Deal Attorney by Anthony Cerminaro

Do you know all 17 SDGs?

2020-02-20T12:58:00.001-05:00

Due Diligence Guide & Checklist

2018-12-31T10:15:00.000-05:00

To secure financing, sell your company, or conduct an IPO, a potential investor or buyer will likely present you with a long list of documents and information for you to produce for the investor or buyer to review.

To effectively comply with such due diligence requests, and avoid potentially deal-killing problems from derailing the transaction, it is vital to adopt a systematic way of organizing corporate records, key contracts, intellectual property records and more.

When your corporate house is in order, the company will be more attractive to potential investors and buyers, the deal will move faster and you can focus on the strategic work of due diligence rather than the paperwork.

To help you get ready for due diligence, here is a link to a guide and checklist from Wolters Kluwer.

Legal Shortcuts May Haunt M&A Transactions

2017-10-02T15:39:00.000-04:00

Taking legal shortcuts may come back to haunt you if your company later becomes involved in an M&A transaction. Here are 10 early stage legal missteps that could cause consequences affecting the value of the company or the credibility of its management, or result in costly disputes or litigation.

1. Failing to properly and completely document investments in the company

2. Inadequately protecting IP and/or not taking steps to avoid infringing third party IP

3. Tasking untrained non-legal personnel with handling legal matters

4. Inadequate document control and retention procedures

5. Inattention to governance requirements

6. Paying insufficient attention to employment matters

7. Not monitoring whether an entity is required to qualify or register in foreign jurisdictions

8. Allowing unresolved claims against the company to remain hanging

9. Failing to create form and model contracts or to tailor form contracts to specific transactions

10. Overlooking the need to negotiate company-friendly assignment and change of control provisions in the company’s contracts.

Read more and listen to a webinar on this topic from Bryan Cave by following this link.

Impact of Open Source Software on M&A Deals

2017-10-02T15:09:00.001-04:00

The use of open source software may accelerate the pace of development and innovation, but it is certainly not free. Increasingly, those pondering a merger or acquisition or an exit understand that it may actually come at a cost, at a time when it is least desirable.

The cost comes in the form of compliance with the applicable open source license. Indeed, failure to comply may well bring with it further costs. As a result, these days, only rarely will an investor or acquirer fail to carry out a dedicated due diligence process that focuses on open source usage and compliance.

Start with Security: A Guide for Business

2017-09-25T10:21:00.000-04:00

The Federal Trade Commission has distilled the facts of more than 50 law enforcement actions that involved fundamental security missteps into the following ten lessons that touch on vulnerabilities that could affect your company, along with practical guidance on how to reduce the risks they pose:

Start with security.
Control access to data sensibly.
Require secure passwords and authentication.
Store sensitive personal information securely and protect it during transmission.
Segment your network and monitor who’s trying to get in and out.
Secure remote access to your network.
Apply sound security practices when developing new products.
Make sure your service providers implement reasonable security measures.
Put procedures in place to keep your security current and address vulnerabilities that may arise.
Secure paper, physical media, and devices.

Read more on this FTC website page that links to more detailed information about each lesson.

A Tale of Two Provisions

2017-09-25T09:57:00.000-04:00

Construction contracts often contain a provision for a stipulated or “liquidated” damage amount in the event of specified contract breaches. These provisions can be an effective tool to recover losses that otherwise may go uncompensated because they cannot be proven or because the damages are not recoverable under an ordinary contract.

However, courts generally will not enforce a liquidated damage provision that is seen as a “penalty” unrelated to any anticipated or actual loss. The question, then, is whether a particular contract provision will be interpreted as an enforceable liquidated damages provision or an unenforceable contractual penalty.

Read more in this post from Faegre Baker Daniels.

A Tale of Two Click Wraps

2017-09-25T09:13:00.002-04:00

What makes an on-line arbitration agreement binding against a website user who clicks an online button purported to result in an acceptance of “terms and conditions” when the user claims not to have read them?

In two recent cases reaching opposite conclusions, to determine whether a binding contract had been formed, the court evaluated whether the users had “inquiry notice” of the arbitration terms, which in the context of web-based contracts is a function of the design and content of the relevant interface.

Read more in this post from Mintz Levin.

The (not so SAFE) Simple Agreement for Future Equity

2017-09-11T09:16:00.000-04:00

A SAFE (simple agreement for future equity) is a contract to receive an amount of equity as determined in a future priced round for which the investor pays the purchase price upfront. Despite their name, SAFEs are not always as “simple” as expected, nor are they necessarily “for future equity” if conversion never occurs.

There are several pros to a SAFE from the point of view of the company raising funds, including efficiency, expedience and potentially lower transaction costs. From the point of view of an investor, the biggest drawback may be that SAFE investors assume most, if not all, of the risk, in that there is no guarantee of any equity ownership in the company. An investor exchanges cash for a hope that a conversion event occurs.

Read more in this post from Mintz Levin.

Independent Sponsor Deal Sourcing Grows

2017-09-07T18:54:00.000-04:00

Over the past decade, the independent sponsor model has become increasingly prevalent in sourcing transactions in the lower middle market. An “independent sponsor” transaction is one in which a sponsor first sources, conducts due diligence, and negotiates the recapitalization or buyout of an acquisition target and then subsequently seeks financing partners to close the transaction.

Independent sponsors are typically experienced operators, private equity professionals, or other industry veterans with sector-expertise and access to “off-market” deals. The success or failure of a given transaction often turns on the individualized merits, track record, and relationships of a particular sponsor.

Transaction terms and structures vary considerably depending on the nature of the deal and the post-closing involvement of the sponsor. The sponsor and its capital partners will usually co-invest through a single-asset limited liability company whose operating agreement governs the post-closing relationship of the parties.

Read more in this article from Moore and Van Allen.

Considerations in Buying a Franchise

2017-08-31T09:14:00.000-04:00

One way to fulfill entrepreneurship desires is to take advantage of a franchise opportunity. Some of the items to consider when contemplating buying a franchise include:

Cost: Initial franchise fee and other expenses. Continuing payments. Advertising and other fees

Controls:Site approval. Design or appearance standards. Restrictions on goods and services offered for sale. Restrictions on method of operation. Restrictions on sales area.

Terminations and Renewal Provisions

Your Abilities;Your Goals

Training and Support Services

Franchisor’s Experience

Franchisor’s Offering Document

Review by Attorney and Accountant

Read more in this article from SmallBizClub.

Should You Fire a Racist Employee?

2017-08-28T09:28:00.000-04:00

Here are questions that every employer should ask before making a final decision to terminate an employee based on his or her political beliefs or activity:

No. 1. Are you a private sector employer?

No. 2. Are you in a jurisdiction that provides legal protections to employees based on their political beliefs or affiliations?

No. 3. Are you subject to a collective bargaining agreement that protects employees’ political beliefs or affiliations, or requires that terminations be for “just cause”?

No. 4. Based on a contract or law, or even company policy, is this employee subject to termination only for “just cause”?

No. 5. What exactly is this employee’s affiliation? Is it truly “extreme” or racist, or is it simply more to the “left” or “right” than you are?

No. 6. What is this employee’s position in the company?

No. 7. Has this employee expressed his or her affiliation in an inappropriate way?

No. 8. Are you reasonably confident that what you’ve heard about this employee is true?

No. 9. Have you dispassionately assessed the impact of this employee’s political beliefs/activity on the company?

Tips to Handle Tense Negotiations

2017-08-25T09:02:00.002-04:00

Here are few things that you can do and keep in mind when dealing with a difficult topic in order to keep a contract negotiation grounded, focused and moving in a positive direction.

1. Set Clear Goals Ahead of Time. Establish a mutual goal before jumping into the negotiation.

2. Start with the overlap. Start the conversation on things the two sides agree on

3. Don’t ignore the vibe. Pay attention to the mood in the room.

4. Remember that coercion is not the same as negotiating.

5. Don’t underestimate the power of softening the message.

Read more in this post from Nixon Peabody.

The 11 Stages Of Selling A Company

2017-08-24T09:49:00.000-04:00

I have written about the process of selling a privately-owned business in a series of three posts. Part 1 is found here. Part 2 is found here. Part 3 here. The process may also be considered to consist of these eleven stages:

Stage 1: Defining Potential Options and Exit Strategies
Stage 2: Determing a Valuation Range For The Company
Stage 3: Pre-Marketing Value Enhancement
Stage 4: Information Gathering, Data Collection, and Presentation
Stage 5: Marketing Materials Preparation
Stage 6: Buyer Research and Buyer Outreach Strategy
Stage 7: Qualification of Potential Buyers
Stage 8: Negotiation Process
Stage 9: Transaction Structure
Stage 10: IOIs, LOIs, and Purchase Agreements and Closing
Stage 11: Post-Closing Issues & Business Transition

Read more about this topic in this post by Axial from which the foregoing list was compiled.

ESOP as Exit Strategy not a Fable

2017-08-24T09:26:00.000-04:00

One way for business owners to transition their ownership to their employees and to receive liquidity for their shares is through the creation of an employee stock ownership plan (ESOP). An ESOP is a tax-qualified retirement plan that invests primarily in the common stock of the employer.

Business owners may realize both tax and non-tax benefits from using an ESOP to exit their businesses. At the same time, an ESOP can motivate and reward employees of the business by creating ownership opportunities and retirement assets. While there are real benefits to converting a privately held company into an ESOP, there are also complications and drawbacks.

Read more in this article from Davis Wright Tremaine.

Dealing with a PRC Acquirer

2017-08-23T09:29:00.002-04:00

The continued unpredictability of the government of the People's Republic of China (including its recently enhanced foreign exchange control measures), coupled with the ties of some PRC business buyers and financing sources to governmental entities in the PRC, as well as the challenges that a non-PRC counter-party faces when seeking to enforce contractual obligations and non-PRC judgments in PRC courts, merit the implementation of an array of innovative provisions in M&A agreements to protect the seller/target.

Read more in this article from Cleary Gottlieb.

Who Owns IP Created by a Consultant?

2017-08-22T14:35:00.000-04:00

Many people are surprised to learn that the general rule is that, absent a written agreement to the contrary, whoever invents or authors Intellectual Property (IP) owns the IP, and a co-inventor or co-author co-owns the IP. The general rule applies to trade secrets, patentable inventions, and copyrightable subject matter such as software, artwork, etc.)

Hiring-company-oriented consulting agreements should grant the company ownership of IP produced by the consultant and assign the IP to the company in the here and now, as opposed to including a provision requiring an assignment to be made in the future. If the company and consultant each have rights to the IP, the consulting agreement should state clearly which party is the owner and what rights are granted to the non-owner.

Read more in this article from Kilpatrick Townsend.

Transaction Efforts Clauses Explained

2017-08-22T10:33:00.001-04:00

Most transaction documents include efforts clauses as covenants that require a party to perform a certain act or acts to achieve a stated goal. For instance you may be obligated to use:

Best efforts;

Reasonable efforts;
Reasonable best efforts; or

Commercially reasonable efforts.

There are no universally accepted definitions or standards for interpreting these terms. As a result, their use can create ambiguity and uncertainty when a dispute arises, making it difficult to predict an outcome. Read more in this article from Porter Wright.

How to Evaluate an Arbitration Provision

2017-08-17T08:50:00.001-04:00

Here are questions the answers to which may be used to evaluate the terms of an arbitration clause in a commercial contract:

1. What procedural rules apply? Where will the arbitration take place?

2. One arbitrator or three?

3. How will the arbitrators be selected?

4. Are the arbitrators’ qualifications specified?

5. Are all arbitrators to be deemed neutral?

6. What discovery and motion practice is allowed?

7. What is the scope of the arbitrator’s authority?

8. Are time-conscious provisions and limits included?

9. May the arbitrator award costs and/or fees?

10. Is mediation required before the arbitration may proceed?

Joint Ventures and Antitrust

2017-08-16T11:00:00.002-04:00

This is a six-part series from Orrick on the antitrust analysis of joint ventures, which will cover why and how antitrust law applies to joint ventures and how to properly structure them to avoid antitrust liability.

BlockChain Comes of Age

2017-08-15T17:25:00.001-04:00

The interconnected histories of Bitcoin (the most common virtual currency), blockchain and distributed ledger technology (DLT) have a common arc: from systems created to circumvent traditional financial and legal structures, to innovations destined to disrupt financial incumbents, to the focus of intensive investment by the financial sector. In recent weeks, developments in corporate law, securities regulations, financial crimes enforcement and state legislation have moved these technologies ever closer to full legitimacy.

Read more in this article from White and Case.

Smart Contracts Gone Bad

2017-08-15T17:13:00.001-04:00

The potential for new risks and severe consequences arising from smart contract errors, such as a miscalculation of a payment amount (or a series of payment amounts), sensitive data that may be accidentally corrupted or deleted, or a transaction that may be improperly executed because of incorrect data fed into the smart contract, suggests that a re-consideration of indemnification strategies is warranted.

Approaches to address these risks include: (1) cyber-security insurance policies, (2) indemnification agreements with outside vendors, and (3) “make whole” agreements among the smart contract parties themselves. Collectively, insurers, vendors, and other contract parties may provide the best source of indemnification, assuming that the proper contractual arrangements are put in place.

Read more in this post from the Steptoe Blockchain Blog.

Guide to Social Media and Securities Laws

2017-08-15T10:34:00.004-04:00

The growing use of social media has created challenges for federal securities regulators, who must enforce anti-fraud rules that were written at a time when the prevailing technology was the newspaper.

This guide from Morrison Foerster provides a summary of certain key principles relating to the use of social media by issuers that are reporting companies, broker-dealers, investment advisers and investment companies.

Innovative Deadlock Resolution Mechanisms

2017-08-15T08:56:00.000-04:00

What happens if the owners of a business or joint venture become deadlocked as to its operation? How may the dispute be resolved? A common, simple answer is buy-out. One owner or partner purchases the interest of the other. This mechanism is often unsatisfactory, however, because it requires one investor to increase the amount of capital devoted to the business. The buy-out process is also subject to being “gamed.”

Other options that each have strengths and drawbacks, depending on the situation and structure of the venture, include (1) Referring the matter to a vote of a majority of the disinterested participants; (2) In a limited partnership, appointing an additional general partner; (3) Referring the matter automatically to binding arbitration; (4) Entrusting a pre-identified trusted adviser to break the deadlock and determine how the venture will proceed; (5) Appoint a committee to break the deadlock; and (6) Rock, Paper, Scissors, Lizard, Spock.

Read more in this article by Thomas E. Rutledge.

Finders May Not Be Keepers

2017-08-15T08:27:00.000-04:00

You may use finders to help raise capital for your business if their role is limited and their compensation is structured properly. You may cause major problems for yourself and the finder, however, if the finder is too involved and paid commissions on the money raised. These are activities in which only registered broker-dealers (persons or firms engaged in the business of buying and selling securities for themselves or others) may engage. If your company uses a finder who acts as an unregistered broker-dealer, you might find your fundraising round unraveling, and your finder might be in trouble with the Securities and Exchange Commission (SEC).

How to Buy a Business in 8 Steps

2017-08-14T14:02:00.001-04:00

A negotiated purchase of a small or mid-sized business usually follow a predictable course. Here is an infographic that shows the steps. A more detailed presentation may be found here.