"the importance of being earnest" how to dodge legal pitfalls that confront family and...

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The Importance of Being Earnest How to Dodge Legal Pitfalls that Confront Family and Closely Held Businesses

Bob Kaiser, Jennifer Hoekel, Steve Pozaric, Bill Corrigan

October 30, 2013



Evading Employment Law LandminesBob KaiserOctober 30, 2013


Things You Need to Say Out Loud 99% of Lawsuits are controllable before the

plaintiff files suit. I Don’t Want the Government in My Business. My Employees Know their rights and they all

have Lawyers. The Courts Don’t Really Want to Run My

Business. I Don’t Want to Invite them In.


Sexual Harassment Fix the Problem before the Court makes you Have Clear and Understandable Policies Follow them Make sure your Supervisors do, too


Americans with Disabilities Act Engage in the “Interactive Process” Create a record of trying to help the

disabled person do the job.


Hiring and Firing Tell the truth and nothing but the truth,

even when your goal is to “protect” the applicant or employee from the truth.

Make sure your documents tell the same story you do

Invest the time and energy in your investigation



Protecting Your Business with Patents, Trademarks and Copyrights

Jennifer HoekelOctober 30, 2013


Patents Consists of a set of exclusive rights granted

to an inventor for limited duration In exchange for the public disclosure of an

invention. Utility patent v Design patent


Copyrights Gives the creator of an original work

exclusive rights for a limited time (decades). Registered at the Library of Congress


Trademarks A distinctive name, word, phrase, logo,

symbol, design, image, or a combination Identifies source Unlimited duration Applied for at the USPTO



Protecting Your Equity in the BusinessSteve PozaricOctober 30, 2013


The Issue:

Alignment of Incentives: • A desire to reward key members of

management (other than the founders or family members) based on the success of the business.

The “easy” solution: • Equity stake in the company.


Equity Ownership includes a Bundle of Rights

Economic Rights

Notice and Voting Rights

Information and Inspection Rights

Fiduciary Duties


The Challenges Two main challenges:

• What powers or rights do you really want to give these individuals if they own equity?

• What to do when these individuals leave the business (voluntarily or not) or are impacted by events such as divorce?


Tools to Protect Family or Founder Equity Mechanisms to issue equity:

• Restricted stock grants or purchases

• Stock options


Tools to Protect Family Equity (con’t) Mechanisms to control rights

• Separate class of equity for non-Family holders/Founders to vary economic, voting and other rights

• Shareholder Agreements−Voting agreements / trusts; appointment of

directors and managers by certain equity holders

−Transfer Provisions


Transfer Provisions Typical Transfer Restrictions and Obligations

• General restriction on transfer except pursuant to the agreement

• Permitted transfers to controlled entities and trusts, so long as control is maintained

• “ROFR” (Right of First Refusal) • “Drag Along” Rights – sale of company /

control; typically coupled with a “Tag Along” right


Transfer Provisions Automatic Repurchase Option Triggers

• The “Four D’s” – death, disability, discharge, divorce• “Non-sale” transfers – bankruptcy, insolvency,

creditor action, dissolution• “Non-permitted transfers” – attempted transfers in

violation of restrictions or other breaches of agreements or duties

Price is often variable based on the type of event• It is often discounted in the event of discharge “for

cause” or some other breach / wrongful act scenario


Alternatives to Equity Goal - Provide Economic Rewards without Equity-

based Rights

• Incentive Bonus Plans based on Company and/or Individual Performance

• Phantom Stock Plans /Equity Incentive Units

• Stock Appreciation Rights Plans


Remember: Important to review current structure before

granting equity interests to new holders; the current agreements may not be appropriate for a non-Family/founder equity holder

Consider the tax and accounting impacts to the Company and the recipient



Protecting Your Trade Secrets

Bill CorriganOctober 30, 2013


Trade SecretsProtecting Your Trade Secrets What Are They?

1. Economic value2. Not generally known3. Reasonable measures taken to keep

confidential


Trade SecretsCase Pending in Missouri Supreme Court Central Trust and Investment Co. v.

Signalpoint Asset Management, LLC, et al.

Oral Argument – 11/13/13


Trade Secrets Practical Considerations to Protect Trade Secrets

1) Confidentiality agreement2) Confidentiality policy – employee handbook3) Employee exit interview checklist4) Follow-up letter to departing employee5) Non-compete agreements


Trade SecretsNon-Compete Agreements and Unfair Competition

• When are they enforceable?

• Recent Missouri Supreme Court decision

• Defenses to the enforcement of a non-compete


Trade SecretsMisappropriating Computer Data

• The Missouri Act

• The Federal Computer Tamper Act


Questions?William Corrigan, Jr.314.342.4105 [email protected]

Jennifer Hoekel314.342.4162 [email protected]

Robert Kaiser314.342.4153 [email protected]

Steve Pozaric314.552.6643 [email protected]

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