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.

1. Planning for Exit Events
Mick Bain
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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
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keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP