WMACCA Corporate Law Forum: Tools To Help You Guide Your CEO In Choosing a Transaction Strategy November 5, :00 2:00 PM

Transcription

1 WMACCA Corporate Law Forum: Tools To Help You Guide Your CEO In Choosing a Transaction Strategy November 5, :00 2:00 PM David Sanders Foley & Lardner LLP Karen Litsinger Mirixa Corporation

2 2 About Karen Interim CEO, Mirixa Corporation General Counsel, Mirixa Corporation Seasoned business counselor with experience across large and small organizations. Served as a partner in the Corporate and Internet practice groups at Sonnenschein Nath and Rosenthal (now Dentons), as the Vice President in charge of all transactional work in the AOL LLC Legal Department, and as an associate at Arent Fox. Ms. Litsinger is the Past President of WMACCA, and previously served as the Chair of the Board at Ayuda, a legal services organization serving the immigrant community.

3 3 About David Partner with Foley & Lardner LLP Co-chair of the firm's Transactional & Securities Practice Co-chair of the firm s Trade Secret/Noncompete Specialty Practice Practice concentrated on mergers and acquisitions, joint ventures, employment, non-compete and trade secret issues, leases, general corporate matters, and the drafting and negotiation of all types of contracts and corporate documents Also a member of the Private Equity & Venture Capital and Real Estate Practices, as well as the Sports, Medical Device and Emerging Technologies Industry Teams Serves on the firm's Diversity Committee and Recruiting Committee Deal Junkie and Hockey Player chasing his youth

4 4 Sports theme! Part of a Team? Individual Sports?

5 5 Hypothetical The TSC Games We work at Company Albatross ( Company A ). The Totally Sports Channel ( TSC ) is planning to roll out a new event like the Olympics or X Games. Experts believe it will be the next big thing, in that it incorporates team sports and individual sports from around the world without the distractions of other existing properties. Our CEO is all in! She wants to get a new sports-themed board game (with related apps and game consoles) to market to coincide with the event and corresponding uptick in consumer interest. We have our own talented employees, but there are also lots of small companies and freelance designers/developers out there who have great ideas. How are we going to proceed?

6 6 Hypothetical (cont d) Do a JV with another game company to jointly develop a new game Buy a small game company with a game under development that fits the need Go forward with an internally developed game but manufacture / develop externally License a game idea from an independent developer, but do manufacturing / development ourselves Do the whole thing ourselves, soup to nuts

7 7 Because we re lawyers: This presentation does not convey the complexity of the technology and businesses involved in each specific transaction, and certainly there are exceptions to the statements in this presentation. We aim to convey what would be considered ordinary language for an ordinary transaction. Of course, ordinary transactions are like unicorns

8 8 Basics - Definition Contractual JV / Strategic Alliance Any two people in business together for profit Stock / Asset Acquisition / Merger Purchaser buys the stock or assets of seller or merges seller into it Contract Manufacturing Company A hires Company B to make widgets under Company A s name License & Royalty Agreements Company A pays Company B a royalty to license technology from Company B to manufacture the widgets Greenfielding Company A builds a facility or buys a building and outfits it to suit its manufacturing needs

9 Ownership (of Equity) 9

10 10 Ownership (of Equity) Contractual JV / Strategic Alliance Shared Stock / Asset Acquisition / Merger Purchaser Contract Manufacturing Each retains ownership of its own business License & Royalty Agreements Each retains ownership of its own business Greenfielding Company A

11 Structure 11

12 Structure 12 Contractual JV / Strategic Alliance Could be an LLC/Corp; could be a contract Stock / Asset Acquisition / Merger Purchaser would own target company / division / assets Contract Manufacturing Two separate commercial entities License & Royalty Agreements Two separate commercial entities Greenfielding Facility owned by Company A like any other Company A assets

13 Management 13

14 Management 14 Contractual JV / Strategic Alliance Management Committee and/or Steering Committee made up of both JV/SA partners; Limitations if you want to change course Stock / Asset Acquisition / Merger Generally Purchaser Directors & Officers; may be some representation from seller Directors & Officers Contract Manufacturing Each retains its own Directors & Officers License & Royalty Agreements Each retains its own Directors & Officers Greenfielding Company A Directors & Officers

15 Profit Distribution 15

16 Profit Distribution 16 Contractual JV / Strategic Alliance As set forth in the JV/SA agreement Stock / Asset Acquisition / Merger Purchaser Contract Manufacturing Company A pays Company B an established amount/based on established methodology License & Royalty Agreements Company A pays Company B a percentage of revenues for products including the Licensed Technology Greenfielding Company A retains all profits

17 COSTS / LIABILITIES 17

18 Startup 18

19 Startup 19 Contractual JV / Strategic Alliance Minor, using shared services from JV partners Stock / Asset Acquisition / Merger Transaction Costs Contract Manufacturing Minor License & Royalty Agreements Minor (could be milestone payments) Greenfielding Company A

20 Time to Market 20 Contractual JV / Strategic Alliance Middle Stock / Asset Acquisition / Merger Shortest Contract Manufacturing Shorter License & Royalty Agreements Longer Greenfielding Longest

21 Ongoing 21

22 Ongoing 22 Contractual JV / Strategic Alliance Shared Liabilities as set forth in JV/SA agreement Stock / Asset Acquisition / Merger Except for indemnification in purchase agreement, all with purchaser Contract Manufacturing Shared: Distinguish manufacturing liabilities from design liabilities License & Royalty Agreements Shared: Distinguish IP liabilities (e.g., infringement) from design and manufacturing liabilities Greenfielding Company A

23 Ability to React to Changes in Market/Demand 23 Contractual JV / Strategic Alliance Negotiated could take time Stock / Asset Acquisition / Merger Unilateral by Company A Contract Manufacturing Company A would have to consider Contract Manufacturer s ability to adapt and existing contractual obligations License & Royalty Agreements Would Company A need new IP? Greenfielding Unilateral by Company A

24 INTELLECTUAL PROPERTY (IP)

25 Ownership 25

26 Ownership 26 Contractual JV / Strategic Alliance Both parties can contribute IP Stock / Asset Acquisition / Merger Purchaser owns Contract Manufacturing Company A owns License & Royalty Agreements Company B owns Greenfielding Company A

27 Protection (Enforcement) 27

28 28 Protection (Enforcement) Contractual JV / Strategic Alliance Negotiated; generally each party protects its own IP (This can be risky to the JV) Stock / Asset Acquisition / Merger Purchaser owns Contract Manufacturing Company A owns License & Royalty Agreements Usually Company B, but critical or specific use IP may compel a different result shared costs or Company A vested with enforcement rights Greenfielding Company A

29 Creation of New IP 29

30 30 Creation of New IP Contractual JV / Strategic Alliance Heavily negotiated and complicated issue based on nature of IP developed and historical product strengths; In contractual JV, one party must own and the other must license Stock / Asset Acquisition / Merger Purchaser owns Contract Manufacturing Company A should have leverage to own all newly developed IP License & Royalty Agreements Negotiated; may be separated between licensed technology and manufacturing know-how. Company B may be wellpositioned to own new IP Greenfielding Company A

31 Brand Management/Public Relations 31

32 Brand Management 32 Contractual JV / Strategic Alliance Joint, as negotiated Stock / Asset Acquisition / Merger Purchaser Contract Manufacturing Company A License & Royalty Agreements Company A Greenfielding Company A

33 Public Relations/Political Implications 33 Contractual JV / Strategic Alliance Shared control; some risk for Company A Stock / Asset Acquisition / Merger Total control for Company A Contract Manufacturing Mostly outside of Company A s control; most risky License & Royalty Agreements Mostly within Company A s control Greenfielding Total control for Company A

34 Manufacturing Know-How 34

35 Manufacturing Know-How 35 Contractual JV / Strategic Alliance Generally owned by JV itself; neither party to JV owns, unless contracted otherwise Stock / Asset Acquisition / Merger Purchaser Contract Manufacturing Company B License & Royalty Agreements Company A Greenfielding Company A

36 Maintenance & Development of Human Resources 36

37 Maintenance & Development of Human Resources 37 Contractual JV / Strategic Alliance Each JV partner usually provides resources; sometimes JV has its own employees and staff Stock / Asset Acquisition / Merger Purchaser Contract Manufacturing Company B License & Royalty Agreements Company A Greenfielding Company A

38 MANUFACTURING 38

39 Quality / Consistency 39

40 Quality / Consistency 40 Contractual JV / Strategic Alliance Both parties can exercise oversight Stock / Asset Acquisition / Merger Purchaser Contract Manufacturing Company A needs a means of monitoring Company B s role, materials used, know-how developed and legal compliance License & Royalty Agreements Company A generally responsible, which could impact Company B s realization of profit from IP Greenfielding Company A

41 Quality Control Risk for Company A 41 Contractual JV / Strategic Alliance Moderate Stock / Asset Acquisition / Merger Minimal Contract Manufacturing High (Costs of Monitoring) License & Royalty Agreements Between minimal and moderate Greenfielding Lowest risk

42 Mission Control/Project Completion 42 Contractual JV / Strategic Alliance Moderate Control for Company A Stock / Asset Acquisition / Merger Total Control for Company A Contract Manufacturing Least Control for Company A (May want to invest in third party monitoring services) License & Royalty Agreements Minimal Risk of Lack of Control for Company A Greenfielding Total Control for Company A

43 Volume / Scale 43

44 Volume / Scale 44 Contractual JV / Strategic Alliance Parties can leverage each other and invest in additional resources Stock / Asset Acquisition / Merger Purchaser to determine next steps Contract Manufacturing Company A can generally find additional manufacturers beyond Company B License & Royalty Agreements Need to identify additional resources to scale up Greenfielding Long time to further scale up

45 Suggested Transfer Restrictions 45

46 Suggested Transfer Restrictions 46 Contractual JV / Strategic Alliance Comprehensive. Both parties should have the right to consent to any new partners or sale of existing partner interests Stock / Asset Acquisition / Merger Not applicable Contract Manufacturing Company A may want some control over who runs Company B and how Company B is run, but it will be hard to get that right License & Royalty Agreements Once Company A has the right to the IP, it should not matter who owns Company B (but if there is a bankruptcy ) Greenfielding Not applicable

47 Contact Information 47 David S. Sanders Foley & Lardner LLP 3000 K Street, NW, Ste. 600 Washington, DC P F dsanders@foley.com Karen Litsinger General Counsel Mirixa Corporation Sunrise Valley Drive Suite 100 Reston, VA klitsinger@mirixa.com