Resolving Shareholder Disputes

RESOLVING SHAREHOLDER DISPUTESCOMPLEX FINANCIAL LITIGATION 2016 SERIES

Premier date: April 20, 2016

Premier Date: April 20, 2016

COMPLEX FINANCIAL LITIGATION 2016 SERIES

RESOLVING SHAREHOLDER DISPUTES

© 2016 DailyDAC, LLC d/b/a/ Financial Poise™

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meet the facultyPANELISTS

Michael Goldman KCP AdvisoryAdam Hirsch Robinson Curley & Clayton P.C.Ryan Gunderson Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

MODERATOR Jack Barber

Crowe Horwath LLP


Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD

NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

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about this webinarWhen two or more people go into business together, they often fail to form a plan to resolve future disputes that may arise among business owners. This problem is particularly prevalent in closely-held businesses owned by family members and close friends. This webinar explains how to plan for and manage through the kinds of disputes that commonly arise among shareholders. The panel will discuss the legal principles that govern these disputes and how the courts apply them. Business owners and advisors will learn best practices for anticipating, resolving, and when necessary litigating shareholder disputes.

about this seriesBusiness owners and executives, and the attorneys and other professional who advise them, need to be prepared for the possibility that ordinary business activities will lead to litigation. Internal disputes sometimes arise among the owners, shareholders, and investors who participate in a business. Businesses themselves often face disputes with their business partners, vendors, suppliers, and creditors. Financial Poise’s Complex Financial Litigation series will familiarize you with the common types of business litigation and will help you understand the common issues that arise in these disputes.

Join leading experts in this field as they walk you through discussions of these complex topics in plain English so that you are prepared when the next dispute arises.

As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs. © 2016 DailyDAC, LLC d/b/a/ Financial Poise™

episodes in this series

EPISODE #1 Common Issues and Strategies in Business Breakups

2/17/2016

EPISODE #2 Nuts & Bolts of Lost Profit Cases

3/16/2016

EPISODE #3 Resolving Shareholder Disputes 4/20/2016

EPISODE #4 Defending Against Bankruptcy Avoidance Actions

5/18/2016Dates above are premier dates

All webinars also available On Demand through West LegalEd Center and Vimeo



What causes shareholder disputes?• Operating without a written shareholder agreement• Excessive compensation• Disputes about business strategy• Management issues• Difficult and unresolved issues concerning: Direction of

the business, Financing, Risk, Difference of effort, Succession planning, Bringing children into the business, New ventures or growth opportunities, Shareholders that cease to be team players


Written agreementsFailure to enter into a written shareholder agreement represents a fundamental lack of planning for common contingenciesA written agreement:• Sets expectations and obligations• Deals with common contingencies• May or may not have a defined dispute

resolution process or exit strategy


Dimensions of shareholder disputes


Paths to dispute resolution

Arbitration Mediation

Litigation

Outside party to implement terms of legal document or sit down to iron out the real issues


Options to avoid post-acquisition disputes

• Write the purchase agreement with explicit treatment of accounting matters and definition of terms

• Design earn-out benchmark (e.g., EBITDA) for triggering payout very carefully and control conduct of Buyer during earn-out period• Can Buyer change business model? Geographic boundaries? Product lines?• Can Buyer accelerate R&D spending after closing?• What about deferred maintenance prior to closing that requires post-closing expenditures?

• For earn-outs, clearly define:• Transaction and integration expenses• Buyer’s overhead expenses • Executive compensation• Changes to depreciation costs from Buyer’s valuation of fixed assets• How to measure impact of inter-company transactions on EBITDA

• Define “consistently applied” – don’t just rely on the expression “GAAP”• Retain accounting records so as to have best persuasive evidence • Resolve as many disputed areas as possible before retaining independent accountant and then

narrowly frame the issues to be resolved


Nature of dispute may dictate path to resolution

• Family disputes lend themselves more to mediation• A number of good psychologists who specialize in

family business• Deal with issues such as intergenerational

succession• Creating a way for siblings to work together

• A dispute that can be solved by a sale of the business often lend themselves to bringing in an appraiser• Business decision disputes are the most intractable

• Presence of a lawyer generally helps but not always


If litigation is required, what tools are available

• Shareholder dispute resolution statute of your local law• Usually not Delaware, given that most cases if the parties are

sophisticated enough to pay the added expense of a Delaware incorporation, they have provided themselves with a shareholder agreement

• Breach of fiduciary duty claim• Many states have developed non-statutory case law that

imply duties to the shareholders of closing held corporations and treat the owners more like partners than like shareholders

• Outside of the closed corporation statutes• Issues with the examination of books and record


Frequent obstacles to resolution


Legal resources for shareholder disputesMuch of the learning on shareholder disputes is not in the case law because most get settled because (1) most of the disputes

are in smaller corporations and the dollar amounts do not justify litigation and (2) many of the issues are non-economic and

therefore less susceptible to an economic analysis

Case law and state law treatises because we are likely to be under state law

O’Neal and Thompson’s, Oppression of Minority Shareholders and LLC Members (Although this is a West publication, this is a recommendation that I would have made at any seminar)

More About The Faculty: D

JACK [email protected]


Jack Barber serves as Assistant General Counsel at Crowe Horwath LLP. He was previously a litigation partner at Tabet DiVito & Rothstein LLC in Chicago. In his private legal practice, Jack litigated complex commercial and financial disputes, including shareholder, member, partnership, and joint venture disputes; insurance coverage claims; banking and broker-dealer disputes; tax controversies; and professional liability claims against accountants, appraisers, and attorneys. He also counseled business owners, boards, and management before litigation.Jack has extensive experience in the non-profit sector as a director of the Barber National Institute, which serves more than 4,200 children and adults with developmental disabilities and provides world-class education and training to industry professionals.



MICHAEL [email protected]

Michael Goldman is a CPA, CVA, CFE.He is a Senior Managing Director at KCP Advisory Group.

He specializes in matters relating to insolvency, valuation, and forensic accounting. He has been qualified in both state and federal court as an expert witness and has served as a consulting expert numerous times in cases involving solvency, allegations of fraud, fairness, commercial damages, valuation issues, professional malpractice, and bankruptcy issues. His eighteen years of consulting experience and fourteen years of in-company experience as a senior executive give him a unique perspective in his client assignments.Mr. Goldman is a Certified Public Accountant, a Certified Fraud Examiner, a Certified Valuation Analyst, and is certified in Financial Forensics. He spent 15 years as adjunct professor at the Lake Forest Graduate School of Management and earned degrees include a Master of Management in Finance and Accounting from Northwestern University’s Kellogg Graduate School of Management, and a Bachelor of Arts in Economics and Managerial Studies from Rice University in Houston, Texas.(Read more at www.kcpadvisory.com )



ADAM [email protected]

Adam is a partner at Robinson Curley & Clayton. He represents a wide variety of clients, ranging from individuals to small business owners to large corporations. He has a particular focus on business and investment disputes, and has experience litigating such disputes in numerous state and federal courts. He has also represented business clients in arbitration and mediation proceedings. Adam also represents employees in employment discrimination matters.Before joining Robinson, Curley & Clayton, Adam was an associate at Jenner & Block in Chicago, where his practice focused on complex business litigation.

EducationHarvard Law School, J.D.University of Texas at Austin,B.A., Plan 2 Program with Highest HonorsCompleted training sufficient to be certified as a qualified mediator in Cook County, Illinois

mailto:[email protected]



RYAN [email protected]

Ryan Gunderson is an attorney at Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, who specializes in the representation of emerging growth companies throughout their lifecycles, with a particular expertise in public and private securities offerings, mergers and acquisitions and SEC compliance.Ryan has represented companies in a variety of public and private offerings, including initial public offerings, underwritten follow-on transactions, registered directs, at-the-market offerings and PIPEs. Ryan has also represented clients in numerous venture capital transactions and both selling and buying venture-backed companies. He serves as outside general counsel to a wide variety of technology companies, including companies in the life sciences, software, consumer internet and telecommunications industries.

EDUCATION:J.D., magna cum laude, Order of the Coif, University of San Diego School of Law. Lead Articles Editor, San Diego Law ReviewB.S., Finance, Brigham Young University – Marriott School of Management

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

Resolving Shareholder Disputes

Education

Transcript of Resolving Shareholder Disputes