wealth of knowledge and experience in corporate, real estate, and finance
matters, including being a Certified Public Accountant since 1985, Michael helps his clients succeed personally
and in business. His corporate experience includes all aspects of mergers and acquisitions, securities, and
corporate governance.
Michael's legal career spans three decades. He focuses on mergers and acquisitions, "Outside General
Counsel" representation, commercial finance, securities, real estate, tax and estate planning, and administration
matters. Prior to joining Firsel Ross & Weis, Michael's practice included 10 years at a boutique firm in Chicago
where he served as chair of the firm's business and transactional practice. Additionally, Michael was General
Counsel for a long-term care organization. He began his legal career with a Chicago-based corporate and
securities law firm, where he was an associate and then a partner.
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Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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About Financial Poise
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