![don’t skip the First step “those in a confidential relationship agreements among the parties.” If the earnout amount be paid immediately
Usually, M&A discussions begin with [AmeriPark]” and that in any letter of intent or purchase agreement rather than undertaking the risks
with the signing of a confidentiality event, discussions with Greenfield neglects to include, or contains only a There is a natural tension between related to business performance under
agreement (sometimes called a non- should have been anticipated since perfunctory, confidentiality provision, the new ownership.
the proposed Gemini financing it may be deemed to have superseded
the value a seller places on its
disclosure agreement or “NDA”).
Too often, the parties gloss over the contemplated a redemption of the NDA, leaving the parties without company and how much a buyer is hedGinG the Bet
importance of these agreements, Greenfield’s stake in AmeriPark. the benefit of the NDA’s protections. willing to pay for it. Another way for buyers and sellers to
considering them boilerplate, perhaps bridge the gap on the purchase price
even signing the form provided by Regardless of whether you agree BridGinG the pUrchase price Gap while allowing the buyer to hedge
the other party without reviewing it with the Court’s ruling, the case There is a natural tension between the its bet is to provide for a “holdback.”
with counsel. If the deal successfully highlights the need to carefully value a seller places on its company A “holdback” is simply the negotiated
closes, this will likely be a non-issue. craft confidentiality agreements. and how much a buyer is willing to portion of the purchase price which is
But when a party walks away from With whom can the parties share pay for it. This tension is elevated in an placed in escrow at closing and held
the negotiation table, a confidentiality confidential information? How is uncertain economic environment, when until the terms of the escrow have
agreement may be all the other party confidential information defined? no one knows what tomorrow may been satisfied. Typically, the holdback
has to protect its interests. Are there any exceptions? What are bring. An “earnout” is designed to serves to ensure that the buyer will be
the permitted uses of confidential bridge this gap by providing additional able to get a portion of the purchase
Take, for instance, a very recent case information? Should the agreement compensation to the seller if certain price returned to it if (a) there is a post-
out of Atlanta, where Gemini, a private also include, among other things, a post-closing targets are met. closing purchase price adjustment
equity firm, signed a term sheet to non-solicitation provision (preventing (e.g., an adjustment based on a
finance the acquisition by AmeriPark the other party from soliciting your Over the last few years, earnouts have requirement that the seller’s balance
of a competitor (Mile Hi). The employees, customers, vendors, become increasingly important in M&A sheet at closing meet certain minimum
term sheet included exclusivity and and even shareholders), a standstill transactions. According to JP Morgan, are well advised to focus on the details consideration. A cap sets a limit on requirements), or (b) the seller is
confidentiality provisions pursuant agreement (preventing the seller the value of earnouts as a percentage of earnouts during the negotiation the total earnout payable, which is required to indemnify the buyer post-
to which AmeriPark “agree[d] not to from soliciting other bids or pursuing of the total deal value rose to a new process. While the structure of an important to protect the buyer if the closing (e.g., for claims based on a
discuss this opportunity or reach any other sales opportunities during the high of 41% in 2011, compared with earnout may vary widely, some of earnout is based, for example, on a breach of the seller’s representations
agreement with any person or entity restricted period), or a provision 37% in 2010 and 25% in 2001. This is the more important issues to address multiple of EBITDA. Particularly and warranties contained in the
regarding financing for this Transaction restricting trading in securities due, in part, to the uncertain economic include: in uncertain times, financing for purchase agreement). Any portion of
or the pursuit of any sale or major (particularly important if one party environment, but also due to the fact • earnout targets (these commonly the earnout payment may not be the holdback that is not returned to the
other financing.” During the exclusivity is a public company)? Depending on that business valuations are increasing include gross sales, net income and available, or existing loan covenants buyer generally is released to the seller
period, AmeriPark abandoned the your role in the transaction and the while less debt financing is available EBITDA, but earnouts can also be might create a conflict between the at the end of the holdback period.
negotiations and began talks with one facts and circumstances, you may wish to provide the cash to pay such higher based on non-financial targets); buyer’s obligations to the seller
of its largest shareholders (Greenfield), to include an expansive or narrower prices. We expect that earnouts will • earnout period (the additional and to the buyer’s bank. A buyout Having an escrow holdback reduces
who was also the sole shareholder of definition of confidential information, continue to be a significant component payment could be a one-time event option generally entitles the buyer the buyer’s risk and, thus, can serve
Mile Hi, eventually completing the restrict the range of permitted uses of of deal compensation, at least in the or stretched over multiple years; to pay a specified amount to satisfy to increase the purchase price to the
acquisition using seller financing and the information, or insist on some or near term. the period is sometimes tied to an any remaining earnout payment seller. Of course, the seller is deprived
totally cutting Gemini out of the deal. many additional protective provisions. employment or non-compete period); obligations. This may become of the use of the holdback funds during
Gemini sued AmeriPark for breach Conceptually, earnouts seem • structure of the earnout (which could important, for example, if the buyer the escrow period and the holdback
of the exclusivity and confidentiality Once the parties have carefully straightforward. If the target company be a fixed amount or based on a decides to sell its business prior may tend to shift the parties’ respective
provisions arguing that the term “any crafted their NDA, they should be achieves certain targets following the multiple, percentage, or some other to the end of the earnout period, leverage in any post-closing purchase
person or entity” was unambiguous careful not to inadvertently supersede sale, the seller “earns” more money. formula); and since potential buyers may not be price adjustment or indemnification
and clearly covered Greenfield. or render it void when they enter But like so many things, the devil is in • caps, early buyout provisions, and interested in buying a company with dispute. Accordingly, the terms of
The court disagreed, noting that into subsequent letters of intent or the details, resulting in a high degree acceleration provisions (devices to future earnout payment obligations, the holdback, including the amount,
an exception to the confidentiality definitive purchase agreements. Often of pre-signing negotiations and post- limit the parties’ ultimate monetary particularly if they are uncapped. duration, and specific purpose and
provision contemplated that the those agreements include a provision closing disputes between buyers and risks). Conversely, an acceleration provision terms of the holdback are often heavily
transaction could be discussed with that states “this agreement sets forth sellers. Parties to M&A transactions generally requires the buyer to negotiated.
the entire understanding of the parties In many deals, the focus is on the immediately pay a fixed earnout continued on next page >
hereto with respect to the subject first three items above, but equal amount if certain specified events occur.
matter hereof and supersedes all prior attention should be given to the fourth For example, if the buyer undergoes
a change of control after closing, the
seller may prefer that a minimum
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![dUe diliGence
IT in the Current M&A Market
&A activity appears In early stage planning, the Acquirer In conducting intellectual property An Acquirer should also keep in law may not be facially evident. Share Moreover, rights under an exclusive
to be returning should identify its immediate business due diligence, a lawyer will focus on mind that express or implied licenses purchases generally do not trigger license may be viewed differently
to, and may even objectives (i.e., to acquire new the intellectual property rights, rather might be granted in agreements that non-assignment clauses , but may be than non-exclusive rights. Other
exceed, levels seen technology, new or complementary than the subject matter of those rights. are not titled as license agreements, blocked by an express change of control issues to consider are the existence of
in the middle of the products, employees, technical Intellectual property rights are patents, such as distribution, manufacturing, provision or in a “sham” transaction noncompetition commitments, most
last decade, if the knowledge, trademarks, channels, copyrights, trademarks, and trade development, joint venture, consulting, specifically intended to assign a favored nations obligations, and open
effects of the financial sources, or other intellectual property secret rights. The subject matter of such and settlement agreements. license. Similarly, a reverse merger source software complications.
meltdown do not rights), as well as its long-term strategic rights includes, but is not limited to, (including a reverse triangular merger)
continue to haunt us. goals. To accommodate a short-term software, semiconductor designs, Critical items to be examined are in which the licensee survives does A consulting firm found that, while
As one commentator exit strategy, for example, the acquired product specifications, methods, the chain of title of owned assets and not usually trigger a non-assignment 50 to 60 percent of its clients’ M&A
has noted: intellectual property assets might be processes, documentation, etc. In short, the assignability clauses of licensed clause. However, a merger in which activity was intended to capture
“If 2010 was the year in which assigned to the same subsidiary that any product, invention, idea, material, assets. Common examples of chain of the licensee does not survive does synergies related to technology,
mergers and acquisitions got back acquires title to the tangible assets, in or information may be protectable title problems include (a) ineffective trigger a non-assignment clause. As most technology issues were not
off the mat, 2011 could be the year in order to simplify a future divestiture, under intellectual property laws. A assignments of rights under “work one court has explained, “[a] transfer fully addressed during the diligence
which it starts throwing haymakers. rather than assign the intellectual single asset might include multiple made for hire,” because legal tests is no less a transfer because it takes process or post-deal planning. An
Global M&A has totaled $309 billion property to a subsidiary whose sole intellectual property assets or subject were not met, (b) lack of consideration place by operation of law rather than Acquirer that prioritizes and focuses
since January 1, according to data purpose is to own all the affiliated matter from a legal perspective. For in invention assignments, (c) lack of by a particular act of the parties. The its technology and intellectual
from Thomson Reuters. That’s a 69% entities’ intellectual property rights. example, proprietary software (a) may specificity with respect to assignment merger was effected by the parties and property due diligence from the
jump over the same period in 2009, Additionally, the scope, and thus the be copyrightable as a whole, (b) may documents (particularly with catch all the transfer was a result of their act planning stages of a deal will no
and represents the busiest start since expense, of due diligence should be include algorithms, code, methods or phrases such as “all rights necessary” for of merging.” Since judicial decisions doubt recover more value, mitigate
2000.” weighed against the transaction’s processes that might be independently a particular purpose or license), and (d) turn on a transaction’s facts, there are risks, and achieve greater goals. This
strategic importance. Although patentable, (c) may include internal failure to grant the licensee a right to decisions contrary in result, pointing to is particularly true if the Acquirer’s
In the new era, key characteristics of M&A expensive, due diligence is crucial to designs and internal documentation sue third parties for infringement. the intellectual property subject matter, key information technology
activity have changed. At an ever-increasing the discovery of “landmines.” that constitute trade secrets, even For each significant license, the the fine points of the applicable state personnel are involved in the early
pace, transaction if not patentable, and (d) may well Acquirer should consider: (1) Does merger statute, the federal preemption planning stage, in coordination
value will derive If a transaction fails to close, the be associated with brand names or the license agreement contain any deference, specific licensure provisions, with the Target’s counterparts, since
from information Acquirer’s employees might retain their logos that constitute trademarks. The provisions regarding assignment, and equitable considerations, such discovered information might be too
technology. Yet, knowledge, gleaned during diligence, distinction between rights and subject change of control, and similar issues? as whether the subject matter will be technical to be properly interpreted
with tighter access of the Target’s valuable proprietary matter is also important to help the (2) Do such restrictions apply, given owned by a competitor. in a legal review. Thus, the Acquirer
to financial markets, information. The Acquirer could be left Acquirer remain focused on the positive the contemplated structure of the may gain a superior bargaining
Acquirers face little at risk for misuse of such information, or value and the negative or limitations of deal? (3) Outside of the transaction Governing law might contradict the position in negotiating meaningful
room for error. Since such as claims for misappropriation intellectual property. Acquirers should agreement, what rules govern the license agreement or itself be unclear. representations, warranties, and
studies have shown of the trade secrets of the Target or its avoid focusing only on the positive or transfer of this licensed asset? Whether For example, some rights are governed indemnifications that address
that many M&A competitors, as well as an increased value of intellectual property, while a license contains restrictions is, of by federal common law (e.g., patent identified intellectual property risks.
deals fail to achieve risk of treble damages for patent ignoring the negative or limitations, such course, evident from examining the licenses and copyrightable subject
their primary goals, infringement, if knowledge obtained as infringement or misappropriation of text, although provisions that indirectly matter), while other rights are governed
parties now pay more attention to diligence, during diligence serves as the basis for third-party intellectual property rights, affect assignment should be considered. by state law (e.g., trade secrets), and
which, during times of intensive dealflow, a “willfullness” finding. Therefore, which may be derived, for example, Whether the transaction structure some rights involve both federal and
was often relegated to junior associates as a the Acquirer should enter into a from title defects at any point in the constitutes an assignment or change state law (e.g., trademark licenses).
mere checklist item. Thus, with technology nondisclosure or standstill agreement chain of ownership or from prohibitions in control under the agreement’s
becoming increasingly important, with the Target that addresses on assignment in present or prior definitions (or lack thereof) or governing
technology due diligence is a top priority. permitted use of disclosed information, transactions.
as well as permitted recipients.
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Insights Newsletter Autumn 2011.Final[1]
- 1. ® A Newsletter from Shumaker, Loop & Kendrick, LLP Autumn 2011 6 Alternative M&A Methods in 8 IT in the Current M&A Market 12 M&A: Foreign Corrupt 16 Cloud Computing 18 Employment Issues in Mergers & Acquisitions Distressed Settings Practices Act Dealing with Uncertainty in Mergers & Acquisition Transactions ed itor ’s note ver the last two years, since the nadir of the financial crises, M&A Recently, Shumaker has seen an increase in transactions involving mergers, acquisitions, activity has been on the rise. In sales of substantially all assets, divestitures, 2010, total U.S. M&A activity rose and joint ventures (collectively, “M&A”). to 1,933 deals from 1,116 deals in Additionally, according to The Wall Street 2009, an increase of 73%. Thus Journal (p. C1, Oct. 24, 2011), bank lending far in 2011, overall U.S. M&A deal has returned to M&A transactions. Therefore, volume remains healthy, with nearly we have devoted our Autumn 2011 Insights 1,000 closed transactions in the first Newsletter to highlight current M&A topics By Julio Esquivel potentially of interest to our clients. half of 2011, up nearly 30% from the prior year period. This trend should continue, RegINA JOSeph given the unprecedented amount of cash on the balance sheets of many corporate buyers, limited opportunities for organic growth, the increasing As a result, there are significant risks in availability of leverage (at historically low interest attempting to buy or sell a business under rates), and the need for hedge funds to invest current market conditions. Will the buyer be their so-called “dry powder” or liquidate their able to obtain the financing required to pay the portfolio investments as a result of their investment purchase price? What if there is another market mandates. downturn that negatively impacts the seller’s business? Will pre-closing buyer’s remorse By Ben Hanan Volatility in the marketplace require renegotiation or termination of the deal? Nevertheless, significant, ongoing financial What if the seller hasn’t fully disclosed trends or concerns remain, led by fears of a European debt events that will negatively impact the business crisis, intransigent high unemployment, a glut of in the future? How do buyers and sellers hedge foreclosures, the potential for a double-dip U.S. their bets and protect their interests? recession, the recent downgrade of U.S. debt, and our seemingly dysfunctional political system. Is it Negotiating M&A purchase agreements is, at its any wonder the markets overanalyze every gesture core, the allocation of risks among the parties to of Fed Chairman Ben Bernanke and jump at the the transaction. A full discussion of the various slightest rustle? Thus, even though U.S. banks interwoven and complex considerations that go today are better capitalized than they were in 2008 By Greg Yadley into that allocation is beyond the scope of this and corporations are sitting on unprecedented article. Instead, we highlight below five hot amounts of cash and GDP continues to grow (albeit topics to which buyers and sellers should pay at a slow pace), the credit markets and, hence, the particular attention as they strike deals in this M&A environment, remain highly volatile. uncertain environment. continued on next page >
- 2. don’t skip the First step “those in a confidential relationship agreements among the parties.” If the earnout amount be paid immediately Usually, M&A discussions begin with [AmeriPark]” and that in any letter of intent or purchase agreement rather than undertaking the risks with the signing of a confidentiality event, discussions with Greenfield neglects to include, or contains only a There is a natural tension between related to business performance under agreement (sometimes called a non- should have been anticipated since perfunctory, confidentiality provision, the new ownership. the proposed Gemini financing it may be deemed to have superseded the value a seller places on its disclosure agreement or “NDA”). Too often, the parties gloss over the contemplated a redemption of the NDA, leaving the parties without company and how much a buyer is hedGinG the Bet importance of these agreements, Greenfield’s stake in AmeriPark. the benefit of the NDA’s protections. willing to pay for it. Another way for buyers and sellers to considering them boilerplate, perhaps bridge the gap on the purchase price even signing the form provided by Regardless of whether you agree BridGinG the pUrchase price Gap while allowing the buyer to hedge the other party without reviewing it with the Court’s ruling, the case There is a natural tension between the its bet is to provide for a “holdback.” with counsel. If the deal successfully highlights the need to carefully value a seller places on its company A “holdback” is simply the negotiated closes, this will likely be a non-issue. craft confidentiality agreements. and how much a buyer is willing to portion of the purchase price which is But when a party walks away from With whom can the parties share pay for it. This tension is elevated in an placed in escrow at closing and held the negotiation table, a confidentiality confidential information? How is uncertain economic environment, when until the terms of the escrow have agreement may be all the other party confidential information defined? no one knows what tomorrow may been satisfied. Typically, the holdback has to protect its interests. Are there any exceptions? What are bring. An “earnout” is designed to serves to ensure that the buyer will be the permitted uses of confidential bridge this gap by providing additional able to get a portion of the purchase Take, for instance, a very recent case information? Should the agreement compensation to the seller if certain price returned to it if (a) there is a post- out of Atlanta, where Gemini, a private also include, among other things, a post-closing targets are met. closing purchase price adjustment equity firm, signed a term sheet to non-solicitation provision (preventing (e.g., an adjustment based on a finance the acquisition by AmeriPark the other party from soliciting your Over the last few years, earnouts have requirement that the seller’s balance of a competitor (Mile Hi). The employees, customers, vendors, become increasingly important in M&A sheet at closing meet certain minimum term sheet included exclusivity and and even shareholders), a standstill transactions. According to JP Morgan, are well advised to focus on the details consideration. A cap sets a limit on requirements), or (b) the seller is confidentiality provisions pursuant agreement (preventing the seller the value of earnouts as a percentage of earnouts during the negotiation the total earnout payable, which is required to indemnify the buyer post- to which AmeriPark “agree[d] not to from soliciting other bids or pursuing of the total deal value rose to a new process. While the structure of an important to protect the buyer if the closing (e.g., for claims based on a discuss this opportunity or reach any other sales opportunities during the high of 41% in 2011, compared with earnout may vary widely, some of earnout is based, for example, on a breach of the seller’s representations agreement with any person or entity restricted period), or a provision 37% in 2010 and 25% in 2001. This is the more important issues to address multiple of EBITDA. Particularly and warranties contained in the regarding financing for this Transaction restricting trading in securities due, in part, to the uncertain economic include: in uncertain times, financing for purchase agreement). Any portion of or the pursuit of any sale or major (particularly important if one party environment, but also due to the fact • earnout targets (these commonly the earnout payment may not be the holdback that is not returned to the other financing.” During the exclusivity is a public company)? Depending on that business valuations are increasing include gross sales, net income and available, or existing loan covenants buyer generally is released to the seller period, AmeriPark abandoned the your role in the transaction and the while less debt financing is available EBITDA, but earnouts can also be might create a conflict between the at the end of the holdback period. negotiations and began talks with one facts and circumstances, you may wish to provide the cash to pay such higher based on non-financial targets); buyer’s obligations to the seller of its largest shareholders (Greenfield), to include an expansive or narrower prices. We expect that earnouts will • earnout period (the additional and to the buyer’s bank. A buyout Having an escrow holdback reduces who was also the sole shareholder of definition of confidential information, continue to be a significant component payment could be a one-time event option generally entitles the buyer the buyer’s risk and, thus, can serve Mile Hi, eventually completing the restrict the range of permitted uses of of deal compensation, at least in the or stretched over multiple years; to pay a specified amount to satisfy to increase the purchase price to the acquisition using seller financing and the information, or insist on some or near term. the period is sometimes tied to an any remaining earnout payment seller. Of course, the seller is deprived totally cutting Gemini out of the deal. many additional protective provisions. employment or non-compete period); obligations. This may become of the use of the holdback funds during Gemini sued AmeriPark for breach Conceptually, earnouts seem • structure of the earnout (which could important, for example, if the buyer the escrow period and the holdback of the exclusivity and confidentiality Once the parties have carefully straightforward. If the target company be a fixed amount or based on a decides to sell its business prior may tend to shift the parties’ respective provisions arguing that the term “any crafted their NDA, they should be achieves certain targets following the multiple, percentage, or some other to the end of the earnout period, leverage in any post-closing purchase person or entity” was unambiguous careful not to inadvertently supersede sale, the seller “earns” more money. formula); and since potential buyers may not be price adjustment or indemnification and clearly covered Greenfield. or render it void when they enter But like so many things, the devil is in • caps, early buyout provisions, and interested in buying a company with dispute. Accordingly, the terms of The court disagreed, noting that into subsequent letters of intent or the details, resulting in a high degree acceleration provisions (devices to future earnout payment obligations, the holdback, including the amount, an exception to the confidentiality definitive purchase agreements. Often of pre-signing negotiations and post- limit the parties’ ultimate monetary particularly if they are uncapped. duration, and specific purpose and provision contemplated that the those agreements include a provision closing disputes between buyers and risks). Conversely, an acceleration provision terms of the holdback are often heavily transaction could be discussed with that states “this agreement sets forth sellers. Parties to M&A transactions generally requires the buyer to negotiated. the entire understanding of the parties In many deals, the focus is on the immediately pay a fixed earnout continued on next page > hereto with respect to the subject first three items above, but equal amount if certain specified events occur. matter hereof and supersedes all prior attention should be given to the fourth For example, if the buyer undergoes a change of control after closing, the seller may prefer that a minimum www.slk-law.com 3
- 3. According to JP Morgan, based on a neGotiatinG the oUts that Among the concessions that buyers aGreeinG Up Front on the study of 250 publicly-disclosed M&A let a BUyer walk From a deal may attempt to obtain from sellers penalty For FailinG to close transactions in 2010: Generally, once the parties sign an M&A are the following: Because no deal is guaranteed to close, Unfortunately, buyers and sellers • the median percentage of the agreement they are bound to close the • Limiting pro-seller exclusions to the parties should carefully consider often fail to pay sufficient attention to purchase price placed into a holdback transaction if the stated conditions to the definition of MAE (typical pro- their remedies should the other party escrow was 9%; closing are satisfied. Common closing seller exclusions include changes fail to close, whether as a result of a non- the ramifications of a failure to close • the median duration of the holdback conditions include receipt of financing, in law or GAAP and general willful breach (e.g., the buyer’s inability when negotiating M&A transactions. escrow was 18 months; third-party consents, and shareholder economic downturns that impact to obtain financing notwithstanding • among transactions in which approval. However, during the pre- the seller’s industry as a whole good faith efforts) or willful breach (e.g., representations and warranties closing period (i.e., the period between and not the seller individually); buyer’s remorse). As was evidenced survived closing, 83% were the signing of the M&A agreement • Shifting the burden of proof to by the wave of busted deals during the supported by a holdback escrow to and the closing), there is a risk that the seller (which requires that the recent financial crisis, this is particularly mitigate buyer risk; and some event may arise that materially seller establish that no MAE has important to sellers in uncertain • 24% of escrow agreements called for negatively impacts the business of the occurred, or at least that one of the economic environments where multiple escrow accounts to be used seller, a so-called “Material Adverse MAE exclusions is applicable); financing is uncertain and bad economic for distinct purposes (one for general Event” or “MAE.” Examples of MAEs • Making the MAE forward-looking news can easily spook buyers and their indemnification purposes and the include the loss of the seller’s largest (by revising the definition of an lenders and investors. other for purchase price adjustments). customer or a fire, flood, or other force MAE so that it includes “any majeure event that significantly impacts event which results or is reasonably Unfortunately, buyers and sellers often As an alternative or supplement to the seller’s operations. Accordingly, expected to result either before or fail to pay sufficient attention to the a holdback, buyers and sellers also most M&A purchase agreements state after Closing in a material adverse ramifications of a failure to close when • Specific performance if the financing equity/financial buyers require some may wish to consider representation that one of the conditions to the buyer’s impact on the seller’s business, negotiating M&A transactions. Perhaps is available; reverse break-up fee if debt financing to pay the purchase and warranty insurance. In general, obligation to close the transaction is that operations, assets, or prospects”); this is because neither party wishes to the financing fails (the seller has the price, and, as a result, demand financing representation and warranty insurance the seller “shall not have undergone and think about the possibility that the deal right to force the buyer to close if closing conditions and opt for some provides buyers with additional a Material Adverse Event” prior to • Setting the measurement period may collapse, or perhaps it is because financing is available, but if financing form of reverse break-up fee for failure risk mitigation, particularly in closing. Because the occurrence of an (so that the determination of they are focused on what they believe is unavailable, the seller’s only to close, instead of specific performance. situations where the holdback is non- MAE would allow the buyer to walk whether an MAE has occurred are the bigger issues (like earnouts remedy is a reverse break-up fee); In either event, with both financial and existent or relatively small, or where from the deal without being in breach of is not judged solely on the long- and holdbacks). Nevertheless, in this and strategic buyers, of the forgoing four sellers have imposed caps or other the agreement, MAE clauses are heavily term prospects of the seller (as the volatile market, both buyers and sellers • Pure damages (no specific categories of damages, the last limitations on their indemnification negotiated between the parties to M&A Delaware courts tend to do), but should carefully consider their remedies performance and no break-up fee, (pure damages) is the least common. obligations. Conversely, sellers may transactions. also on the short-term). prior to signing a definitive purchase but instead, if the buyer fails to close, wish to purchase representation and and sale agreement. the seller can sue the buyer to recover conclUsion warranty insurance to mitigate their Following the 2007/2008 financial its expenses and damages, which it In an uncertain economic environment, indemnification exposure and as a meltdown, MAE clauses have Generally, the remedies available to must prove). even the plain vanilla provisions means to exit their investment cleanly received additional attention in M&A a seller can be categorized into the in an M&A transaction are subject and quickly. For example, a seller may negotiations. Obviously, sellers want to following four categories, but these While there is no absolute rule, the to greater scrutiny. The five areas wish to buy insurance so that it knows limit the applicability and breadth of the remedies may be combined and remedies reflected in negotiated M&A highlighted in this article are among exactly how much of the purchase price clause, while buyers want to strengthen modified in several fashions: purchase agreements tend to vary those that require closer attention and it has available to pay off creditors, and clarify their ability to walk away • Specific performance (if the buyer depending on whether the buyer is a provide a means for counsel to use limited partners, and other investors, or from the deal. Furthermore, during refuses to close, the seller can request a financial or strategic buyer and whether their creativity to help their clients to enter into another venture, instead of the last few years, these negotiations court to force the buyer to do so); it needs debt financing to fund the negotiate and, more importantly, close having to reserve a part of the purchase have been impacted by a series of recent • Reverse break-up fee and no specific transaction. Generally, because most deals in troubled times. While the price for indemnification contingencies. Delaware cases in which the courts performance (if the buyer fails to close, strategic buyers do not require financing possibility of unfavorable outcomes While representation and warranty consistently have ruled in favor of the the seller is only entitled to payment of to complete a deal (many are sitting on cannot be eliminated, by identifying insurance has been around for several sellers and concluded that no event a negotiated fee as an exclusive remedy large cash stockpiles), most are willing and addressing the risks that are most years, in the U.S. this insurance product had occurred that qualified as an MAE, and cannot force the buyer to close or to sign agreements without a financing critical, the parties can reduce the is still rarely used. Still, both buyers and as defined in the various purchase seek any damages; this can be a single condition and to agree to specific impact of unforeseen circumstances sellers may wish to explore its benefits agreements at issue. As a result, we fee or a two-tiered fee, with a higher performance should they fail and protect themselves through skillful and costs, particularly in this economic expect that buyers will become even fee payable for a willful breach and to close. Conversely, most private negotiation of the M&A deal provisions environment. more aggressive in negotiating MAE a lower fee payable for a non-willful discussed in this article. clauses. breach); www.slk-law.com 5
- 4. alternatiVe methods Alternative M&A Methods in Distressed Settings METHOD DESCRIPTION KEY CHARACTERISTICS Section 363 Sale Bankruptcy Code Section 363 provides a framework for asset sales (outside • Judicial proceeding under Chapter 11 of the Bankruptcy Code the ordinary course) and an opportunity for interested parties to be heard. • Typically an abbreviated stay in bankruptcy Structurally, a Section 363 Sale is similar to a traditional auction process. • Assets are transferred free and clear of liens and encumbrances pursuant A basic Section 363 Sale includes an initial “stalking horse” bidder who to section 363(f) negotiates and enters into a “stalking horse agreement” to purchase all, or • Purchaser is given clean title to assets and protection from successor substantially all, assets from a Chapter 11 debtor. Through a formal and liability by federal court order well-publicized bidding and auction process, the stalking horse agreement hile lingering classes of creditor constituents and situation. Consequently, it is incumbent is subjected to higher and otherwise better bids by other qualified bidders • Allows for the ability to bind non-consenting constituencies tightness in their willingness to engage in a sale on the purchaser to strike a balance using the stalking horse agreement as a baseline. Certain protections • Process can be expensive (debtor-in-possession financing, judicial oversight, professional fees) the capital process, the priority and extent of between the available opportunities are also afforded to a stalking horse bidder, including strict qualification • Provides for the ability to “cherry pick” favorable contracts and leases markets existing liens of secured creditors, and the attendant risks. Selecting the requirements for other qualified bidders, a break-up fee (generally between 1% and 5% of the sale price), expense reimbursement (up to a defined and volatile expedited due diligence, and limited appropriate process is just the first step cap), and minimum overbid increments. The final purchase agreement economic contractual protections afforded to in the journey, but it can often set the between the prevailing bidder and the debtor is subject to bankruptcy court conditions distressed purchasers. One of the tone for the overall transaction and approval. continue fundamental questions for potential should not be taken lightly. to hinder purchasers in a distressed M&A Article 9 Sale An Article 9 Sale enables a secured creditor, following a default by the debtor • Non-judicial foreclosure proceeding under applicable state law the ability transaction is how to structure and The main procedural methods on such secured obligations, to sell all of its collateral in a “commercially • Sale must be “commercially reasonable” (process, time, place, of many companies to refinance their implement the sale process. Most for implementing distressed asset reasonable” manner. Generally, a disposition of collateral is “commercially and other terms) debt or recapitalize their balance sheets, distressed M&A transactions are sales include the following: (i) a reasonable” if the disposition is made: (i) in the usual manner on any rec- • Can be public or private sale process a significant number of otherwise structured as asset deals, frequently sale pursuant to Section 363 of the ognized market; (ii) at the price current in any recognized market at the time • Typically discharges junior liens, but does not afford the “free and clear” of the disposition; (iii) in conformity with reasonable commercial practices protections of a Section 363 Sale fundamentally sound companies are enabling a purchaser to “cherry pick” Bankruptcy Code (a “363 Sale”); among dealers in the type of property that was the subject of the disposition; • Executed quickly and inexpensively as compared to Section 363 Sale financially distressed to the extent that select assets and leave behind certain (ii) a sale pursuant to Article 9 of the or (iv) after approval in a judicial proceeding, by a creditors’ committee, • More likely to result in diminished going concern value a sale of the company, or substantially liabilities of the existing business. Uniform Commercial Code (an “ Article or representative of creditors. • More limited notice requirements as compared to Section 363 Sale all of its assets, is the only viable 9 Sale”); (iii) a sale in connection with a alternative. As a While the sale of distressed assets receivership; and (iv) an result of ongoing under a conventional bankruptcy assignment for the benefit of creditors A receivership is a type of judicial insolvency proceeding involving the appoint- • Judicial proceeding outside Chapter 11 economic woes, proceeding pursuant to Chapter 11 (an “ABC”). The following table Receivership ment of a “receiver” to administer the assets of a company. A receiver may • Expedited time frame for sale significant M&A of the Bankruptcy Code is largely a contains a brief summary of each of the run the company in order to maximize the value of the company’s assets, sell • Provides protection from waste or deterioration of underlying collateral opportunities relic of the past due to the high costs aforementioned methods and certain the company as a whole, or sell part of the company and close unprofitable • More costly option because of judicial oversight continue to abound and the protracted nature of such key characteristics of each method. divisions. • Assets not transferred free and clear of all liens for strategic and proceedings, the methods described • Like a bankruptcy proceeding, a receivership forces creditors into a single forum financial buyers below offer potential purchasers alike in the significant opportunities, albeit distressed M&A with a somewhat heightened level Assignment for An ABC is a type of non-judicial insolvency proceeding governed by state • Non-judicial proceeding governed by state law rather than federal market to fuel of risk. However, determining the law rather than federal bankruptcy law. An ABC typically involves a contract bankruptcy law the Benefit of business growth – especially where such appropriate structure and process for where a troubled entity transfers legal and equitable title to a third party • Generally less expensive than a Section 363 Sale Creditors assets can frequently be purchased for distressed M&A transactions is not a assignee in trust. The assignee then conducts an orderly liquidation of the • Typically requires shareholder approval assets (either piecemeal or in bulk) and distributes proceeds to the assignor’s • Unlike a Chapter 7 trustee, who is randomly appointed from an approved pennies on the dollar. “one size fits all” endeavor. Rather, creditors based on the priorities established under applicable law. panel, assignee is appointed by the company each transaction is unique and must be • Contracts and leases cannot be assigned without required consents However, the distressed M&A landscape assessed based upon the specific facts • Assets not transferred free and clear of all liens (only known liens) is vastly different from that found and circumstances of the particular • Risk of subsequent involuntary bankruptcy filing by unhappy creditors in a conventional M&A transaction. (requires 3 or more unsecured creditors) • Generally an event of default under most contracts Potential purchasers in distressed M&A transactions must consider a variety of distinct issues, including the need and amount of bridge financing to complete a sale process, the relationship between www.slk-law.com 7
- 5. dUe diliGence IT in the Current M&A Market &A activity appears In early stage planning, the Acquirer In conducting intellectual property An Acquirer should also keep in law may not be facially evident. Share Moreover, rights under an exclusive to be returning should identify its immediate business due diligence, a lawyer will focus on mind that express or implied licenses purchases generally do not trigger license may be viewed differently to, and may even objectives (i.e., to acquire new the intellectual property rights, rather might be granted in agreements that non-assignment clauses , but may be than non-exclusive rights. Other exceed, levels seen technology, new or complementary than the subject matter of those rights. are not titled as license agreements, blocked by an express change of control issues to consider are the existence of in the middle of the products, employees, technical Intellectual property rights are patents, such as distribution, manufacturing, provision or in a “sham” transaction noncompetition commitments, most last decade, if the knowledge, trademarks, channels, copyrights, trademarks, and trade development, joint venture, consulting, specifically intended to assign a favored nations obligations, and open effects of the financial sources, or other intellectual property secret rights. The subject matter of such and settlement agreements. license. Similarly, a reverse merger source software complications. meltdown do not rights), as well as its long-term strategic rights includes, but is not limited to, (including a reverse triangular merger) continue to haunt us. goals. To accommodate a short-term software, semiconductor designs, Critical items to be examined are in which the licensee survives does A consulting firm found that, while As one commentator exit strategy, for example, the acquired product specifications, methods, the chain of title of owned assets and not usually trigger a non-assignment 50 to 60 percent of its clients’ M&A has noted: intellectual property assets might be processes, documentation, etc. In short, the assignability clauses of licensed clause. However, a merger in which activity was intended to capture “If 2010 was the year in which assigned to the same subsidiary that any product, invention, idea, material, assets. Common examples of chain of the licensee does not survive does synergies related to technology, mergers and acquisitions got back acquires title to the tangible assets, in or information may be protectable title problems include (a) ineffective trigger a non-assignment clause. As most technology issues were not off the mat, 2011 could be the year in order to simplify a future divestiture, under intellectual property laws. A assignments of rights under “work one court has explained, “[a] transfer fully addressed during the diligence which it starts throwing haymakers. rather than assign the intellectual single asset might include multiple made for hire,” because legal tests is no less a transfer because it takes process or post-deal planning. An Global M&A has totaled $309 billion property to a subsidiary whose sole intellectual property assets or subject were not met, (b) lack of consideration place by operation of law rather than Acquirer that prioritizes and focuses since January 1, according to data purpose is to own all the affiliated matter from a legal perspective. For in invention assignments, (c) lack of by a particular act of the parties. The its technology and intellectual from Thomson Reuters. That’s a 69% entities’ intellectual property rights. example, proprietary software (a) may specificity with respect to assignment merger was effected by the parties and property due diligence from the jump over the same period in 2009, Additionally, the scope, and thus the be copyrightable as a whole, (b) may documents (particularly with catch all the transfer was a result of their act planning stages of a deal will no and represents the busiest start since expense, of due diligence should be include algorithms, code, methods or phrases such as “all rights necessary” for of merging.” Since judicial decisions doubt recover more value, mitigate 2000.” weighed against the transaction’s processes that might be independently a particular purpose or license), and (d) turn on a transaction’s facts, there are risks, and achieve greater goals. This strategic importance. Although patentable, (c) may include internal failure to grant the licensee a right to decisions contrary in result, pointing to is particularly true if the Acquirer’s In the new era, key characteristics of M&A expensive, due diligence is crucial to designs and internal documentation sue third parties for infringement. the intellectual property subject matter, key information technology activity have changed. At an ever-increasing the discovery of “landmines.” that constitute trade secrets, even For each significant license, the the fine points of the applicable state personnel are involved in the early pace, transaction if not patentable, and (d) may well Acquirer should consider: (1) Does merger statute, the federal preemption planning stage, in coordination value will derive If a transaction fails to close, the be associated with brand names or the license agreement contain any deference, specific licensure provisions, with the Target’s counterparts, since from information Acquirer’s employees might retain their logos that constitute trademarks. The provisions regarding assignment, and equitable considerations, such discovered information might be too technology. Yet, knowledge, gleaned during diligence, distinction between rights and subject change of control, and similar issues? as whether the subject matter will be technical to be properly interpreted with tighter access of the Target’s valuable proprietary matter is also important to help the (2) Do such restrictions apply, given owned by a competitor. in a legal review. Thus, the Acquirer to financial markets, information. The Acquirer could be left Acquirer remain focused on the positive the contemplated structure of the may gain a superior bargaining Acquirers face little at risk for misuse of such information, or value and the negative or limitations of deal? (3) Outside of the transaction Governing law might contradict the position in negotiating meaningful room for error. Since such as claims for misappropriation intellectual property. Acquirers should agreement, what rules govern the license agreement or itself be unclear. representations, warranties, and studies have shown of the trade secrets of the Target or its avoid focusing only on the positive or transfer of this licensed asset? Whether For example, some rights are governed indemnifications that address that many M&A competitors, as well as an increased value of intellectual property, while a license contains restrictions is, of by federal common law (e.g., patent identified intellectual property risks. deals fail to achieve risk of treble damages for patent ignoring the negative or limitations, such course, evident from examining the licenses and copyrightable subject their primary goals, infringement, if knowledge obtained as infringement or misappropriation of text, although provisions that indirectly matter), while other rights are governed parties now pay more attention to diligence, during diligence serves as the basis for third-party intellectual property rights, affect assignment should be considered. by state law (e.g., trade secrets), and which, during times of intensive dealflow, a “willfullness” finding. Therefore, which may be derived, for example, Whether the transaction structure some rights involve both federal and was often relegated to junior associates as a the Acquirer should enter into a from title defects at any point in the constitutes an assignment or change state law (e.g., trademark licenses). mere checklist item. Thus, with technology nondisclosure or standstill agreement chain of ownership or from prohibitions in control under the agreement’s becoming increasingly important, with the Target that addresses on assignment in present or prior definitions (or lack thereof) or governing technology due diligence is a top priority. permitted use of disclosed information, transactions. as well as permitted recipients. www.slk-law.com 9
- 6. dUe diliGence would be harmed if a transaction were consummated. A CFIUS review for a Selected Regulatory transaction that could result in foreign control of a U.S. entity or assets may be voluntarily initiated by any transaction Approvals party. However, CFIUS has the power to unilaterally initiate a transaction review. 31 C.F.R. § 800.401. A CFIUS review can last up to 30 days (31 C.F.R. § 800.404), but may be extended for another 45 days ergers, sales of make a second request for information the potential for expansion into new if CFIUS determines further investigation substantially all or initiate other investigation, products or geographic markets. Item is required (31 C.F.R. 504). If CFIUS assets, and similar which could significantly delay the 4(d) now requires three additional types concludes that national security is transactions in transaction or require its restructuring. of documents that might not have been threatened, it makes a recommendation highly regulated Thus, compliance with HSR adds captured by Item 4(c): for enforcement to the President, who has industries, such considerable expense to a transaction. 15 days to act on the recommendation. as financial Generally speaking, transactions that • “Confidential Information Since national security is not defined, the institutions, are subject to HSR compliance are Memoranda” (or any equivalent Federal regulators have had the power question of whether CFIUS is applicable frequently large transactions (e.g., if the acquiring document, not including ordinary under “Exon-Florio” for decades to derail rests largely on the question whether require specific person will acquire aggregate total course documents and/or financial a foreign party will obtain “control” regulatory amount of voting securities or assets a transaction in the interests of national over the U.S. entity or assets. Here too, data) that specifically relate to the sale approvals. Significant transactions in in excess of a threshold, which at the of the acquired entity or assets and security. however, the CFIUS requirements are non-regulated industries must also present date is $66 million), although produced up to one year before the unclear, because regulations adopted consider the possibility of regulatory there are alternate thresholds that could date the notice is filed. by the Treasury Department include approvals under certain circumstances. ensnare large entities. On August 18, an open-ended definition of “control,” Antitrust Update: For many decades, remedies are valuable for enabling This article will highlight a few 2011, new HSR Rules became effective • Studies, surveys, analyses, and which can encompass different types monopolistic and anticompetitive it to preserve a merger’s potential instances. that made significant changes to the reports prepared by investment of influence by the foreign party. For transactional behavior has been subject efficiencies, while remedying the HSR Premerger Notification Rules and bankers, consultants, or other third example, in 2008, CFIUS raised concerns to the scrutiny of regulators under perceived competitive harm. Common HSR: Transactions meeting certain the Premerger Notification and Report party advisors for the purpose of about an acquisition proposed by federal and state laws. On June 17, 2011, forms of conduct relief are firewall, non- thresholds will be subject to the Hart- Form (the “HSR Form”), that may evaluating or analyzing market Bain Capital Partners and Huawei the DOJ updated its Policy Guide to discrimination, mandatory licensing, Scott Rodino Antitrust Improvements substantially increase the burden placed shares, competition, competitors, Technologies of 3Com Corp. Based on Merger Remedies, which is located at transparency, and anti-retaliation Act of 1976, on filing parties, particularly private markets, potential for sales growth, or press reports, it appears that CFIUS’s http://www.justice.gov/atr/public/ provisions, as well as prohibitions on as amended equity and hedge funds having diverse expansion into product or geographic concerns focused upon a 3Com guidelines/272350.pdf. In the Guide, certain contracting practices. The Guide (“HSR”), which is portfolio investments. Additionally, markets that specifically related to the business unit that supplied certain the DOJ stresses that its review is fact shows a new propensity on DOJ’s part administered by manufacturers must now provide sale of the acquired entities or assets, security technology to U.S. Government specific and that, through a careful to create innovative remedies, as well as the Federal Trade revenues and NAICS codes for each which were produced up to one year agencies. Being unable to restructure application of legal and economic to develop a post-transaction monitoring Commission product manufactured outside the U.S. before the date the notice is filed. the transaction to CFIUS’s satisfaction, principles, its remedies are designed process to ensure that the remedies are (“FTC”) and but sold in or into the U.S. the parties announced the termination to preserve competition, not to protect enforced. the Antitrust • Studies, surveys, analyses, and of the transaction in March 2008. To individual competitors. Typically, Division of the The HSR Form, in Item 4(c), previously reports evaluating or analyzing commentators, a surprising aspect of this remedies are viewed as having either National Security: Federal regulators U.S. Department required the reporting person to synergies and/or efficiencies matter was that Huawei would only have structural or conduct provisions. A have had the power under “Exon-Florio” of Justice submit a number of attachments, prepared for the purpose of obtained a 16.5% stake in the transaction, structural remedy generally involves for decades to derail a transaction in the (“DOJ”). If HSR including documents created by or for evaluating or analyzing the with an option of purchasing another the sale of physical assets or requiring interests of national security. In recent applies, the parties must submit notices officers or directors of the reporting acquisition. 5% stake, and receiving 3 of 11 board that the merged firm create new years, that power has been enhanced on HSR forms to both the FTC and person that were prepared for the members. (Reported in 11 Mergers & competitors through the sale or licensing through a review process under the DOJ, triggering a waiting period that purpose of evaluating or analyzing Acquisitions Law Report No. 14, p. 267). of intellectual property rights. A conduct Committee on Foreign Investment in must expire or be terminated before the transaction with respect to market remedy usually entails provisions that the United States (“CFIUS”). CFIUS the parties may consummate the shares, competition, competitors, prescribe certain aspects of the merged is an interagency committee, chaired transaction. The reviewing agency may markets, potential for sales growth, and firm’s post-consummation business by the Secretary of the Treasury, that conduct. The DOJ believes that conduct evaluates whether national security www.slk-law.com 11
- 7. dUe diliGence dUe diliGence Foreign Corrupt Practices Act Withdrawal Liability from the n 1977, as a response to Employer’s Perspective reports of bribery of foreign government officials by U.S. companies, Congress adopted the Foreign Corrupt Practices liability that may a collective bargaining agreement. In employer’s ability to preserve its right Act (the “FCPA”). The FCPA easily exceed the event that the employer ceases to to dispute any aspect of the demand contains two primary parts: hundreds of thousands have an obligation to contribute to a begins to expire. (1) an anti-bribery provision of dollars, extends multiemployer defined benefit pension that prohibits corrupt beyond normal plan (for example, a termination of the An employer has the right to “request payments to foreign officials to corporate entity collective bargaining agreement), the a review” within 90 days of the date of obtain or retain business, and protections, bears no employer must pay its proportionate its receipt of a demand for payment of (2) accounting and internal intuitive relation to share of unfunded vested benefits (the withdrawal liability. The employer may: control requirements. historical monthly difference between the plan’s assets 1. Ask the plan to review any specific obligations toward and the present value of accrued vested matter relating to the determination In recent years, FCPA investigations and the liability, and has benefits) to the plan as “employer of the employer’s liability and the enforcement actions by the Department only a 90 day period to challenge any withdrawal liability.” In addition, in schedule of payment; of Justice and the Securities and An understanding of the FCPA will help aspect of the liability before all rights some circumstances, a reduction in Exchange Commission have increased companies to implement certain and ability to dispute the liability are an employer’s contributions over a 2. Identify any inaccuracy in the dramatically. The penalties for FCPA lost. This is an period of years can cause a “partial determination of the amount of the violations are stiff, including fines of up procedures and processes... accurate, though withdrawal” with a proportionate unfunded vested benefits allocable to to $2 million for violations of the anti- starkly worded, assessment of liability. With the the employer; and bribery provision and up to $25 million description of substantial decline in the value of withdrawal 3. Furnish any additional relevant for violations of the accounting and investments over the past several years liability for information to the plan. internal control requirements. To detect any potential FCPA violations by the target company regarding combined with reduced contributions, of a target company, a company should FCPA compliance, a termination employers many multiemployer defined benefit who cease a An employer’s request for information The FCPA may conduct a thorough due diligence right under certain circumstances pension plans now have, and must contribution about the assessment, or merely stating be applicable process, including assessing the and indemnification of any damages collect, withdrawal liability from obligation to a that it disagrees with the liability to companies corruption level of the countries where resulting from a breach of the withdrawing employers for the multiemployer assessment, is not a request for who merge the target company does business, agreement. first time. The assessed amounts of defined benefit review. If the employer fails to “request with or acquire reviewing the target company’s withdrawal liability are often a pension a review” within the 90 day period, the another company. FCPA compliance program, if any, An understanding of the FCPA as it surprising and shocking discovery for plan. Failure to understand and act employer is precluded from challenging Generally, when a and inspecting the target company’s relates to mergers and acquisitions will the employer. on significant developments and the assessment, amount, or any aspect company merges accounting and internal controls. help companies to implement certain hard statutory deadlines can lead to of the demanded withdrawal liability in with or acquires procedures and processes to protect A plan has the obligation to notify an irreversible consequences for employers. any venue, including any defense to a another company, Even if such due diligence review them from unwillingly assuming employer “as soon as practicable” after subsequent collection suit. Employers it assumes the does not uncover any FCPA violations, FCPA-related liabilities. a withdrawal of the amount of the “Employer withdrawal liability” is can make the mistake of issuing a liabilities of that a company should incorporate into employer’s withdrawal liability, provide a statutory obligation imposed on response in the form of a denial of company, including the liability for a merger or purchase agreement a schedule of monthly or quarterly an employer that contributes to a liability or simple refusal to pay without FCPA violations. language to protect itself against installment payments amortized over a multiemployer defined benefit pension invoking their statutory right to a the possibility of assuming a FCPA set period of time with interest, and to plan, generally as a negotiated benefit review of an assessment of withdrawal violation. Such language may include demand payment in accordance with the for unionized employees pursuant to liability, often mistakenly believing certain representations and warranties schedule. Immediately upon receipt, the that they may advance a defense in an anticipated suit by the plan. continued on next page > www.slk-law.com 13
- 8. Common issues raised for review After a reasonable review, the plan installment of withdrawal liability include: is required to notify the employer when due has 60 days from receipt of a of its decision on review, the basis notice of failure to pay from the plan to 1. The date of withdrawal. Since the for the decision, and any change in cure the non-payment. Failure to make amount of the withdrawal liability the determination of the employer’s the payment within the cure period is determined as of the end of the liability. results in a default and the acceleration year prior to the withdrawal date, a of the entire amount of the assessed different date of withdrawal can have If a dispute remains between the withdrawal liability. In the event that a huge impact on the owed liability. employer and plan following the review an employer has its withdrawal liability 2. Actuarial or calculation errors. process, the employer may proceed to reduced or eliminated on review or Differences between the employer mandatory arbitration within 60 days in arbitration, any overpayment of and the plan’s records can also have after the earlier of: withdrawal liability is refunded or a material impact on the eventual credited towards amounts due. Thus, 1. The date the employer receives liability amount. an employer who does not understand notice of the plan’s determination on or appreciate the impact of paying the 3. The application of available statutory review; or interim withdrawal liability may lose exemptions and limitations on the 2. 120 days after the employer’s request the advantage of paying any ultimate Provided the employer timely amount of liability in situations such requested a review, any issue may for review. liability over a period of years instead of as the sale of assets by the employer immediately. be contested in arbitration regardless or whether the liability would If the employer fails to timely invoke exceed a percentage of employer’s arbitration and satisfy the applicable Unlike most liabilities of a corporate of whether the employer raised such liquidating assets. These exemptions and limitations must be affirmatively procedures to properly preserve its entity, withdrawal liability responsibility issue on review. rights, even a minor procedural error, extends to all organizations and entities advanced by the employer and can the employer will be precluded from under common control of the employer. significantly reduce or sometimes challenging the assessed withdrawal In general, this means that any eliminate withdrawal liability. Withdrawal liability is a contingent Lastly, an employer may proactively liability. Disputes regarding withdrawal entity that has 80% or more common 4. Whether the employer has actually liability must be arbitrated; no state or ownership or is a parent or subsidiary liability that is not owed until inform itself of its withdrawal liability. withdrawn. Continued contributions federal court has jurisdiction to hear entity of the employer will also be the employer ceases to have an The employer possesses the statutory to the plan from a related entity to the the dispute between the parties (except responsible for the withdrawal liability. obligation to contribute to the right to request, in writing, from the employer means that the employer in extraordinarily limited situations). Many employers attempt to utilize plan, or in some circumstances, the plan an estimate of its withdrawal has not ceased to have an obligation Provided the employer timely requested corporate planning or transactions employer’s contributions to the plan liability once per year. The statutory to contribute to the plan and a a review, any issue may be contested to shield related organizations from have declined substantially over a mandated disclosure is based on withdrawal has not occurred. in arbitration regardless of whether the withdrawal liability; however, a period of years. This determination assumption that the employer employer raised such issue on review. transaction or reorganization with a of whether a withdrawal occurred withdrew the previous year; however, However, any determination by the primary purpose to avoid or evade is often a complex question and some plans will provide a current plan on review has a presumption withdrawal liability may be set aside involves an analysis of the employer’s estimate if the employer pays the cost of correctness in the subsequent or voided. Further, recent cases have contributions, the employer’s related of actuarial services, if any. arbitration. The determination of the found successor employer liability in entities, and other questions of fact and arbitrator is effectively the end of the asset sale transactions. As a result, any law. Unfortunately for the employer, dispute. A party dissatisfied with the transaction, corporate reorganization, or once withdrawal liability is assessed, arbitrator’s decision has very limited business planning involving any entities only a short period of time exists to ability to challenge the decision in court. with potential withdrawal liability invoke the limited path to defend its must consider the impact of withdrawal rights. Without engaging significant The review and arbitration process liability familiarity and expertise in multi- also has unique rules requiring interim employer withdrawal liability, the payment of the withdrawal liability employer puts itself at a significant installments. The process is commonly disadvantage in the proceedings referred to as “pay now, dispute later.” and possibly puts itself at risk for An employer who fails to pay any more than necessary liability at disadvantageous terms. www.slk-law.com 15
- 9. dUe diliGence Subject to very real concerns, pitfalls, and within the litigation team itself. Ultimately, with proper management HEAD IN THE CLOUDS? and general uneasiness about privacy For example, the cloud can virtually and careful consideration, cloud and security in the cloud, cloud eliminate the need to physically transfer computing has the potential to greatly Leveraging the New Wave computing can be beneficial1. For example, if utilized correctly, it can trim costs and improve efficiency in an data from one location to another. Instead a company and its litigation team can have simultaneous access to minimize some of the costliest risks associated with discovery production, as well as disputes. In this context, the of Technology During Discovery increasingly mobile world. However, can it make discovery easier and more the same universe of ESI at any given time, thereby improving information cloud can be leveraged to a company’s advantage. cost-effective? In some ways, cloud management. Within a litigation team, computing offers clear advantages in the cloud’s accessibility can improve 1. Relinquishing control over data to a third- abbed as the newest that it can trigger an unprecedented document identification procedures and party cloud operator poses obvious security technological standard amount of collaboration and provide the division of labor. Whether building risks. For an overview of the risks associated for productivity and The concept of cloud computing has continuous accessibility with regards a case or responding to requests for with cloud computing and suggestions on efficiency, cloud generally escaped any attempt to tag to a company’s electronically-stored production based on ESI, the litigation how to limit vulnerability see computing is currently information (“ESI”). team can optimize its resources— “Cloud Computing’s Dark Lining,” all the rage. The it with a single definition. wherever they are located—to deliver a 264 BNA Insights No. 33, at 264 concept of cloud In the litigation context, the idea of better product more quickly. (Aug. 24, 2011). computing has existed sorting through and producing copious in various forms for amounts of ESI during discovery can Second, cloud computing may stifle years, but suddenly it’s prove daunting. Further, the breadth costly discovery disputes through a infectious. Some of the heaviest hitters and scope of various individual data streamlined approach to document in the world of technology—Microsoft, systems have effectively prevented identification and preservation. A Google, Amazon—have taken up any sort of meaningful uniformity in company that utilizes the cloud concept the banner of the cloud and paraded the application of the discovery rules. limits the universe of potential places this newfound concept into both And, it is no secret that companies are where discoverable information may boardrooms and living rooms across generating ever-increasing mountains of exist to a single source. The cloud the country. virtual information. When a discovery would eliminate the need to harvest Businesses large dispute arises, parties are oftentimes left data off 25-50 local PC hard drives. and small have to either work things out themselves on Additionally, when hit with a lawsuit, been wooed away a case-by-case basis or allocate valuable the cloud may allow for a more from traditional resources to the resolution of these streamlined approach to document in-house data disputes in court. Perhaps no concept preservation—a concept that can networks, in recent memory has caused more otherwise be like herding cats. software headaches for both litigants and judges platforms, and than ESI. Finally, the companies pioneering the storage systems The concept of cloud computing has To be sure, cloud computing is a multi- cloud concept represent some of the in favor of the generally escaped any attempt to tag faceted approach to the delivery and Cloud computing can help avoid most innovative technology companies almighty cloud. it with a single definition. Although utilization of computer technology. these potential legal quagmires in at in the world. These companies are The benefits and burdens of such a it remains a somewhat abstract and It is akin to a virtual warehouse for least three ways. First, because of adept at addressing the unexpected change can be numerous, widespread, fluid concept, the National Institute of electronic data that also provides just its anywhere/anytime accessibility, and, as the technology world continues and somewhat unknown. In the age Standards and Technology (“NIST”) about every ancillary service necessary cloud computing breeds cost-effective its rapid evolution, rest assured these of electronically stored information, has dubbed cloud computing “a model to ensure immediate access to and collaboration. This collaboration companies will not only adapt but however, how can the cloud help a for enabling convenient, on-demand delivery of information anywhere in exists both between a company’s improve. company’s litigation strategy? network access to a shared pool of the world. In this respect, a company representative and its litigation team configurable computing resources foregoes the capital costs necessary to (e.g., networks, servers, storage, build its own infrastructure and delivery applications, and services) that can mechanisms and, instead, leases as be rapidly provisioned, scaled, and much or as little virtual space as it released with minimal management needs, as well as the necessary delivery effort or service provider interaction.” services. www.slk-law.com 17
- 10. dUe diliGence i-9 review. Generally, an amended petition is not workers’ compensation and Selected Employment Issues Determine whether the predecessor required if the new entity (1) assumes Unemployment insurance. entity has maintained I-9 forms all immigration-related obligations Review the predecessor entity’s demonstrating that each of its and rights of the predecessor experience rating for workers’ in Mergers & Acquisitions employees is legally permitted to work in the United States. If the predecessor entity has also maintained supporting company, and (2) the terms and conditions of the H-1B employment (such as job duties, wages, and work compensation (if the predecessor entity is a state-fund employer) and unemployment insurance. Under Ohio documentation for the I-9 forms, location) remain the same, such that law, the target company’s experience determine whether the entity has done the identity of the petitioner is the rating for workers’ compensation and so for all employees. You do not need only change. unemployment compensation insurance long with the many to file new I-9 forms for the predecessor purposes is almost always transferred to other issues that entity’s employees if the new entity Similarly, a new LCA is not required the acquiring entity. arise in a merger Review the policies to determine if continues to employ some or all of the if (1) the new entity assumes all or acquisition, you predecessor entity’s work force, and the obligations under the LCAs filed there are any unusual or potentially workers have a reasonable expectation by the predecessor entity, and (2) must be careful to review the following problematic policies. of continued employment. Note that the worker continues to perform employment-related if you do not file new I-9s, you will be the same job duties in the same issues: liable for any errors or omissions on the work location. The new entity I-9s made by the predecessor entity, so must document its assumption of employment you should review each I-9 for accuracy the predecessor entity’s LCAs by agreements. and completeness. placing a memorandum in each Identify which employees have signed H-1B employee’s Public Access File employment agreements. Review nonimmigrant workers. documenting the assumption of LCA the terms, paying special attention to If the predecessor entity employs obligations. covenants not to compete, stock options, workers on employment-based loans, compensation, and the duration of nonimmigrant visas, and those workers If the predecessor entity terminates the agreements. will continue to work for the new entity, the H-1B employees, it is liable for Determine you must determine the following: payment of the costs for return whether the transportation to each H-1B • Employees in H-1B status agreements are employee’s home country. The (i.e., professional workers in specialty assignable to the predecessor entity must also notify occupations). new entity. the USCIS of the termination of You must determine whether an employment to avoid liability for the amended H-1B visa petition must future payment of wages under the confidentiality, be filed with U.S. Citizenship & certified LCA. assignment, and Immigration Services (“USCIS”), noncompetition employee policies, manuals, collective Bargaining agreements. which would include a new Labor • Employees in Other Nonimmigrant agreements. or handbooks. Determine whether the merger or Condition Application (“LCA”) filing Determine which Statuses. For employees in other Review the policies to determine if acquisition may violate the collective with the Department of Labor to employees have nonimmigrant statuses sponsored there are any unusual or potentially bargaining agreement, or whether certify that the new entity will pay signed these types of agreements (if they by the predecessor entity, such as problematic policies. Ask whether bargaining with the union about the at least the prevailing wage for the do not have employment agreements nonimmigrants in E, L, or TN status, any issues have come up involving effects of the corporate change is position. already containing these provisions). an amended petition is required particular policies. Determine whether required. Review for other relevant Review the terms to ensure that they to reflect the change in company the policies have been consistently terms. adequately protect the successor’s ownership. applied in the past, and develop an confidential business information and understanding of the Company’s past intellectual property. Draft agreements for practices that may bind the new entity any other employees who are in positions going forward. in which these agreements are necessary. Determine whether the agreements are assignable to the new entity. www.slk-law.com 19
- 11. New National Labor Relations Act Partial Lien A lien waiver releases a contractor’s Waivers in N.C. Posting Rule Do Not Alter claim to the progress payment received. Date of First he National Labor On October 5, 2011, following the Relations Board NLRB’s issuance of the rule, the NLRB Furnishing (“NLRB”) recently pushed back the effective date for more issued a final rule than two months, from November requiring private 14, 2011 to January 31, 2012, citing employers subject uncertainty from businesses and trade s in many states, North to the National organizations concerning the entities to Carolina law grants to Labor Relations Act which the rule will apply. contractors and sub- (“NLRA”), whether contractors certain lien unionized or not, to Additionally, the regulation is being rights on improved post a notice informing challenged on several fronts. The property. These are employees of their rights under the National Association of Manufacturers often referred to NLRA. The regulation applies to The notice, which must be posted (“NAM”) recently filed an action against as mechanics’ and virtually all private employers in beginning January 31, 2012, must the NLRB in the U.S. District Court materialmen’s liens. the United States, with the exception state, among other things, that for the District of Columbia, claiming employees have the right to form A key provision in of those in the railway and airline that the NLRB exceeded its authority the North Carolina or join a union, to collectively industry, and certain agriculture-related under the NLRA in promulgating this lien statute is that Typically, lenders to a project require the date of first furnishing and that the bargain, to discuss wages and employers. other conditions... new rule. NAM, therefore, is seeking an any lien relates back to the date labor execution of a partial lien waiver partial lien waivers merely precluded injunction against the implementation of or materials were first furnished to a before making progress payments Defendant Superior from asserting a lien The notice, which the rule. We will watch this case closely project. This strict priority protects on the project. A lien waiver releases relating to the amounts already paid for must be posted and update you with any developments. contractors, putting them in line ahead a contractor’s claim to the progress work performed ... without having any beginning January a company intranet site, the employer of subsequently- payment received. By the Business further effect.” 31, 2012, must must also distribute the notice using that Members of Congress are also working perfected Court’s ruling, however, Superior’s lien state, among same means. The NLRB has issued a to stop the regulation from taking effect. lien-holders claims for unpaid progress payments Contractors are nonetheless cautioned to other things, that sample poster that employers can print Rep. Ben Quayle (R-Ariz.) introduced or lenders to a no longer related back to the date of review carefully the language of partial employees have out and display, available at http:// H.R. 2833, the Employee Workplace project. An April first furnishing. As a result, Wachovia’s lien waivers and to address any change the right to form www.nlrb.gov/poster. Freedom Act, which would overturn the 2010 decision later-filed deed of trust moved ahead in of language or questionable language to or join a union, NLRB’s regulation. Additionally, Rep. of the North priority of Superior’s lien. their counsel. to collectively Employers that fail to post the required Scott DesJarlais (R-Tenn.) introduced Carolina Business bargain, to discuss wages and other notice will be subject to liability for H.R. 2854, the Employer Free Choice Court, however, On appeal, Superior argued that the The Plaintiff in the Superior case has conditions of employment, and to committing an unfair labor practice Act, which would similarly overturn threatened to Business Court had misinterpreted petitioned the North Carolina Supreme refrain from any of these activities. It under Section 8(a)(1) of the NLRA. the rule. We will continue to keep you abolish this the applicable law and the language Court for discretionary review of this must also tell employees how to contact Also, the NLRA’s six-month statute updated on the status of the legislation. protection. of the unambiguous lien waivers at case. Whether the higher court decides the NLRB with questions or complaints. of limitations on the filing of an issue. In July of this year, the North to take up this case will likely not be The notice must be posted with similar unfair labor practice charge may be Since the regulation is being challenged In that case, Wachovia Bank, N.A. v. Carolina Court of Appeals agreed, known for some time. employee notices (such as notices suspended if the required notice is not on multiple fronts, we recommend that Superior Construction Corp., the Business holding, “Having examined the relevant required under wage and hour laws or posted, which would leave employers employers do not begin complying with Court ruled that partial lien waivers language on appeal, we conclude that OSHA), and if employers communicate vulnerable to unfair labor practice the regulation until the January 31, 2012 signed by the contractor, Superior, the trial court erred by construing the with employees electronically, for charges for events occurring more than effective date. operated to shift the date of first partial lien waivers to effectively change example, by posting personnel rules on six months before the charge is filed. furnishing -- to the date any such partial lien waiver was signed. www.slk-law.com 21
- 12. welcome congratulations Donald M. Mewhort, Jr. Best Lawyers® 2011 Florida Super 2011 Florida Wesley Thaddeus Richard Q. Lewis, III The Best Lawyers in William L. Patberg Lawyer of the Year Lawyers Rising Stars (Thad) Adams, III Sarasota, Associate ShUMAkER ChARLoTTE America 2012 Mary Ellen Pisanelli 2012 Charlotte, Partner Estate Planning; Tax; ® Thomas G. Pletz Anthony J. Abate Liben M. Amedie Intellectual Property Corporate (Copyright 2011 by David F. Waterman Erin Smith Aebel Woodward/White, Inc., David J. Rectenwald Jaime Austrich Toledo Mergers & C. Philip Campbell, Jr. TOP Jeffrey S. Bernard Brandy B. Milazzo of Aiken, S.C.) Cynthia L. Rerucha Jason A. Collier Shumaker’s Charlotte office was recognized Joseph A. Rideout Acquisitions Law Lawyer Steven J. Chase Jennifer B. Compton 25 Charlotte, Associate Charlotte, Partner M. Scott Aubry James I. Rothschild of the Year Ronald A. Christaldi Hugo S. deBeaubien as one of the Charlotte Business Journal’s Intellectual Property Corporate John C. Barron Stephen A. Rothschild Bruce H. Gordon Meredith D. DeNome Gregory C. Yadley Mark D. Hildreth “Top 25 Largest Area Litigation Practices” , B. Herbert (Herb) Barbara G. Rivas Neema M. Bell Michael G. Sanderson Michele Leo Hintson Tampa Leveraged Buyouts W. Kent Ihrig Boatner, Jr. Toledo, Associate Jenifer A. Belt Steven G. Schember Adria Maria Jensen ranking No. 9, as determined by its number and Private Equity John S. Inglis Tampa, Partner Corporate Thomas C. Blank Gregory S. Shumaker Hunter G. Norton Law Lawyer of the Year Ernest J. Marquart of Local Area Litigation Attorneys. Real Estate Michael E. Born John J. Siciliano Maria del Carmen Ramos Brian W. Schaffnit Steven G. Schember Michael M. Briley Peter R. Silverman John W. Hilbert, II Melissa A. Register James R. (Jamie) Carnes Of Counsel, Tampa Darrell C. Smith Eric D. Britton Joseph S. Simpson Toledo Corporate Law Mindi M. Richter Toledo, Partner Litigation Theodore C. Taub John H. Burson Darrell C. Smith Lawyer of the Year Michael H. Robbins Litigation J. Todd Timmerman Bennett H. Speyer C. Philip Campbell, Jr. Scott M. Stevenson Christopher Z. Staine Timothy C. McCarthy Gregory C. Yadley Jennifer L. Figler Toledo, Partner C. Graham Carothers, Jr. John L. Straub Seth P. Traub Toledo Labor Law - Tampa, Staff Attorney Tax & Employee Ronald A. Christaldi William H. Sturges Kelly A. Zarzycki Management Lawyer Florida Super Lawyers Corporate Benefits David H. Conaway Theodore C. Taub of the Year “Top 100 Lawyer” Thomas A. Cotter J. Todd Timmerman Toledo Business Kathryn A. Gromlovits Gregory H. Wagoner 2011 David J. Coyle Louis E. Tosi Journal’s Charlotte, Associate Toledo, Partner Chambers USA 2011 Mary Li Creasy Barton L. Wagenman Ronald A. Christaldi 2011 “Who’s Who Intellectual Property Litigation “Leaders in their Scott G. Deller David F. Waterman Field” Gregory C. Yadley in Toledo Area Law” Phillip J. Harris David L. Wyant, Jr. Gary R. Diesing Thomas I. Webb, Jr. Sarasota, Associate Sarasota, Associate Thomas P. Dillon Martin D. Werner Michael E. Born John C. Barron Litigation Litigation; Edwin G. Emerson James F. White, Jr. Natural Resources & Jenifer A. Belt Employment and Vivian C. Folk David W. Wicklund Environment (Ohio) Thomas P. Dillon Daryl L. Hollnagel Labor Jack G. Fynes Steele B. Windle, III Douglas G. Haynam Sharon M. Fulop Charlotte, Partner Bruce H. Gordon Dennis P. Witherell Natural Resources & Douglas G. Haynam Corporate William H. Gosline Kathryn J. Woodward Environment (Ohio) John W. Hilbert, II Austin K. Irving Douglas G. Haynam Gregory C. Yadley Michael S. McGowan Toledo, Associate John W. Hilbert, II Mechelle Zarou Paul R. Lynch Brian N. McMahon Corporate W. Kent Ihrig Corporate/M&A & Joseph A. Rideout John S. Inglis Private Equity (Florida) Stephen A. Rothschild J. Keith Jones Regina M. Joseph Gregory S. Shumaker Charlotte, Partner John D. Kocher William L. Patberg Peter R. Silverman Real Estate Kathleen A. Kress Natural Resources & Louis E. Tosi Gregory T. Lodge Environment (Ohio) Barton L. Wagenman Matthew P. LaMaster Tampa, Staff Attorney Paul R. Lynch Darrell C. Smith Mark D. Wagoner, Jr. Litigation John N. MacKay Corporate/M&A & David F. Waterman Timothy C. McCarthy Private Equity (Florida) James F. White, Jr. H. S. Stephen Lee Michael S. McGowan Dennis P. Witherell Sarasota, Associate Brian N. McMahon Louis E. Tosi Litigation Natural Resources & Environment (Ohio) Gregory C. Yadley Corporate/M&A & Private Equity (Florida) www.slk-law.com 23
- 13. slknews Tony Abate and Chris Staine presented Steve Berman has been elected to Ron Christaldi spoke to aspiring law Julio Esquivel has been selected to the Moses Luski presented the “Shumaker Cate O’Dowd spoke at the Florida “ABC’s of Florida Construction Lien serve a three year term on the Board of students at the New College Alumni 2012 Class of Leadership Tampa. Legal Minute” before the Latin Refrigeration and Air Conditioning Law: What You Need to Know to Make Directors of the California Bankruptcy Association’s Coffee Talk in Sarasota, American Chamber of Commerce of Contractors Annual Conference and the Lien Law Work for You” at the Gulf Forum. Steve participated in the 2nd Florida about developing the tools for a Julio Esquivel, Ben Hanan and Greg Charlotte at their July and September to the Air Conditioning Contractors Coast Builders XChange (GCBX) in Annual American Bankruptcy Institute successful career in law. Ron was elected Yadley presented “Recent M&A Trends meetings. Association of Central Florida. She also August. Southwest’s Great Debates in September. Vice Chair of the Board of Directors of and Developments” at the Second spoke at the 90th Annual Convention Steve also participated in a bankruptcy The Spring of Tampa Bay, Inc. and also Annual Association of Corporate Ed McGinty made a presentation at of the Florida Association of Plumbing Erin Smith Aebel was named Walk training session with JAG Corps lawyers participated in a Tampa City Council Counsel – West Central Florida Chapter the monthly meeting of the Society of Heating & Cooling Contractors in Chair of the American Diabetes at Naval Base Coronado, which includes Workshop in September in City Council (“ACC-WCFL”) Symposium in August. Financial Service Professional’s monthly Orlando, Florida. Cate was re-elected Association’s Step Out to Stop Diabetes San Diego and Coronado, California. Chambers. meeting held in April. Treasurer and will serve on the Board Walk which took place Saturday, Bruce Gordon was a speaker at the of Directors of the Raymond James November 12, 2011 at the University of Mike Briley was a presenter at the Third Jamie Colner and Steve Smith recently Society of Financial Service Professionals Brian McMahon was a speaker at Gasparilla Festival of the Arts for a South Florida Tampa Campus. Erin has Annual Great Lakes Antitrust Institute settled a case on behalf of a personal - Tampa Bay Chapter, 3rd Annual the Ohio State Bar Association’s three-year term. been elected to the Executive Council of in October. This is an annual program injury plaintiff for $500,000.00. Professional Day 2011 in May. “Franchising in Ohio – What Every the Florida Bar Health Law Section. sponsored by the Ohio, Indiana, Illinois Lawyer Needs to Know” CLE seminar Tom Pletz was presented with the and Michigan Bar Association antitrust David Conaway presented a webcast David Grogan was a presenter at the in September. “Distinguished Toledo Lawyer” Award Liben Amedie has been appointed to law sections. before The Association of International National Apparel & Footwear Credit from the University of Toledo’s Law the Hillsborough County Industrial Credit and Trade Finance Professionals. Association in September. Brandy Milazzo was a presenter at the Alumni Affiliate. Development Authority Board by the Doug Cherry participated in a The topic of discussion was “Chapter National Apparel & Footwear Credit Board of County Commissioners. panel discussion on the Pitfalls and 15 - Cross Border Insolvency Issues.” Dan Hansen and Bill Sturges were Association in September. Melissa Register spoke at the June 2011 Opportunities of Social Media at the David was a speaker at the 31st INSOL speakers at the Southeast Surety Florida Bar Annual meeting. Her topic John Barron has been selected as a American Advertising Federation- Europe Annual Congress in September Conference in New Orleans, Louisiana, Bill McNair received the Citizen Lawyer was “Estate Planning and Probate Law Fellow of the Litigation Counsel of Suncoast’s first ever Luncheon Panel in Venice, Italy. in April and at the Northeast Surety Award presented by the North Carolina Update.” America. The Litigation Counsel Series – Educational Seminar in May. Conference in Atlantic City, New Jersey, Bar Association. The award recognizes of America (LCA) is a trial lawyer Doug was speaker at the Legal Aid of Mark Connolly was the lead advocate in September. attorneys who have provided exemplary Kathleen Reres was selected to serve honorary society and Fellows are Manasota CLE Program in Sarasota, for House Bill 1019 (tort reform service to their communities through on the STEPS Committee of Tampa Bay selected based upon effectiveness and Florida and he also participated in legislation relating to child welfare Michele Leo Hintson has been volunteering and civic involvement Beautification. accomplishment in litigation, both at the a Lunch and Learn for BarCamp agencies) at the Pinellas County Juvenile appointed as the Assistant Chair of the beyond their law practice. trial and appellate levels, and superior Sarasota in June. Doug was a panelist Welfare Board public forum debate/ Grants Committee for the Junior League Joe Rideout was a recipient of the ethical reputation. at The Greater Sarasota Chamber of round table discussion held in March. of Tampa for 2011-2012. Scott Newsom was a speaker at the Diocese of Toledo’s Centenary Award Commerce’s seminar in August. 39th Annual Ohio Human Resource for Outstanding Service. The Centenary Jeni Belt was a speaker at the 45th Mary Li Creasy presented “Social Adria Jensen and Hunter Norton Conference in Sandusky, Ohio in Award is presented to individuals for Annual Convocation and Exposition of Networking and the Workplace” to the were the featured presenters at the September. their outstanding service to a single the American College of Health Care Tampa Bay Medical Group Management Third Annual BBT REO Agent Training parish or institution. Administrators in May in New Orleans, Association in Tampa in May. Seminar in April. Louisiana. Dick Rogovin and Steve Smith recently Meredith DeNome graduated from Serena Lipski was appointed to the obtained a fee arbitration award on Jeni Belt and Dennis Witherell were Tampa Connection. The Tampa Board of Directors of the YWCA of behalf of a claimant from a three lawyer the featured speakers at the Healthcare Connection helps guide executives into Greater Toledo. panel appointed by the Ohio State Bar Financial Management Association’s key leadership roles while helping meet Association. The arbitration lasted two “Structuring Physician-Hospital Models Tampa’s growing social, health and full days. The pretrial offer in the case for Mutual Success” seminar in August. education needs. was zero. Tim Garding was named Co-Chair of the 42nd Annual Raymond James Gasparilla Festival of the Arts. www.slk-law.com 25
- 14. slknews worth noting CHARLOTTE First Citizens Bank Plaza 128 South Tryon Street Suite 1800 Charlotte, North Carolina 28202 J 704.375.0057 Steve Rothschild was a recipient of amie Colner recently obtained a groundbreaking COLUMBUS the Toledo Board of Jewish Education’s decision favorable to our clients in a charter school Huntington Center (TBJE) “Ben Solomon Outstanding case. We represent 10 charter school boards in litigation 41 South High Street Trustee Award.” against one of the biggest for profit operators of Suite 2400 Columbus, Ohio 43215 charter schools in the country. Most of the schools have 614.463.9441 Jack Santaniello was a speaker at performed poorly. The lawsuit centers on the Boards’ The Entrepreneur’s Source Franchise effort to get the management company/operator to SARASOTA Ownership Workshop in September. account for how they spend the public funds received 240 South Pineapple Avenue to operate the schools. Charter schools are, in fact, 10th Floor Pete Silverman was quoted in the public schools that operate from tax dollars distributed by the Sarasota, Florida 34236 June 6, 2011 issue of Forbes magazine Department of Education through the Boards to the private operators 941.366.6660 in a story about franchise disputes or management companies. The management company has long and in the July 2011 issue of Nation’s refused to divulge exactly how it spends the public money or its profit TAMPA Restaurant News regarding a franchisee’s margins on the basis that it is a private corporation with no obligation Bank of America Plaza restructuring efforts. Pete was a speaker to detail how it spends the money that becomes private upon receipt. 101 East Kennedy Boulevard Suite 2800 at the ABA’s 34th Annual Forum on In an October 7, 2011 Decision and Entry granting in part our motion Tampa, Florida 33602 Franchising in October in Baltimore, for partial summary judgment, the Court ruled that the defendants 813.229.7600 Maryland. are public officials who must account to the plaintiff school boards and the State of Ohio for how it spends the public money. TOLEDO Jason Stearns has been elected to the The Court also ruled that the terms of the management agreements 1000 Jackson Street Board of Directors of the Campo Family Toledo, Ohio 43604 that delegated the power to unilaterally decide how it spends the YMCA. 419.241.9000 money are void. If upheld on appeal, this will become a major Mike Trocke participated in the 22nd decision that reforms charter school law to the betterment of the Annual Southern Surety Conference in students who choose to attend non traditional public schools. New Orleans, Louisiana. Greg Yadley was a presenter at the American Bar Association Business Law Section’s Spring Meeting in Boston, Massachusetts. Greg has been elected In an expedited election case before the Ohio Supreme Court, Chair of the Middle Market and Small Doug Haynam secured a writ of mandamus directing the Board Business Committee of the American to declare our client to be qualified as a candidate for the office of Bar Association Business Law Section. Trustee of Sylvania Township and certify him to the ballot for the Greg has been named to a new high- General Election on November 8, 2011. Doug has represented a level national Advisory Committee number of clients in a wide variety of election related litigation to the U.S. Securities and Exchange matters over the last decade. Commission on Small and Emerging Companies. www.slk-law.com © 2011 Shumaker, Loop & Kendrick, LLP
- 15. A successful teAm for more thAn 40 yeArs. Since Health Care REIT's inception, And in less than three years, beginning Shumaker has served as the company’s in January 2009, Shumaker represented outside general counsel, including Health Care REIT in executing more representation in connection with than $8.6 billion of new investments acquisitions, financings and securities and publicly issuing approximately matters. $8.1 billion of unsecured debt and equity capital. Health Care REIT understands the value of long-term relationships. So does Shumaker. ® www.slk-law.com