Bierce & Kenerson, P.C.

Case Studies: Business Life Cycle

Case studies offer insights into solutions to practical problems. At each phase in development, growth and restructuring (both in non-distress and distress situations), clients need legal infrastructure for building business. Our case studies in business life cycle management reflect unique solutions to the unique needs of individual clients.

Early Development Stages: Problems of Viability.

Many of our clients are successful entrepreneurs, family businesses, partnerships, business founders and major shareholders in private enterprises. Their problems involve sustaining the enterprise beyond the dream of the business plan. For some, this requires a corporate entity with a sophisticated capital structure that includes private equity investors, founders and employees with incentive compensation such as stock options. For others, it may involve puts and calls of stock, with employment agreements.
For a foreign software developer entering the U.S. market for offshore development services, we structured a U.S. sales company to be partially owned by a U.S. sales and services provider team of four seasoned senior executives. The foreign owner retained control, but the executives received shares at a low price subject to achievement of financial targets on schedule. If the targets were not met, the shares would be redeemed at no profit. If the targets were met, the executives would have made profits for the foreign developer, built the business and earned tax-favored capital gains on their shares. We advised on structure, tax considerations, employment agreements, a staged shareholder agreement and commercial contracting including intercompany transactions.
For a Pink Sheets U.S. publicly listed software provider to customers in financial markets, we advised on key legal considerations in hiring a foreign software developer and in obtaining options to acquire part of the foreign developers business. We developed and negotiated a master software development services agreement with a low-cost developer. In addition to the operational agreement, we helped structure a joint venture agreement for capturing the benefits of transferring know-how and building the business reputation of the developer. We also provided software licensing agreements, and advised on resolution of intellectual property ownership rights being transferred to the company.
For a venture capitalist considering investment in a healthcare services company, we conducted operational and legal due diligence and advised on structuring and closing the financial investment. This gave the investor a deep insight into the portfolio companys business operations with a perspective on the commercial terms and risk management that assisted in valuation.

Steady Growth: Problems of Sustainability

Other clients have required extensive business development for sustainable growth. Such companies have obtained patents or other niche situations and are looking to expand markets. For example, a French software company that targeted Hollywood and cell phone products decided to transform itself into a U.S. company so that it could be close to its target customers, raise funds in the U.S. for additional rounds of capital, take advantage of the deep talent pool for similar software development in California and eventually consider an exit via an IPO or other strategic divestiture. We assisted the company in converting the French company into a Delaware corporation without incurring U.S. income taxes and while preserving the French operations intact. At the same time, a Los Angeles-based private equity firm invested several million Dollars in the company and injected new ideas and an opportunity for additional growth. We helped our client get to the next level in its mission for strategic growth.
For a valuation and appraisal services company based in New York, we helped with a merger of a New England appraisal company into the New York operations. While the legal and employment issues were fairly clear, we added value in post-merger integration through anticipation of typical problems and legal and practical business coaching for the acquiring entity.

Opportunistic Investments: Problems of Execution before Changes in Economic Conditions

We have developed some strong relationships with clients that enable us to assist in private investment in public entities (PIPEs) as a spin-off of negotiating long-term services contracts. For a chain of hospital supply services companies as enterprise customer, we successfully negotiated outsourcing agreements for managed information technology services and outsourced marketing services. The enterprise customer pursued an aggressive business development strategy to develop markets, so it co-invested $5 million in the service provider. Its PIPEs investment returned 1000% in three years.
For a top-bracket broker-dealer, we negotiated a collective investment with other broker dealers in a software development company that would provide utility-type generic software to the investment management industry. Our client was both an investor and a licensee of the software company.

Restructurings: Making Lemonade

Often, a business structure does not fit the market or the personalities of the shareholders. Even where the company is not in distress, a divestiture of one line of business, or a buyout of a minority shareholder, might help the company and investors maximize on economic value both today and for the future. The lemons in the business might just need to be squeezed in a way that could yield some appetizing lemonade.
For a closely-held marketing services company, we assisted the majority owner in approaching the minority owner for a buyout. The minority owner had not been involved in management for several years and was effectively diluting the efforts of the majority owner. The choices for the majority investor were not very palatable: quit and not compete for six months, with no right to poach any staff, or borrow to buy out the minority. We advised on a redemption strategy to minimize taxes, to retain control and to enable the company to shoulder the buyout leverage.
An Indian 50-50 investor in a U.S. and Caribbean call center business was frustrated by the lack of disclosures and conflicting business growth strategies of the U.S. managers who owned 50%. The U.S. managers wanted to eliminate the foreign investors role in future growth, and the tension became worse as the business began to demand additional investment for growth and acquisitions. The Indian investor did not wish to invest further. We advised the dissatisfied Indian 50% investor on strategic exit opportunities, including possible redemption of the 50% interest, possible sale of the entire company and possible financing through a third party.
A European manufacturer of consumer sporting goods was a distributor in Europe for a U.S. manufacturer. The foreign manufacturer approached us to terminate the distribution agreement so that they could pursue new opportunities in the U.S. market. While negotiating the termination agreement, we prepared the foreign manufacturers launch in the United States.
A publicly traded U.S. manufacturer of consumer goods was being sued in Europe for patent infringement. The patent claim was taking a lot of money and time and distracting management. We advised on a strategy of acquiring the European company, thereby avoiding waste and enabling exploitation of its own patents and the acquired patents in markets in North America and Europe.