Select Client Experience
Software Company Shareholder Agreement
Situation: A software and services company with two shareholders wanted to admit a third shareholder, who would also work for the company and be a substantial contributor.
Selected legal issues: Counsel can help the parties to a stockholders’ agreement review their choices in a buy-sell to come up with a mutually satisfactory pricing mechanism. Counsel adds to the discussion by describing how various buy-out mechanisms work, provide examples, and assist the clients evaluate the benefits and costs.
Result: Revisions to the company’s stockholders’ agreement to facilitate the shareholder joining the company, including adjustments to the buy-sell provision and clarifying exit strategies.
Sale of Company
Situation: The owners of a company wanted to sell out to a buyer they had located. The purchase price was some cash up-front and the bulk of the price paid over seven years.
Selected legal issues: Common legal issues that come up in the sale of a business include the terms of the letter of intent and structure of the sale (e.g., whether an asset sale or stock sale), how the purchase price is paid (e.g., how much in cash, how much in notes, the terms of the notes, and whether the notes are secured by the assets of the business), transitional services (what does the seller keep doing for the buyer after the sale, if anything), representations and warranties (e.g., promises about matters of fact related to the parties or to the business, like the existence, ownership and condition of the seller’s assets, financial results, intellectual property, absence of liens, disclosure of liabilities), indemnification (e.g., if there is a breach of a representation by the seller, when and under what conditions, limitations, and after reaching what threshold amount does the seller have to pay the buyer), post sale employment agreements (if any) and non-competition and non-solicitation obligations.
Result: The buyer’s counsel prepared the initial draft stock purchase agreement. We added promissory notes secured by a security agreement (under UCC Article 9) in the assets of the business. We also negotiated an intellectual property assignment agreement from the founders to the company to perfect the company’s rights in the software.
Form Distributor Agreement
Situation: A technology company in the biometric space wanted to sell its products through a distributor, charge a minimum up-front payment, plus minimum purchase obligations. The company wanted to avoid engaging in the sale of a franchise or business opportunity under applicable laws.
Selected legal issues: A distribution agreement can inadvertently result in the sale of a franchise or business opportunity. Counsel can help you avoid legal pitfalls with your distributors.
Result: A distribution agreement customized to the client’s needs and related operational advice that limits the risk that the distribution agreement involves the sale of a franchise or business opportunity.
Situation: Privately held company wants to raise capital.
Legal issues: There are many legal issues involved when a company raises capital. Does the company sell equity, convertible debt or secured debt? If equity is sold, what are its voting rights and preferences, if any? If debt is sold, what are its terms and what assets are used as collateral, if any? New companies do not typically have assets that can serve as collateral. Companies with profitable operating histories usually do have assets that may serve as collateral.
U.S. securities law now permits public advertising, such as on a website, of unregistered sales of securities to accredited investors, subject to certain conditions. Sales to non-accredited investors are still subject to substantial regulation.
Result: An offering memorandum, subscription agreement, and operating agreement or stockholders’ agreement. Sometimes a convertible promissory notes are used in lieu of issuing equity. If the company has a profitable operating history, secured debt often can be issued.
Securitize Intellectual Property
Situation: Public company wanted to issue notes secured by a URL.
Legal issues: A URL, or universal resource locator, such as a website address, is a relatively new type of personal property. Consequently, perfecting a lien in a URL requires careful consideration. Similarly, foreclosing on such a lien requires careful consideration. The operating agreement mitigated these risks by allowing the representatives and appointees of the note holders to approve a consensual foreclosure in full or partial cancellation of debt under the Uniform Commercial Code. Additionally, this matter involved the negotiation of conditions of default under the notes, setting up a suitable collateral agent agreement, and solicitation of note holders for approval.
Result: The Company issued notes secured by the assets of the company and by the assets of a subsidiary LLC that owned legal title to the URL. We created a sophisticated operating agreement that had two representatives of the noteholders as managers (directors) and one representative of the public company. The operating agreement permitted quick foreclosure by the note holders in the event of default and prevented the URL from becoming entangled with other obligations of the public company.
Standardize Employment Agreements
Situation: Medical practice with 6+ physicians needed an employment agreement to protect the interest of the practice.
Selected legal issues: Employment agreements should be clear and user friendly. When drafting a form employment agreement for a client, careful consideration has to be given to the terms and scope of the post termination covenants.
Result: A form employment agreement with post termination non-competition covenants, non-solicitation covenants, tail-insurance obligations, non-disparagement covenants, full-time and part-time compensation templates, arbitration and more.
Adding a New Partner
Situation: Professional practice, whether in medicine, physical therapy, law, accounting or finance, want to admit a new partner. Conversely, a doctor, physical therapist, lawyer, accountant or financial advisor wants to buy into to a professional practice.
Legal issues: Negotiating how and when the purchase price is paid, sharing of management power, exit and break-up strategies.
Result: This common situation involves successfully negotiating and preparing a stockholders’ agreement or operating agreement (or amendments thereto), a related purchase agreement and possibly an employment agreement.
Create a Company
Situation: Group of founders want to form a new company, and need advice on choosing choice of entity.
Legal issues: The best choice for founders who fund their own company in the early stages usually is to form an LLC taxed as a partnership. This permits the founders, generally, to deduct losses as those are incurred by the business. The best choice for founders who use external funding initially is often a corporation (taxed as a “C corporation”), although there are exceptions. There can be situations when a LLC or corporation taxed as an S corporation is the best choice (e.g., a professional practice or services firm).
Result: Typically, either an operating agreement for a limited liability company or articles or incorporation, bylaws and a stockholders’ agreement of a corporation.
Real Estate Law
Negotiate Complex Lease
Situation: Owners of real estate on which a plastics factory was located lost its major tenant. After locating a new prospect, the owners needed advice on a letter of intent, a new lease with specialized features and help negotiating with the new prospect.
Result: A letter of intent and a signed lease with rights of first refusal and purchase option at the end of the initial term. The lease also revised insurance and maintenance obligations and other features of the lease that originally was for use when the owners, through a separate company, ran a plastics business out of the factory.
We have represented clients in litigation in the following situations:
We represented a company whose former employee stole endorsed preferred stock certificates, placed his name on them and claimed to own the shares for work he had allegedly performed.
We represented a plaintiff shareholder in a dispute with a 50/50 business partner, where the defendant shareholder violated the shareholders’ agreement by suspending the plaintiff’s compensation.
We represented a seller of a business against the buyer of the business, where a former employee of each stole from each and created liability under the seller’s credit cards that the buyer was using under a transitional services agreement between the buyer and seller.
We represented a software company as a defendant in a suit for patent infringement.
We represented an estate in a dispute with a land trust that claimed a right of first offer against land owned by the estate.
We represented two of three trustees in a dispute over the disposition of land held by the trust.
We represented an elderly client in a suite against the manufacturer of a medical device that failed.
We represented a plaintiff who was rear-ended and injured by a truck while she was stuck in traffic.
We represented (on a partially pro bono basis) an executrix and sole beneficiary of a tiny estate against descendants of the decedent who claimed the will was invalid because it was executed while the decedent was incompetent due to illness.
We advised a landlord in a dispute with the EPA over lead-based paint disclosures.
We advised and settled, prior to litigation, a claim for employment discrimination where the plaintiff alleged pregnancy and sex-based discrimination and also sought a release from her non-compete agreement.
We advised and settled, prior to litigation, franchisor and lender claims against a franchisee and its guarantors.