November 2005 1 GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM

The Legal Department's Role in Post-Closing M&A

Integration

Presented to the WMACCA Corporate Law Forum

November 19, 2015

Scott Meza, Esq. Greenberg Traurig, LLP

Joanne M. Kelly

AOL

May Liang

OpenConcept Systems

PRESENTED FOR EDUCATIONAL

ILLUSTRATION PURPOSES ONLY

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Panelist Bio: Scott Meza

Scott Meza has more than 25 years of experience assisting businesses in complex transactions such

as mergers, acquisitions, spin-offs of public and private companies, and sophisticated equity and

debt financings and recapitalizations. Scott's broad industry experience includes managing

transactions for technology-based companies as well as companies operating in highly regulated

environments like government contracting, telecommunications, and health care. Representative

transactions include stock-for-stock combinations, cash-out mergers, tender and exchange offers,

management buyouts, stock and asset purchases, distressed company acquisitions (e.g.,

bankruptcy auctions), corporate spin-offs and divestitures, and corporate governance matters.

Scott regularly represents venture funds and emerging growth companies in a variety of financing

transactions, ranging from preferred stock sales, subordinated debt lending and licensing, and

other strategic alliances. Scott has also been a leader in organizing networks of accredited "angel"

investors, which actively invest in emerging growth companies around the country. Scott also

advises senior management and boards of directors on executive employment and compensation

issues and equity incentive plans.

Scott Meza, Shareholder

Greenberg Traurig, LLP

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Panelist Bio: Joanne M. Kelly

Joanne M. Kelly is currently Vice President & Chief Counsel at AOL Inc., where she provides

transactional support, product review and general counseling for a variety of AOL's business units,

as well as serving as the primary counsel for AOL Charitable Foundation. Her experience includes

technology and content licensing, online advertising, privacy, venture investments, joint

ventures, and integration of various acquisitions. Prior to joining AOL, Joanne worked as an

associate at McKenna & Cuneo, LLP (now part of Dentons). Joanne serves on the Board of

Directors of Decatur Foundry, Inc., including as chair of the Board's CEO Development Committee

and as Corporate Secretary. She serves as Treasurer of the George C. Marshall Choral Boosters

and has previously served on the Board of Directors of the Children's Chorus of Washington.

Joanne M. Kelly

AOL

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Panelist Bio: May Liang

May Liang is General Counsel and Chief Financial Officer for OpenConcept Systems, Inc., a software

development company. Liang has written numerous articles relating to intellectual property and has

frequently spoken on intellectual property and technology licensing issues. Previously, Ms. Liang

served as General Counsel and Chief Financial Officer for Total Music, LLC; for almost three years as

Executive Director of the Epilepsy Therapy Project and Vice President and Associate General Counsel

at America Online, Inc.. Liang was also an associate at Soble & Associates in Washington, D.C.,

Foulston & Siefkin in Wichita, Kansas and Ware & Freidenrich in Palo Alto, California. Liang is a

member of the Board of Trustees for Sidwell Friends School and also serves as Clerk for its

Governance Committee; a member of the Board of Governors for the Folger Shakespeare Library;

Secretary and a member of the Board of Directors for the Epilepsy Foundation and a member of the

Board of Directors for the YMCA – Fairfax County. She also serves as a member of the Dean’s

Advisory Council for Stanford Law School. She previously served on the advisory boards of George

Washington University’s Virginia Campus and the American Corporate Counsel Association as well as

the Board of Directors of the Children’s Law Center, Children’s Chorus of Washington (where she

served as Treasurer for both organizations), and the Board of Directors for the Falls Church-McLean

Children’s Center and was a member of the US-Japan Leadership Program Executive Committee and

a Fellow of the program.

May Liang

OpenConcept Systems

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Quote For The Day:

“Integrating two organizations is like trying to build a rocket while

its blasting off.”

Anonymous

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The Legal Department's Role in Post-Closing M&A

Integration

Mergers and acquisitions are successful (or unsuccessful) for many

reasons, but the planning and effort put into integrating the Target

into Buyer is critical to success. Bad outcomes start with:

Poor acquisition due diligence leading to surprises

Delay in planning for integration (all effort put into closing the deal, not

digesting it).

Too much (or too little) focus on short-term “cost” synergies

Uncoordinated, leaderless integration

Unrecognized (or ignored) differences in risk profiles and cultures of Target and

Buyer

Lack of empowered transition management team accountable for results,

including in-house legal team

Lack of transparency leading to misinformation; distrust from Target personnel

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The Legal Department's Role in Post-Closing M&A

Integration

There are many operations or functions of the Target that must be

integrated post-closing which implicate legal issues, including:

Management personnel

IT systems

Finance and accounting

Sales and Marketing

R & D

Human resources/benefits/compensation

Intellectual property

Contracting

Legal compliance

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The Legal Department's Role in Post-Closing M&A

Integration

Another key aspect of integration is “administering” the post-closing

aspect of M&A acquisition agreement, including post-closing

covenants, earn outs, working capital reconciliation, indemnity

claims.

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The Legal Department's Role in Post-Closing M&A

Integration

Our discussion focuses on best practices for the role of in-house

counsel in a significant acquisition integration

For this discussion, assume:

The Buyer is an operating company (not a “financial buyer”) with experience in

acquisitions and integrating the acquired businesses.

The Target is a privately-held company with substantial assets and operations.

The transaction is a stock sale or merger (not an asset sale).

The Buyer has an in-house legal department which plays a role in the

acquisition and in the post-closing integration.

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The Legal Department's Role in Post-Closing M&A

Integration

Composition of the Integration Team

Timing for assembling the integration team.

Identifying key players on the integration team (e.g.

HR/accounting).

Determine who is in charge – identify key business lead with

accountability.

Role of GC and legal department on the integration team.

Prepare a post-closing integration checklist; use the deal

summary/Board memo and due diligence/other legal memos to flag

key issues to address in the integration.

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The Legal Department's Role in Post-Closing M&A

Integration

Determine key legal and operational timelines in the integration

process (e.g. regulatory requirements, HR requirements; data

migration, escrow deadlines).

Identify what memoranda, reports will be created in this

integration process.

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The Legal Department's Role in Post-Closing M&A

Integration

Using Acquisition Due Diligence in Post-Closing Integration

During the due diligence of the acquisition, the Buyer’s legal team

hopefully did extensive legal due diligence on the Target, its

operations, assets, liabilities and personnel including:

Material contracts review

Reviewing claims; litigation

Identifying HR and employment law issues

Assessing IP protection and vulnerabilities

Corporate forms, structure

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The Legal Department's Role in Post-Closing M&A

Integration

Preserve and use this key due diligence information in the integration

process (keep data room intact or move in-house?).

Incorporate key issues (e.g. from memos and disclosure statement)

into integration checklist.

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The Legal Department's Role in Post-Closing M&A

Integration

Key Areas for Legal Support in Integration Process

Contracts:

Complete necessary contract assignments; obtain consents to assignment not

obtained pre-closing

Risk of delegating contract review to outside counsel without coordination

with in-house attorneys

Moving Target’s customers, others onto Buyer’s standard MSAs, agreements

Handling situations where Buyer and Target both have contracts with same

customer or vendor

Managing Target’s outstanding contract defaults, breaches, cures and claims

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The Legal Department's Role in Post-Closing M&A

Integration

Understanding limitations that Target’s assumed contracts place on Buyer (e.g.

exclusivity, MFN pricing)

Managing open RFPs

Pre-Closing Litigation, Claims Against Seller

Assessing merits/risks of existing litigation; claims against Seller

Interviewing/managing outside counsel handling litigation, replacing counsel

Understanding timing; filing deadlines

Confirming available insurance coverages

Evaluating and managing the litigation in light of any indemnification

objectives of Seller (e.g. can you settle case without Seller’s consent?)

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The Legal Department's Role in Post-Closing M&A

Integration

Intellectual Property

Performing an audit of Target’s IP, including:

∙ Confirming ownership of Target’s IP

∙ Identifying measures to protect Target’s IP (including required filings;

assignments of invention)

∙ Reviewing key IP agreements

Assessing Target’s internal invention reporting process (how to capture

new IP)

Integration of IP databases

Assuring proper assignment to Buyer of Target’s IP

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The Legal Department's Role in Post-Closing M&A

Integration

Human Resources

Address legal issues around downsizing, layoffs (including under foreign

laws).

Transition to Buyer’s benefit plans – timing and messaging.

Address differences in personnel review practices and timing – and how to

deliver message to Target personnel.

Relocation, severance or retention bonuses and applicable Internal

Revenue Code Sections 409A and 280G analysis.

Change of control issues – single and double “triggers” on equity,

severance rights.

Managing employment agreements, offer letters.

Managing option plan/equity awards integration.

Immigration issues, sponsorship for visa status.

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The Legal Department's Role in Post-Closing M&A

Integration

Compliance with Privacy Laws

Understanding Target’s privacy policies (consumer vs. business)

Reconcile Target’s and Buyer’s privacy policies

Implement required revisions to Target’s privacy policies

∙ Consumers

∙ Customers

∙ Vendors

∙ Technical

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The Legal Department's Role in Post-Closing M&A

Integration

Compliance Programs

Post-closing regulatory notifications and approvals

Identify areas where compliance training and education are required:

∙ Foreign corrupt practices

∙ Sarbanes-Oxley

∙ Privacy

∙ Securities (e.g. Form 8-K; insider trading policies)

∙ Ethics/standards of business conduct

Determine critical deadlines (if any) and schedule training of Target

personnel for maximum effectiveness (e.g. not earlier than 2 to 3 weeks

after closing)

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The Legal Department's Role in Post-Closing M&A

Integration

Other Post-Closing Legal Issues

Attorney-client privilege issue

Seller usually had an outside M&A counsel who was privy to the

Target’s confidential information during negotiation of the

transaction. Now, the Buyer owns the Target, so:

Understand if/how attorney-client privilege was addressed in the acquisition

agreement

In-house lawyer may need to address whether prior counsel may continue to

represent the Seller’s prior owners in post-closing disputes

Must also assess if and how to use pre-closing disclosures between Target and

counsel

Building trust between Target’s management and Buyer’s legal department

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The Legal Department's Role in Post-Closing M&A

Integration

Transaction Services Agreement (TSA)

In some acquisitions, Buyer is not acquiring all of the functions

needed to run the Target’s business (e.g. shared IT or accounting

infrastructure that is not being conveyed). Supporting this

transition is often done with a Transition Services Agreement

between Buyer and Target.

If a TSA exists (or is being negotiated) ensure all relevant operational and

corporate groups are familiar with its terms, obligations

Specific transition services to be provided

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The Legal Department's Role in Post-Closing M&A

Integration

Performance metrics (e.g. response time, error rates)

Length of TSA term

Interplay between TSA and acquisition agreement (e.g. impact on indemnity

clauses; earn-outs)

Role of deal team and transition/operations team in negotiating TSA

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The Legal Department's Role in Post-Closing M&A

Integration

“Administering” the Acquisition Agreement

Key provisions of the Acquisition Agreement survive closing and may

require attention from Buyer’s legal department and outside M&A

counsel.

Compliance with Representations and Warranties. During the

integration process, Buyer may need to assess whether Seller’s

representations, warranties and covenants have been breached.

Buyer’s legal department has a role in that process.

In-house deal lawyer should generally understand what the representations were,

how they were qualified by Seller’s disclosure schedule and by any knowledge and

materiality qualifiers.

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The Legal Department's Role in Post-Closing M&A

Integration

Managing Indemnification Claims

Be aware of the process required under the Acquisition Agreement for

making indemnity (damage) claims against the Seller for breaches of

representations; covenants.

The Acquisition Agreement sets out the specific process for making these

indemnity claims:

Time limits for the claims (survival period)

Notice requirements for making the claim

Deductibles, caps, other limits on damage claims

Escrow (more time limited than reps and may include staggered releases from

escrow)

Role of Buyer’s legal department in indemnification process.

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The Legal Department's Role in Post-Closing M&A

Integration

Keep Buyer’s operating departments (e.g. tax, HR, accounting) aware of time limits

for making indemnity claims

Encourage timely reporting of potential indemnity claims

Coordinate with outside deal counsel

Follow indemnity notice requirements:

The earlier the claim is made, the better

Use the required notice process

Notify escrow agent

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The Legal Department's Role in Post-Closing M&A

Integration

Understand the “third party claim” process if Buyer is faced with

a claim from a third party that Seller is liable for.

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The Legal Department's Role in Post-Closing M&A

Integration

Administering Purchase Price Adjustments

There are often post-closing adjustments to the purchase price,

including for working capital and net asset true-ups, resolutions of

specific items (e.g. settle lawsuit).

Potential role of legal department in this process.

Ensuring notice provisions are properly met

Understanding any unique terms, issues that were addressed in negotiation

process

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The Legal Department's Role in Post-Closing M&A

Integration

Administering Earn Outs

One of the most complex aspects of an M&A transaction is the

“earn out” which provides for an additional purchase price to

Seller in the event the Company meets certain

performance/financial goals for a period after closing (e.g.

net income, EBITDA).

Understanding and communicating any limits/rules imposed on Buyer on

how to operate Seller’s business during earn-out period.

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Conclusion

“In this vibrant M&A environment, post-merger integration is a

critical factor in achieving deal success”

Tom McGee - Deloitte Deputy CEO

A 2015 Deloitte Study revealed that one-third of the 800

executives polled said their deals fell short of expectations, and

for future deals, they would focus on swifter and phased

integration.

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Conclusion

As we have discussed, integration practices that help ensure M&A

success include:

Clearly understanding and managing expectations from the integration

Developing an appropriate plan that optimizes the use of resources, budget

and timing

Establishing a cross-functional post-integration leadership team

Ensuring transparent and consistent communications with employees regarding

the integration

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Bibliography & Sources

Frank Fletcher and Keith E. Gottfried, Planning the Integration of

an Acquired Company’s Legal Department, (Association of

Corporate Counsel Docket - November 2011)

Preparing the Buyer for Post-closing Integration,(Practical Law

Corporate & Securities)

2015 SRS Acquiom M&A Claims Study, (SRS Acquiom)

David Klein, A New Approach To Contract Due Diligence In M&A,

(Law360 – May 27, 2015)

Deloitte M&A Institute, 2015 Integration Report

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The Legal Department's Role in Post-Closing M&A

Integration

Scott Meza, Shareholder

Greenberg Traurig, LLP

T: 703.903.7587 | mezas@gtlaw.com

Joanne Kelly, Chief Counsel

AOL

T: 703.265.6367| joanne.kelly@teamaol.com

May Liang, GC & CFO

OpenConcept Systems

T: 703.395.5825 | may@mayliang.us