BUY-SELL AGREEMENTS, PART 1 & PART 2 First Run Broadcast: June 21 & 22, 2016 1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes each day) There is rarely a liquid market for the sale or exchange of ownership interests in even successful closely-held companies. Buy/sell agreements, however, create a market among the owners of a company, providing a mechanism for a shareholder or member to liquidate his or her interests in a reliable manner. The owners may agree to buy and sell interests among themselves on the occurrence of certain events and using certain valuation metrics, or they may agree that the company itself will buy out a shareholder or member’s interest over time. Without these agreements, there is often no alternative for a shareholder or member to cash out short of liquidating the company. This program will provide you with a practical guide to the different types of buy/sell agreements, drafting the essential provisions of each, and common negotiating and drafting tips. Day 1 – June 21, 2016: Types of buy/sell agreements – cross-purchase among owners, entity redemption, and hybrid approaches Most highly negotiated provisions of buy/sell agreements Triggering events – voluntary sale, retirement, death, bankruptcy of shareholder or member Valuation of interests – independent appraisals, formula clauses, industry comps, and dispute resolution Rights of first offer v. rights of first refusal, and sales to third parties Day 2 – June 22, 2016: Funding buy/sell arrangements – payouts/earnouts over time, commercial borrowing, key-man insurance, other funding sources Special issues involving S Corps and unincorporated entities Drag-along and tag-along rights in buy/sell agreements Major tax issues in buy/sell agreements for buyer, seller and the entity Speakers: Peter Bloom is the founder of The Bloom Group, where he is an experienced business lawyer, and acts as general counsel to emerging, mid-stage and family businesses, providing strategic advice as well as guidance regarding corporate law, contracts, tax, intellectual property protection, financing, succession planning and labor and employment law. He is also a highly skilled transactional lawyer, having handled mergers and acquisitions, stock and asset purchases, technology transfers, recapitalizations and other corporate reorganizations, and venture capital investments. Mr. Bloom earned his A.B., magna cum laude, from Duke University, his J.D. from the University of Connecticut School of Law, and his LL.M. from Georgetown University Law Center.
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BUY-SELL AGREEMENTS, PART 1 & PART 2 (60 minutes each …key-man insurance, other funding sources Special issues involving S Corps and unincorporated entities Drag-along and tag-along
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There is rarely a liquid market for the sale or exchange of ownership interests in even successful
closely-held companies. Buy/sell agreements, however, create a market among the owners of a
company, providing a mechanism for a shareholder or member to liquidate his or her interests in
a reliable manner. The owners may agree to buy and sell interests among themselves on the
occurrence of certain events and using certain valuation metrics, or they may agree that the
company itself will buy out a shareholder or member’s interest over time. Without these
agreements, there is often no alternative for a shareholder or member to cash out short of
liquidating the company. This program will provide you with a practical guide to the different
types of buy/sell agreements, drafting the essential provisions of each, and common negotiating
and drafting tips.
Day 1 – June 21, 2016:
Types of buy/sell agreements – cross-purchase among owners, entity redemption, and
hybrid approaches
Most highly negotiated provisions of buy/sell agreements
Triggering events – voluntary sale, retirement, death, bankruptcy of shareholder or
member
Valuation of interests – independent appraisals, formula clauses, industry comps, and
dispute resolution
Rights of first offer v. rights of first refusal, and sales to third parties
Day 2 – June 22, 2016:
Funding buy/sell arrangements – payouts/earnouts over time, commercial borrowing,
key-man insurance, other funding sources
Special issues involving S Corps and unincorporated entities
Drag-along and tag-along rights in buy/sell agreements
Major tax issues in buy/sell agreements for buyer, seller and the entity
Speakers:
Peter Bloom is the founder of The Bloom Group, where he is an experienced business lawyer,
and acts as general counsel to emerging, mid-stage and family businesses, providing strategic
advice as well as guidance regarding corporate law, contracts, tax, intellectual property
protection, financing, succession planning and labor and employment law. He is also a highly
skilled transactional lawyer, having handled mergers and acquisitions, stock and asset purchases,
technology transfers, recapitalizations and other corporate reorganizations, and venture capital
investments. Mr. Bloom earned his A.B., magna cum laude, from Duke University, his J.D.
from the University of Connecticut School of Law, and his LL.M. from Georgetown University
Law Center.
Norman Lencz is a partner in the Baltimore, Maryland office of Venable, LLP, where his
practice focuses on a broad range of federal, state, local and international tax matters. He
advises clients on tax issues relating to corporations, partnerships, LLCs, joint ventures and real
estate transactions. He also has extensive experience with compensation planning in closely held
businesses. Mr. Lencz earned his B.S. from the University of Maryland and his J.D. from
Columbia University School of Law.
VT Bar Association Continuing Legal Education Registration Form
Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________
Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________
VBA Members $75 Non-VBA Members $115
NO REFUNDS AFTER June 14, 2016
VT Bar Association Continuing Legal Education Registration Form
Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________
Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________
VBA Members $75 Non-VBA Members $115
NO REFUNDS AFTER June 15, 2016
Vermont Bar Association
CERTIFICATE OF ATTENDANCE
Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: June 21, 2016 Seminar Title: Buy-Sell Agreements, Part 1 Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
Vermont Bar Association
CERTIFICATE OF ATTENDANCE
Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: June 22, 2016 Seminar Title: Buy-Sell Agreements, Part 2 Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
BUY-SELL AGREEMENTS IN CLOSELY-HELD
COMPANIES
PETER M. BLOOM
The Bloom Group LLC
5335 Wisconsin Avenue, Suite 440
Washington DC 20015
WWW.THEBLOOMGROUPLLC.COM
TYPES OF BUY/SELL AGREEMENTS
Cross-purchase among owners
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Entity redemption
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
TYPES OF BUY/SELL AGREEMENTS
Types of Buy/Sell Agreements
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
• Hybrid approaches
• Non-compensatory
• Compensatory • Section 83 issues • Vesting • Coordination of entity type with insurance
funding mechanism
Most Highly Negotiated Provisions of Buy/Sell Agreements
• Most highly negotiated provisions of buy/sell agreements
• Permitted transfers
• Additional capital contributions
• Governance and voting
• Hiring and firing
• Borrowings
• Distributions in excess of tax distributions
• Annual budgets/finances
• Major events/transactions
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Most Highly Negotiated Provisions of Buy/Sell Agreements
• Restrictions on other activities of stockholders/members
Termination of employment (distinguish cause and w/o cause)
Disability/incapacity
Russian roulette
Passage of time Other events?
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Rights Of First Offer v. Rights Of First Refusal
• Rights of first offer • Time restrictions
• Price restrictions
• Rights of first refusal • Activates upon bona fide offer made • by third party • Option to acquire on same terms • (or more favorable) for set period of time
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Valuation of Interests
Independent appraisals
Appointment issues
Single appraiser? Panel of appraisers?
Costs Appraiser(s) still need(s) directions regarding assumptions:
All-cash sale?
Application of federal or state securities laws restricting transfers
Life insurance benefits considered?
Minority discounts applied?
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Valuation of Interests
• Formula clauses
• Difficulties in reaching formula that capture value
• Common approach: multiple of EBITDA, normalized over
period of years
• Time limitations
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Valuation of Interests
• Industry comps
• Problems in defining “industry” and what a comparable is
• Who will decide what industry means and what is comparable?
• Other applicable assumptions
(e.g., are minority discounts applicable?)
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Valuation of Interests
• Dispute resolution
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Funding Buy/Sell Arrangements
• Entity financing
• Earn outs
• Commercial borrowing (e.g., SBA 7(a))
• Insurance
• Other funding sources
THE BLOOM GROUP, LLC WWW.THEBLOOMGROUPLLC.COM
Drag-along and Tag-along Rights in Buy/Sell Agreements
• Drag-along
• Tag-along
• Calculating payments
• Minority discounts
• Exclusion of other consideration, such as consulting agreements, employment agreements, restrictive covenants