Atom represents businesses during all stages of their life cycle: Acquisition, Growth, Exit. Of course, much happens in between. Here are some examples of matters Atom assists its corporate clients with:
Mergers, Acquisitions, Divestitures
Two companies may decide that combining business activities will enhance performance and decrease cost. One of these companies may be significantly larger than the other and while the envisioned end result may seem ideal to both sides, the smaller entity will certainly have to be very careful as to how the sale is structured. The larger entity will have its size as leverage and the smaller entity will have more nuanced factors as leverage of its own.
Whether a merger or acquisition involves the purchase of an entity or the purchase of assets belonging to that entity is a critical distinction that must be carefully evaluated. In some cases, purchasing the entity may be practically necessary for the continuity of the existing business. In other cases, the entity that is the target of the purchase may have liability the buyer can potentially avoid by not purchasing the entity, but rather, its assets.
Caveats such as potential set-offs in the sale price, remaining liability on the sellers and liability passing to the acquiring company must be considered. Tax ramifications must not be overlooked. The employment security of key employees (and owners) must be considered and possibly secured during the transaction. The unique predicament about these transactions is that for the purpose of the transaction, the two parties are negotiating against one another; and yet, after the transaction, they will most likely work together as one unit. Therefore, the tone of the negotiation and due diligence is as critical as its content.
Formation and Maintenance of Business Entities
With experience in many sectors of the global economy, Atom understands the unique needs of a client's business and advises on the most appropriate organizational form to meet company objectives. Depending on whether the nature of the business is domestic or multinational the ramifications and benefits of forming corporations, limited liability companies, other commercial entities must be carefully considered. Shareholder agreements, LLC operating agreements and similar contractual arrangements for the management of a corporation or LLC must take into account an array of factors such as the personal involvement of owners in the business, buy/sell rights and future goals of the principals.
Partial Ownership Changes & Internal Restructuring
Businesses commonly start under a structure which their needs outgrow over time. This can happen due to changes in relationships with key employees or affiliates. For example, a third-party service provider and a business may realize they can be more effective while operating under the umbrella of one entity. It can also occur when a business begins to offer services or products that it did not offer before. For example, a manufacturer may find that its direct-to-customer sales increase to the point of necessitating a new entity that is its own distribution company. In other cases, a company that offered services may realize that it can capitalize on its market by manufacturing its own product line through a new entity. The structure of a business should match its evolving needs. A business that started as one entity may need to evolve into multiple entities linked to one another through elaborate agreements.
Procuring new investment & financing
A business may determine that outside investment is necessary or appropriate to facilitate growth or reduce debt. There may be third-parties who are interested in acquiring equity as well. However, businesses must be careful in selling equity to outsiders as this activity is regulated by both federal and state laws. Correspondence concerning the sale can be tantamount to solicitation which is regulated. Both those interested in buying in and the company itself must be vigilant about making the proper disclosures to avoid potential pitfalls that may easily arise without diligence.
On the other hand, financing rather than equity sale may be appropriate for a given need. Issues concerning borrowing can include factors such as collateral, personal guaranties, interest, and confessions judgment, among others. Financial institutions regularly demand terms that businesses find extremely disconcerting upon understanding the full extent of the demands. Some of these can be negotiated, while some may be unavoidable. However, a business can truly evaluate the benefits of the loan only once it is fully aware of the potential risks.
Of the most valuable assets of any business are its trademarks: its name, its logo, or even its trade dress: its product packaging, design, or interior decor. In some instances companies have asserted ownership over something as fundamental as a color in their industry. In order to maximize value and protection over this valuable assets trademarks should be registered with the United States Patent and Trademark Office. Trademarks are deemed to be owned simply by usage. In other words, registration is not required. However, protecting a trademark becomes far more difficult without registration. A trademark application for registration may be filed prior to usage in the marketplace, followed by proof of usage after use begins. At times, during registration, the USPTO may issue an “office action” either denying the trademark or requiring additional documentation concerning the application. Both the application process as well as office actions require close attention and strategic planning. At times, applications can be faced with challenges from other companies urging the USPTO to reject the application. Other times, a third-party may file a complaint with the USPTO claiming that a previously registered trademark was obtained under false pretenses. These also require planned responses.
Some businesses can drastically increase their revenue by changing their business model to offer franchising. If a business has a successful business model and a good brand, other businesses may see good value in paying for the rights to adopt that business model and brand as their own. The franchisor can continue to stay in the same line of business while charging others for the chance to use its own intellectual property. Not only does this provide for multiple other sources of revenue, but also allows the brand to grow in fame and value much quicker than it would without franchising.
Franchising is regulated both by federal and state government agencies. Therefore, a great deal of formalities must be observed and complied with in order to implement such a business model. A great deal of disclosures must be made to the potential franchisee. Failure to observe these regulations can lead to very serious monetary penalties and business problems in the future.
Sometimes, parties enter into a business relationship without even being aware that their relationship is actually franchise, subject to all the relevant regulations - the “accidental franchise.” This can make the accidental-franchisor the target of government investigation.
When the required amount of care and diligence is shown, franchising may be an excellent way to increase the revenue and value of a business.
Commercial leases are often worth several million dollars over the span of their term and are often extremely detailed. Most global and national developers use lease formats that are long, complex and extremely unfavorable to tenants. Many are routinely subject to not only a base rent, but additional fees in the form of percentage of the tenant’s revenue, real estate taxes and common area maintenance charges (“CAM”). Many commercial leases have language that allows the landlord to keep increasing CAM charges significantly over the term of the lease. Tenants often end up paying more in these additional fees than their base rent. Furthermore, commercial leases also include severe restrictions on change of ownership of the tenant’s business. They often also include radius restrictions for the tenant to open other businesses, as well as a right for the landlord to relocate the tenant when it wishes. They can also include a requirement for personal guaranties as well as buitl-in liens on the property of the tenant. Some also have clauses that even transfer ownership of trade fixtures of the tenant to the landlord. Many of these terms can contain severely negative financial consequences for the tenant. Therefore, terms of a commercial lease must be very carefully understood and negotiated.
Intellectual property (“IP”) such as trademarks or audio content can generate substantial revenue for their owner. However, the terms and extent of the licensing must be carefully considered and agreed upon between the licensor and licensee. Some of these terms to be considered must include the duration of the license, the payments associated as well as the boundaries of the license. For example, can the licensed IP be used only in some geographic territory? Can the IP be used only in connection with some services and products, but not others? Must the licensee inform the licensor if their use is changing in some specific way such as relocation? Can the licensee use the IP as many times it wants or is it only restricted to a limited number of uses? Can the licensee sublicense the IP? What level of quality checks can the licensor maintain over the licensee’s usage of the IP? Failure to consider and memorialize the above in an agreement can lead to negative consequences for the owner of the IP, including a loss of ownership.
Key Employee Negotiations
A CEO, CFO, COO and other key players in an organization are essential to its success and their employment agreements are foundation of the role they serve within it. Both the business and the employee are in a position to negotiate for an outcome that will ideally serve everyone for years to come. There are many factors to consider for this to occur. For example, if a company wishes to bind an employee after she or he leaves in anyway, such as restricting her / him from competing or soliciting, this must be done at the inception of the employment. Other considerations include contemplating whether the employee will have a minimum term or whether the employment will be at-will; the extent of the benefits or options offered; salary and bonus structure; the level of authority the employee will have as well as express restrictions on authority.
Hiring Foreign Employees & Procuring Foreign Investment
At times a company may need a specialized expert in an industry from overseas. For example, if a company uses or sells specialized technology purchased from a foreign country, an engineer who is well-versed with that technology may greatly benefit the company. In another example, a non-US company with a US subsidiary may decide it needs to send one of its key employees to the US for a number of years of head up a certain aspect of its operations because of the existing internal company know-how of that individual. In other instances, a foreign individual may be ready and willing to contribute significant capital to a US entity, becoming an owner as well as a key employee. A range of visas exist for such situations and the best option will need to be determined. Furthermore, the circumstances of the employment and investment will need to conform to fit the requirements of the selected visa.
Agreements with Third-Parties (distributors, vendors, etc.)
Manufacturers routinely work with distributors and sales agents. These third-parties are often essential for capturing extensive parts of the market. When planned carefully, these relationships can last for years or decades or even evolve into joint ventures. Because of the large volume of business involved as well as the longevity of the relationships, much is to be gained… or lost. The level of exclusivity is a critical factor as well as the term. The minimum sales a distributor must meet in order for the relationship to stay in place must be considered as well since a manufacturer would not want to be restricted by an agreement that is failing to produce sales. The geographic scope of the relationship must be considered. The liability of both the manufacturer and the distributor in a situation where a buyer complains is a factor. The representations a distributor can and cannot make about the product to buyers is critical. The extent to which the distributor can use the trademarks of the manufacturer must be established. A manufacturer must determine the extent of buyer information it requires of its distributors on an ongoing basis. The foregoing are a few of the reasons agreements such as distribution agreements require careful analysis and drafting.
Product Liability Management
Some critical planning before introducing a product into a marketplace can drastically limit the potential for lawsuits later on. Marketing language must be carefully worded to avoid inadvertently issuing warranties. A manufacturer’s knowledge of past experiences with a product should be used to prepare cautionary and limited warranty language. The federal government and many states regulate the sale of certain products. A manufacturer must first become aware of whether their product is regulated, then understand what it must do to comply prior to selling in that market. The terms and conditions of sales to distributors and to end buyers is key to establishing the extent of the manufacturer’s responsibilities after the sale takes place. Matters as basic as identifying the parties actually involved in a sale (and in turn parties responsible for product liability) can become murky unless carefully established by agreement.
Businesses must often carry insurance policies simply to comply with the legal requirement of being properly capitalized. Policies such as general liability and product liability may be considered fundamental and essential business tools. And yet, policies that are purchased may actually not cover a business for their most fundamental needs. These policies tend to be quite complex and dense and caveats for denying coverage exist in many situations. The only way to avoid such a situation is to carefully analyze a policy and even negotiate its terms prior to procuring it.