Transcript Document

Hot Legal Issues in this Economy for
Material Handling & Industrial
Equipment Businesses
Jeremy Silberman
David Cassidy
Mo Bauer
Gary Marks
Charles Bruder
The material provided herein is for informational purposes
only and is not intended as legal advice or counsel.
Protecting Your Dealership
Under State Franchise and
Dealer Protection Laws
Jeremy Silberman
THE ECONOMY:
EFFECT ON THE INDUSTRY
OUTLOOK FOR RECOVERY
3
The Manufacturers Alliance/MAPI May
2009 Economic Report:
“January-to-March, inflation-adjusted material
handling orders were 56 percent below order
activity one year ago. The material handling
equipment business took a sharp dive at year end
2008 and the contraction continued in the first
quarter of this year. The sharp decline in industrial
activity caused factory utilization rates to drop
precipitously, which in turn lessened the need for
general purpose material handling equipment.”
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The Manufacturers Alliance/MAPI May
2009 Economic Report:
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United States Forklift Sales
Class 4 & 5 (Internal Combustion)
90,000
85,038
76,664
80,000
62,104
70,000
60,000
50,000
31,000
40,000
30,000
20,000
10,000
0
2006
2007
Source: Industrial Truck Association; 2006 – 2008 Shipments; 2009 Estimated Orders.
2008
2009 (est.)
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Northern New Jersey
Forklift Orders Class 1 – 5
5,000
4,500
4,000
3,500
4,969
4,497
3,000
2,500
2,000
2,795
1,500
1,900
1,000
500
0
2006
2007
2008
2009 (est.)
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2009 estimate based on annualizing Jan - May 2009 Orders.
Projected Timing for Recovery of New
Equipment Sales
Material Handling Equipment lags:
• Federal Reserve Board’s Industrial
Production Index by 9 – 12 months
• Consumer Confidence Index by 12 months
• Housing Starts by 21 months
Source: MHIA March 2009 Material Handling Equipment Manufacturing History and Forecast Report.
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THE NEW JERSEY
FRANCHISE PRACTICES ACT
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New Jersey Franchise Practices Act –
Protection Against Termination
• “It shall be a violation of this act for a
franchisor to terminate, cancel, or fail to
renew a franchise without good cause.”
• “For purposes of this act, good cause . . . shall
be limited to failure by the franchisee to
substantially comply with those
requirements imposed upon him by the
franchise.”
N.J.S.A. 56:10-5
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New Jersey Franchise Practices Act –
Indirect Termination
“It shall be a violation of this act for any
franchisor directly or indirectly … to terminate,
cancel, or fail to renew a franchise …”
N.J.S.A. 56:10-5
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New Jersey Franchise Practices Act –
Proper Notice of Termination
“It shall be a violation of this act for any
franchisor directly or indirectly … to
terminate, cancel, or fail to renew a franchise
without having first given written notice
setting forth all the reasons for such
termination, cancellation, or intent not to
renew at least 60 days in advance of such
termination …”
N.J.S.A. 56:10-5
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New Jersey Franchise Practices Act –
Injunction Against Termination
“Any franchisee may bring an action against its
franchisor for violation of this act in the Superior
Court . . . to recover damages sustained by reason of
any violation of this act and, where appropriate, shall
be entitled to injunctive relief …
Such Franchisee, if successful, shall also be entitled to
the costs of the action including but not limited to
attorneys fees.”
N.J.S.A. 56:10-10
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New Jersey Franchise Practices Act –
Standards of Performance
“It shall be a violation of this Act for any
franchisor, directly or indirectly to …
impose any unreasonable standards of
performance.”
N.J.S.A. 56:10-7(e)
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New Jersey Franchise Practices Act –
Other Protections
It is a violation of the Act for a manufacturer to:
• Prohibit dealer associations and the right of dealers to
organize;
• Require or prohibit a change in management unless the
manufacturer has good cause, stated in writing, to require
or prohibit the change;
• Restrict the sale or transfer of any equity in the business to
the spouse, child, heirs, employees or managers of the
business, so long as it is not a sale of control of the
franchise.
N.J.S.A. 56:10-7
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New Jersey Franchise Practices Act –
Sale or Transfer of Franchise
• Dealer must give written notice of the buyer’s
name, address, statement of financial
qualification, and business experience.
• Manufacturer has 60 days to approve the sale or
advise of unacceptability on the basis of the
buyer’s (a) character, (b) financial ability, or (c)
business experience.
• If no reply in 60 days – approval is deemed
granted.
N.J.S.A. 56:10-6
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New Jersey Franchise Practices Act
Must meet six requirements
to be protected by the Act
What can you change in your business to ensure that
you meet the six elements?
How would you prove in court that your business
meets the six elements?
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New Jersey Franchise Practices Act –
Qualifying for Protection of the Act
1. Written arrangement
It does not matter whether the agreement actually uses
the word “Franchise.” It may be a Sales Agreement, or
Dealer Agreement, or any other kind of agreement. It is
still a “franchise agreement” if the business meets the six
elements of the Franchise Act.
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New Jersey Franchise Practices Act –
Qualifying for Protection of the Act
2.
Place of business in New Jersey where the
franchisee displays for sale and sells the
franchisor’s goods or services. But …
“Place of business shall not mean an office, a
warehouse, a place of storage, a residence or a
vehicle.”
You need some sales activity at your facility – not just
storage of goods and back office operations. What can
you do to ensure some retail sales at your place of
business? (e.g. a showroom or a parts counter).
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New Jersey Franchise Practices Act –
Qualifying for Protection of the Act
3.
Gross sales of products or services between
manufacturer and dealer exceed $35,000 in
prior 12 months.
4. More than 20% of gross sales are derived (or
intended to be derived) from the franchise.
Document your revenue stream by product brand
• Equipment sales: new and used
• Parts sales
• Service work: warranty and non-warranty
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New Jersey Franchise Practices Act –
Qualifying for Protection of the Act
5. License to use the trade name, trade mark,
service mark.
Not necessarily a formal trademark license, but must
show the public that there is a relationship between
the dealer and the manufacturer.
Does the manufacturer give you guidelines on how
their trademark must appear?
Document your use of the “license.” Do you use the
trademark in your advertisements? Yellow page ads?
Uniforms? Letterhead?
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New Jersey Franchise Practices Act –
Qualifying for Protection of the Act
6. “A community of Interest in the marketing
of goods or services at wholesale, retail, by
lease, agreement, or otherwise.
You must demonstrate substantial “Franchise
specific investments” - - -
What equipment, software, training,
advertisements, signs and logos, etc. have you
bought over the life of the business specifically
related to selling and servicing this brand?
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Be Prepared
• Document, Document, Document… all of your
proofs of each requirement now and on an
ongoing basis as a regular business practice.
• Save all proofs of use of the trade mark, “franchise
specific investments,” and revenue from selling
and servicing the product, training customers, etc.
• Save all documents from all your interactions with
the manufacturer; letters, emails, agreements,
dealer meeting notes and presentations, etc.
For at least as long as the relationship exists.
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Pennsylvania
• No specific franchise protection statute
• However, Pennsylvania courts have recognized
some level of protection against termination
without good cause.
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Pennsylvania
Pennsylvania Supreme Court Decision:
Atlantic Richfield Company v. Razumic, 480 Pa. 366 (1978)
Definition of a franchise:
“In its simplest terms, a franchise is a license from the owner
of a trademark or trade name permitting another to sell a
product or service under the name or mark. More broadly
stated, the franchise has evolved into an elaborate agreement
by which the franchisee undertakes to conduct a business or
sell a product or service in accordance with methods and
procedures prescribed by the franchisor, and the franchisor
undertakes to assist the franchisee through advertising,
promotion and other advisory services.”
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Pennsylvania
“In exchange, an Arco dealer such as Razumic [the dealer]
can justifiably expect that his time, effort, and other
investments promoting the goodwill of Arco will not be
destroyed as a result of Arco's arbitrary decision to terminate
their franchise relationship. Consistent with these reasonable
expectations, and Arco's obligation to deal with its
franchisees in good faith and in a commercially reasonable
manner, Arco cannot arbitrarily sever its franchise
relationship with Razumic. A contrary conclusion would
allow Arco to reap the benefits of its franchisees' efforts in
promoting the goodwill of its name without regard for the
franchisees' interests.”
Atlantic Richfield Company v. Razumic, 480 Pa. 366 (1978)
26
Employee Free Choice Act:
Where It Stands and
What It Means to Employers
David Cassidy
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What Is The EFCA?
An Act to “amend the National Labor
Relations Act to establish an efficient
system to enable employees to form,
join, or assist labor organizations, to
provide for mandatory injunctions for
unfair labor practices during organizing
efforts, and for other purposes.”
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EFCA in a Nutshell
•
Gives workers the choice of whether to form a union
through majority sign-up or through the National Labor
Relations Board election process
•
Guarantees a first union contract through mediation
and arbitration
•
Strengthens penalties for violations against workers
who are trying to organize or negotiate a first contract
http://edlabor.house.gov/employee-free-choice-act efca/
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Certifying A Union
Certifying A Union Today
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Campaign Period
Current System
• Authorization cards from 30% = petition for
election
• Employer provides union with roster of
eligible employees
• Election date = no less than 10 days from the
day the roster was released
• 2007 median period - 39 days from the date
the petition was filed (NJ: 42 Days)
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Voluntary Recognition/Card
Check
• Employer can agree to voluntarily
recognize a union via a card check
• 51% permits the union to be voluntarily
recognized by the employer
• Employer may reject voluntary card
check and force secret ballot
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Campaign Rules - Employers
• Don’t make negative predictions about the effect of
the union on business
• Don’t question or surveil employees regarding their
voting choices or leanings
• Don’t offer incentives for voting against unions
• Not only includes wages and benefits but any
other type of working condition
• Don’t hold campaign meetings within 24 hours of
balloting
• Don’t Discipline, Discharge, Discriminate or Retaliate
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Different Rules for the Unions
• Unions may…
• Promise higher wages/benefits/changes
without accountability
• Contact employees at their homes and
repeatedly inquire about their vote using
union members or co-employees
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Secret Ballot Elections
• Conducted by NLRB
• Represented at the election by an observer
• Union must receive a majority of the votes
cast
• Majority of voters – Union certified as exclusive
bargaining representative for the unit
• No Majority – Certified as no union
• Either way, no election in that unit for at least
one year from the date of election results
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Secret Ballot
SAMPLE
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The EFCA WAY!
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Authorization Cards
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Privacy?
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The Union is in…
Now What??
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Negotiating With The Union
Out with the old…
In with new…
Current labor negotiations
under the NLRA
Proposed changes
under the EFCA 45
The Negotiation Process
Under Current Law
• Each negotiation is decided
by the parties on a case-bycase basis
• There is no requirement to
reach a final resolution
• Both sides have leverage
• Employer – Last, best
contract offer and lock outs
• Union – Strike, picket and
handbill
Under the EFCA
• Resolution WILL be reached
• If an agreement can’t be
reached, parties are sent to
mediation
• If mediation doesn’t work,
parties are sent to
mandatory arbitration
• Arbitration
• First contract and binding
for two years
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Binding Interest Arbitration
• Arbitration decision would be binding
for two years, unless parties agree
otherwise
• Rules to be issued on how it will work
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ULP Remedies – Ouch!
What they are, and the price to
pay under current law and EFCA
Employer Unfair Labor Practices
• Interfere/restrain/coerce employees in exercising
their rights to engage in concerted activity or union
activity
• Dominate or interfere with formation or
administration of union
• Discriminate against employees based on union
actions
• Includes filing charges or taking part in a proceeding for the
NLRB
• Refusal to bargain with the lawful representative
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Penalties for Employers
Current Penalties
• Remedial back pay and
reinstatement
• Possible Injunctions
• Posting Requirements
• New Elections
• Bargaining Orders
• Extreme cases only
• Priority granted to
allegations of ULP by the
Union
EFCA Penalties
• In addition to previous
remedies…
• Treble Back Pay
• Mandatory Injunctions
• Civil Damages
• $20K per violation
• No change in remedies
against Unions
• Provisions grant priority to
allegations made by unions
and employees against
employers
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Planning for the EFCA
How to prepare for the
worst case scenario
Don’t Stand PAT!
1. Plan
– How to minimize exposure to
unionization
2. Analyze
– Perform a critical audit of your own
vulnerability
3. Train
– Pro-actively educate while you still can
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Plan
• Passive approach = No approach
• Speak NOW or Forever Hold Your
Peace
• Explain to Company Leaders how the
EFCA will impact your Company
• A union may be in place literally before
you know it
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Analyze
• Perform a self-audit to determine if you are
really vulnerable
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Industry
Wages/Benefits
Employee morale
Union activity in the area
Supervisor competence
Communication methods
54
Leadership
• The best union organizer is a bad
manager…
• Poor leadership (NOT pay or benefits)
is the primary issue that leads to
unionization
• Employers have the most power to
remedy poor leadership
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Policies and Practices
Policies
• Is your handbook
written in plain
language?
• Are your policies
comprehensive?
• At Will employees?
Hiring Practices
• Train Managers on
how to hire
• Hire from positive
sources
56
Train Your Managers
• Train you managers to focus on employee
relations
• The primary reason given for unionization is
frustration with supervisors
• Teach supervisors
• What leads to unions and how to avoid them
• How to spot early signs of unionization
• What to say and what NOT to say
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Contingency Planning
• Create a rapid response communication
plan
• Develop a “Ready to Go” Campaign
that can be launched if you learn of
union activity
• Be ready to train managers on TIPS
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Will It Pass?
Political Support
"We will pass the Employee Free Choice
Act. It's not a matter of if—it's a matter
of when. We may have to wait for the
next President to sign it, but we will get
this thing done."
– Barack Obama, 3/4/07
60
Status
• The bill passed unchanged through the
House of Representatives
• The Bill has not been offered to the
Senate for a vote at this time
• The President is a co-sponsor of the Bill
and will sign the Bill if it comes to his
desk
61
What now?
Magic Number = 60
Magic Word = Compromise
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Collecting From Financially
Distressed Customers
Mo Bauer
Factors Leading to
Financial Distress
• Liquidity Crisis
• Asset-Based Loan Default
• Loss of Major Client/Customer
• Loan Maturity and Unable to Refinance
• Drop in Revenue
• Increased Operating Costs
64
Red Flag Factors
• Industry in Distress
• Payment Terms Expanding, i.e. Late
Payments
• The Rumor Mill – Other Creditor Comments
• Continual Empty Promises
65
Should We Continue to Do Business
With Distressed Customer
• Assess Import of Distressed Customer to your
business
• Size-Up Customer’s Ability to Find a Replacement
• Request Financial Statements from Customer,
including Bank Loan status
• Assess Amount of Customer debt that you are
prepared to write-off and set threshold accordingly
• Place Customer on COD Basis.
66
Legal Pursuit of Collections
• Know Legal Rights
• Contractual Rights and Remedies
• Lien Rights, i.e. recorded UCC statements,
warehouseman lien, artisan lien
• Demand Letter or Default Letter
• Collection Complaint
67
Should We Do Business With a
Chapter 11 Debtor?
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Access to Financial Information of
Debtor
Business Terms
Administrative Expense Claim
Emotions v. Profit
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Available Information
 Schedules of Assets and Liabilities and Statement of
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Financial Affairs
Budget for Use of Cash Collateral and DIP
Financing
Monthly Operating Reports
Counsel to Creditors Committee
Other Creditors
Disclosure Statement Provides Historical Financial
Information and Forecasts
The Web, Court’s Website, Newspaper Articles, etc.
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Executory Contracts
• An Executory Contract is a contract in which
both parties still have continuing obligations
• Examples: Residential or Commercial Leases,
Certain Equipment Leases, Service Contracts,
License Agreements, and Collective
Bargaining Agreements
• A non-Debtor party is required to continue
with performance under the contract
• Motion to Assume or Reject Lease or Contract
70
Equipment Leases
Equipment Financing
• True Lease vs. Disguised Security
Interest
• Motion for Stay Relief
• Motion for Adequate Protection
• Assumption of Lease
• Sale of Equipment
71
Claims Process
• Bar Date (Deadline to File a Claim)
• Filing a Proof of Claim
• Motion Objecting to Claims
72
Preference Actions
Adding Insult to Injury
• Preference Payments – Typically, any payment
received within 90 days of the Petition Date
• Dunning Letter from Debtor or Liquidating Trustee’s
Counsel
• Defenses
• Contemporaneous Exchange
• New Value
• Ordinary Course of Business or financial affairs of
the debtor and the transferee or made according to
ordinary business terms
73
Sales of Assets in Chapter 11
•
•
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Notice of Asset Sale
Sale Free and Clear of All Liens, Claims and
Encumbrances
Assumption and Assignment of Executory
Contracts
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Payment of Arrearages
Adequate Assurance of Future Performance
Higher and Better Offers
74
When to Consider Filing for
Bankruptcy Protection for Your
Business
Gary Marks
Pre-Bankruptcy Planning and Timing
of Filing Petition
• May not always have the luxury of time to
plan for bankruptcy
• Considerations
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•
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•
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If possible, file at a time when debtor’s business cycle is
such that it is flush with cash. Consider the seasonality of
the business.
Avoid bank set-offs
Insurance issues
Whether to apprise lender and major suppliers in advance
Time limits on whether to assume or reject a lease could
dictate the timing of the petition, especially in retail cases
76
with a large number of leased locations
Dealer Agreements May
Precipitate A Bankruptcy Filing
•
•
Termination notice given by manufacturer and
notice period both expire before dealer files
petition. Dealer agreement can be terminated and
cannot be resurrected in subsequent bankruptcy.
Termination notice given by manufacturer prior to
dealer filing petition, but dealer files during the
notice period
•
•
If dealer has no right to cure, mere passage of time alone
will not stay termination of the Agreement
If dealer has a right to cure, the termination is stayed and
the dealer will have the chance to cure and reorganize its
business
77
Types of Insolvency Proceedings
• Chapter 7
• Chapter 11
• Assignment for benefit of creditors
78
Alternatives to Insolvency
Proceedings
• Out of court workout with principal lender
• Out of court workout with key trade
creditors
79
Succession Planning — Minimizing
Costs and Risks When Transitioning
Your Business to a Family Member or
Selling to a Third Party
Charles Bruder
What is Succession Planning? –
An Overview
•
•
•
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Equity gifts to family members
Transfers to trust/controlled entity
Equity grants to key family member employees
Sales to third parties
81
Gifts of Equity to Family
Members Potential Pitfalls
• Gifting limits
• Valuation Issues
• “Overgifting”
82
Gifts to Family Members Intentions?
•Outright Gifts vs. Gifts with Restrictions
– What do you intend to give?
• Stock Value?
• Voting Rights?
• Dividends?
• Transfer restrictions?
• Shareholder agreement issues?
– Buy/Sell Agreements?
83
Transfers to
Trusts/Controlled Entities
• Types of Techniques
• Grantor Trusts
• Family Limited Partnerships (FLPs)
• Use of these vehicles may allow for the transfer of
equity in your company at a discounted value, while
permitting you to retain some “control” over the
transferred assets
84
Transfers to
Trusts/Controlled Entities
• Many of the same potential pitfalls as outright gifts to
family members
• However, valuation issues require additional scrutiny
• Use of trusts/controlled entities has gained
additional IRS scrutiny during the past few years
• The IRS has had some success in challenging
equity valuations, particularly for minority
discounts
• Additional costs associated with implementation
and maintenance of trusts/controlled entities
• Potential estate inclusion if not properly structured
85
Equity Grants to Family
Member Key Employees
• If a family member is also a key employees of the
company, there are a variety of equity and equitybased incentive compensation techniques available
• Stock option plans
• Restricted stock arrangements
• Stock bonus plans
• Stock appreciation rights
• Phantom stock arrangements
• Deferred compensation arrangements
• With these latter 3 techniques, the employee does not
receive actual equity, but rather the value of same
86
Equity Grants to Family
Member Key Employees
• Remember, there must be a true employee
relationship
• Certain restrictions may exist on family member stock
ownership
• Non-family member employee relations issues
• Employment-related grants raise many of the same
issues as outright gifts
87
Sales to Third Parties Considerations
• Sales Structure - Stock vs. Equity
• Cash vs. debt vs. equity
• Post-sale rights
• Right of first refusal
• Right of repurchase
• Collection rights on debt default
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Sales to Third Parties Employee Sales?
• Do your employees have any interest in purchasing
the company?
• Can use equity-based employee benefits plans to
facilitate a transfer
• Employee Stock Ownership Plan (ESOP)
• Employee Stock Purchase Plan (ESPP)
• Stock options
89
Sales to Third Parties –
What about you?
• What do you plan to do post-sale?
• Cash flow needs
• Earn-out?
• Post-sale employment?
• Employee vs. Independent Contractor
• Duties and responsibilities
90
Question & Answer
Session
Thank you for coming!