LIBOR has served as the benchmark interest rate for over 30 years and is currently tied to over $200 trillion in contracts and debt obligations. LIBOR serves as the underlying interest rate for multiple types of contractual obligations including business loans, mortgages, and even student loans. However, given the recent LIBOR rate setting manipulation scandal and its declining reliability, the United Kingdom’s Financial Conduct Authority has agreed to stop publishing the LIBOR, and banks will no longer be obligated to make LIBOR submissions, after December 31, 2021. SOFR is calculated daily based on overnight cash lending between banks collateralized by the United States Treasury in the repurchase agreement market. According to the Federal Reserve, SOFR is much more resilient than LIBOR is numerous ways including its transparency and the fact that it is more representative of the way financial institutions fund themselves today. The Federal Reserve began publishing daily SOFR rates on its website on March 2, 2020.

The ARRC has created the Paced Transition Plan to give guidance and encourage the adoption of SOFR here in the United States. The ARRC has recommended that contracts stop referencing LIBOR as the benchmark interest rate starting as early as this year in order to facilitate a smooth transition to SOFR by the end of 2021. Some financial institutions have already begun the transition process to SOFR, such as Freddie Mac, which will no longer purchase LIBOR Adjustable Rate Mortgages beginning January 1, 2021.

In addition to providing a transition timeline, the ARRC recommends that LIBOR contracts should, as soon as possible, include ARRC recommended, or substantially similar, fall back language. Two approaches for fallback language have been enumerated by the ARRC for those instances where a contract is still using LIBOR as an interest rate or for those previously executed contracts that do not provide for an alternative to LIBOR. The first approach, the “hardwire approach”, specifically sets forth a replacement benchmark interest rate that will be applied at the end of LIBOR and indicates the procedures that will be used to calculate and institute the new interest rate within the contract. Alternatively, the “amendment approach” permits the parties to a contract to amend the agreement at a future date, once LIBOR is phased out, and determine the new interest rate then, while still outlining the procedures that will govern selecting the replacement index. The hardwire approach eliminates the need for an amendment down the road for LIBOR based contracts by including language that addresses the potential replacement, while the amendment approach may work best for those older contracts that may not have anticipated the end of LIBOR. Either way, it is imperative that both approaches address how the new interest rate will be determined.

Whether it be assistance amending an executed contract or current debt obligation that does not include replacement language for LIBOR, or assistance navigating new contract negotiations and loan agreements, our experienced team of attorneys here at Dawda are ready to advise and help guide you through the transition away from LIBOR.

Written by Associate, Kathryn Kaleth.

The post Transitioning Away from LIBOR: What’s Next? appeared first on Dawda PLC.

See the original press release HERE

Alliance Benefit Group of Michigan To Join Focus Partner Firm Sentinel Benefits & Financial Group

NEW YORK, Nov. 04, 2019 (GLOBE NEWSWIRE) — Focus Financial Partners Inc. (FOCS) (“Focus”), a leading partnership of independent, fiduciary wealth management firms, announced today that it has entered into a definitive agreement under which Alliance Benefit Group of Michigan, Inc. (“ABG of Michigan”), a premier retirement and benefits plan consulting and administration firm, will join Focus partner firm Sentinel Benefits & Financial Group (“Sentinel”), based in Wakefield, Massachusetts. The transaction is expected to close in the first quarter of 2020, subject to customary closing conditions.

Founded in 1969 and located in Bingham Farms, Michigan, ABG of Michigan works with almost 400 benefits and retirement plans representing over 30,000 participants, and provides best-in-class administration and record-keeping services. ABG of Michigan’s wholly-owned subsidiary, ABG Portfolio Strategies, Inc., provides investment advisory services primarily for retirement plan assets. ABG of Michigan, will expand Sentinel’s geographical reach, creating a premier “super-regional” retirement and benefits-focused financial services firm, and will position Sentinel’s business for further growth in the Midwest.

“We are thrilled to have such a well-respected firm join our team,” said Sam Mitchell, CEO of Sentinel. “ABG of Michigan has created an offering that will further enhance the ability of the combined firm to service clients, as well as increasing our bench strength and scale in the Midwest.”

“Having known the group at Sentinel for many years through the Alliance Benefits Group national network, we have seen first-hand Sentinel’s exceptional client commitment and ability to continuously improve the quality of their offerings,” said Lawrence Raymond, President of ABG of Michigan. “Sentinel’s approach to creating successful client outcomes mirrors the core principles of ABG of Michigan and will strengthen the combined firms’ business,” said Carol Tracey, ABG of Michigan’s Executive Vice President.

“We are very pleased that ABG of Michigan will be joining Sentinel,” said Rudy Adolf, Founder, CEO and Chairman of Focus. “This is Sentinel’s fifth merger since joining Focus, further enhancing the depth and scale of its employee benefits and retirement plan outsourcing business. Building on Sentinel’s long-standing presence in these areas demonstrates the value that we offer our firms in helping them scale their businesses within their specific areas of expertise. The diversity of our partner firms’ capabilities across a range of wealth management and retirement planning services provides significant benefits to our partnership.”

About Focus Financial Partners Inc.

Focus Financial Partners Inc. (FOCS) (“Focus”) is a leading partnership of independent, fiduciary wealth management firms. Focus provides access to best practices, resources, and continuity planning for its partner firms who serve individuals, families, employers and institutions with comprehensive wealth management services. Focus partner firms maintain their operational independence, while they benefit from the synergies, scale, economics and best practices offered by Focus to achieve their business objectives. For more information about Focus, please visit www.focusfinancialpartners.com.

About Sentinel Benefits & Financial Group

Sentinel Benefits & Financial Group (“Sentinel”) is an independent provider of employee benefits and financial services located in Wakefield, Massachusetts. Sentinel serves both individuals and institutions, providing offerings including employee benefits and retirement plan administration, open architecture retirement plan recordkeeping, investment advisory services, defined benefit and cash balance plan services, actuarial consulting, employee stock ownership plans, and group benefits brokerage. For more information about Sentinel, please visit https://www.sentinelgroup.com.

The post Dawda Attorneys Represent Alliance Benefit Group of Michigan in Merger with Sentinel Benefits & Financial Group appeared first on Dawda PLC.

Jeffrey Moss, Alfredo Casab and John Mucha of the law firm participated in several events with the delegation, giving presentations regarding business formation, contract drafting and pitfalls, and other aspects of doing business in the United States.

Our broad range of expertise allows us to routinely provide legal counsel and assist start-up companies, including foreign companies wishing to establish a presence in Michigan.

The post Dawda Sponsors Delegation of French Start-up Companies appeared first on Dawda PLC.

Setting the stage: You are about to enter into a contract and want to make sure the other party, in a year or two, does not attempt to claim that the terms of the contract have changed because of something said by one of your managers, officers or employees.

Taking action: So, you put an anti-modification and anti-waiver clause into your contract that states “this contract may be modified or amended only by a written document signed by the parties.”

The dispute: A few years later, you end up in a contract dispute with the other party, who claims that the requirements for performance under the contract have been changed by one of your managers in a way different than what the contract called for. You pull out your contract, see the anti-modification and anti-waiver provision which states that the terms cannot be modified except by a signed writing, and feel reassured that the other party does not have a legal leg to stand on. You feel certain that you are protected against the assertion that the terms of the contract have changed despite the actions of your manager. Are you in fact protected?  Maybe not.

Why could I not be protected? For several years, Michigan courts have found that such an anti-modification and anti-waiver clause, by itself, does not always protect against oral modifications of the agreement. In Quality Products & Concepts Co. v. Nagel Precision, Inc., 469 Mich 362; 666 NW2d 251 (2003), the Michigan Supreme Court held that parties to a contract are free to mutually waive or modify their contract notwithstanding an existing anti-modification and anti-waiver clause, based on the principle that parties should have the freedom to contract.

However, the Court in Quality Products made it clear that before any waiver or modification could be found to exist under such circumstances, there must be clear and convincing evidence of a mutual intent and agreement (even if oral) to waive the anti-modification provision itself, in addition to the substantive provisions of the contract that the one party claims has been modified. The Court elaborated that such clear and convincing evidence of an intent to waive the anti-modification clause is not ordinarily found by a course of conduct alone (i.e. conduct that is inconsistent with the terms of the contract), but also generally requires evidence of a subsequent oral agreement to such waiver.

How do I make sure I’m protected? How does one strengthen the anti-modification protections in a contract so that an offhand verbal statement by an employee does not result in a modification of the carefully crafted legal rights and obligations in the written agreement? The answer is to limit the number of persons having authority to modify the contract.

While the mere existence of a written anti-modification clause, standing alone, may not be able to completely prevent the oral amendment of a contract, one may supplement such a clause by selectively granting authority to authorize a modification to only a specific individual or officer-holder.  A clause in a contract that provides “any modifications must be approved by the president of the company,” for example, will render ineffective and unenforceable the alleged contract modification based on a verbal statement by someone else in the company. When the parties make it clear that only a specific individual has the authority to change contract terms, statements by others without such power clearly may not be relied upon. In such circumstances, Michigan courts have rejected claims of alleged contract modification when such contract modification was not approved by the person with the sole authority to make the change.  See, for example, Pepperman v Auto Club of Michigan Ins Group, 181 Mich App 519; 450 NW2d 66 (1989).

Do you have additional questions on how a situation like this may impact your business? Please contact John Mucha at jmucha@dmms.com.

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In its March 19, 2018 unanimous opinion, Marlette Auto Wash, LLC v Van Dyke SC Properties, LLC, the Michigan Supreme Court affirmed certain principles of Michigan case law regarding adverse possession and prescriptive easements, which principles could have real consequences for purchasers of real property and title insurance companies.

Marlette involved a dispute between neighboring property owners regarding the use of a shopping center parking lot for access to the adjoining parcel without the benefit of a recorded easement.  Proofs offered at trial showed that a previous owner used the adjacent parking lot for access to and from its parcel for more than fifteen years (the statutory period) without an agreement between the neighboring property owners.  No previous owner took legal action to establish record title of such easement.

The Marlette Court rejected the argument that a vested right to a prescriptive easement does not become an easement that runs with the land unless a determination has been made by a court that all elements to a prescriptive easement claim have been satisfied.  Instead, the Court held:

• Open, notorious, adverse, and continuous use of real property for the relevant statutory period creates a prescriptive easement that is appurtenant and runs with the land, without the need for the claimant to show privity of estate with the prior owner; and
• A prior owner of a dominant estate is not required to take legal action to claim the easement in order for a vested prescriptive easement to exist.

While the legal concepts of adverse possession and prescriptive easements may be taught in Real Property 101, the Court’s opinion in Marlette clarifies certain ideas and nuances that are important to individuals purchasing or developing real estate and to the title companies insuring such interests.  Removing the “legalese” from the Court’s holding in Marlette, the Court confirmed that a party gains title by adverse possession when the statutory period expires, not when a legal action regarding title is brought.  Under this theory, a purchaser of real property may not have public, record notice of a prescriptive easement or property lost through adverse possession.  A prior owner may have satisfied the elements for a prescriptive easement or claim of adverse possession, obviating the need for a current possessor to meet such requirements, even if the current possessor has only recently begun to adversely use the property.  As suggested by the Michigan Real Property Law Section in its amicus brief, this position could “give rise to unrecorded easements that are not known and may well not be ascertainable currently.”  In Marlette, however, the Court rejected arguments that its holding would create “secret” easements since a claim of adverse possession is only successful if the use in question is “so open, visible, and notorious as to raise the presumption of notice to the world that the right of the true owner is invaded intentionally.”

For purchasers and developers, the Marlette opinion reaffirms the importance of thorough due diligence prior to purchasing real property.  Ordering a title commitment and a survey of the property may not reveal an adverse use of the property or the extent of such use.  While shared points of entry, worn paths, or encroaching features may provide clues, a site visit and further investigation as to any potential adverse uses may be necessary and prudent to avoid unanticipated negative consequences.

The post What’s Mine Might Be, Legally, Yours appeared first on Dawda PLC.

I recently encountered two clients who were having trouble divesting a third minority shareholder out of their business.  The two clients together held a majority interest of a closely-held corporation and they wanted to buy-out the minority shareholder and continue on with the business without him.  The parties were stuck in negotiations over price of the minority shares for over two months.  The clients were in a tough position until we considered a cash-out merger to divest the minority shareholder.

A cash-out merger, also sometimes referred to as a ‘squeeze-out merger’ or ‘freeze-out merger,’ is one in which the existing corporation is merged with another corporation, the majority shareholders receive shares of stock of the surviving corporation, but one or more dissenting shareholders receive only cash or other property and are thereby eliminated as shareholders.

There are several key requirements that must be met in order for the cash-out merger to work properly, including:

• Buy-Sell Agreement / Corporate Action – The first major hurdle to overcome is the shareholder buy-sell agreement. – In order for the cash-out merger to work, the buy-sell agreement or any other corporate governance document must not govern what happens in the event of a merger.
• Typically, buy-sell agreements only govern what happens when one or more shareholders want to sell their shares and to whom they can sell to and under what conditions.
• By contrast, a conversion of shares in the merger is not considered a sale, transfer, or exchange within the meaning of most shareholder agreements because such mergers are not acts of the shareholders; rather, mergers are corporate acts by the directors.
• Fiduciary Duties – In order to avoid a breach of fiduciary duty claim, majority shareholders need to be sure to employ a fair process and pay the minority shareholders a fair price.
• Fair process in this context means full disclosure of the statutorily required information for the merger notice to shareholders. Fair process also means that the majority shareholders cannot do anything that will artificially depress the price paid to the minority shareholder for his interest.
• Fair price means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. MCL § 450.1761.
• Dissenter’s Rights / Appraisal – If a minority shareholder disagrees with the consideration payable for his or her shares under a plan of merger, the shareholder is generally entitled to dissent from the merger and obtain payment of the fair value of his or her shares through the appraisal process. MCL 450.1762(1). Generally, absent exceptions for illegality and fraud, appraisal is the sole remedy available to a minority shareholder, even in a conflict transaction, so long as the shareholder’s complaint is that he was paid less than the fair value of his shares.

In addition to the factors above, there are many other financial and legal considerations to think about before implementing a cash-out merger.  Majority shareholders interested in cashing out minority shareholders are wise to involve trusted corporate counsel and financial advisors from the start, so that all of the proper steps are taken along the way and the merger runs as smooth as possible.

Contact your Dawda corporate counsel if you are interested in learning more about cashing out a minority shareholder.

The post Cash-Out Mergers – Exit Strategy for Deadlocked Majority Shareholders appeared first on Dawda PLC.

Yet, the old reliable Yellow Taxi is calling it quits in San Francisco, and will be declaring Chapter 11. Yellow Taxi was the oldest taxicab service in the city.

The woes of this stalwart business contain some elements of modern bankruptcy: a changing business landscape, coupled with a crippling lawsuit and a disagreement with the California judiciary  on a critical sector of employment law.

Drivers: Employees or Contractors

Just as with Uber and Lyft, Yellow Taxi maintains that its drivers are contractors and not employers. Various California jurisdictions have maintained that for all services (Uber, Lyft and traditional cab services) that in many cases, the drivers are indeed employees. The relevant California courts have cited issues such as exclusivity as well as the dependence of the drivers on the larger company for connecting with fares, as well as receiving payment.

Yellow Taxi has experienced a significant setback as a result of these determinations, due to a large lawsuit.

Civil Litigation

In 2011, a passenger was seriously injured while in a Yellow Taxi vehicle. The case, known as Fua v. Yellow Cab hinged on the employment nature of the driver. Yellow Taxi maintained that the driver was a contractor and that Yellow Taxi provided the vehicles and the brand. Ultimately, the jury disagreed with Yellow Taxi and determined that the driver was an employee. As a result, Yellow Taxi was compelled to pay the $8 million award. This award, combined with other pending litigation and arbitration fees as well as other debts, became part of the $20 million indebtedness of the company. There are reportedly 150 other claims against the company that are pending.

Yellow Taxi in the World of Uber and Lyft

Perhaps Yellow Taxi could have handled the large debt load, but their profits are down significantly, too. Both Uber and Lyft have made huge inroads in California and in San Francisco, particularly, where they are headquartered. The availability of vehicles through the Uber and Lyft apps makes them appealing to younger riders, who also appreciate the cashlessness of the transaction.

A National Trend:

Yellow Cab has also filed for bankruptcy in Chicago and other cities’ traditional cab services may be in trouble, too. As evidence of the trouble, New York City’s yellow cab medallions have dropped in price to $700,000. As recently as 2013, the medallions went for $1.3 million each.

The post Goodbye, Yellow Taxi appeared first on Dawda PLC.

Are the two entities a good fit? Lululemon wouldn’t make a good partner with Sears. They have different target markets but also they have vastly divergent corporate ethos and management styles.

One of the most difficult aspects of running a business is envisioning what companies would be good candidates for mergers and acquisitions. Yet, this is actually a far better way to go about M&A then simply evaluating a company because it is on the market.

The very best idea would be to have clearly delineated strategic plans and examine any new mergers within that rubric.

Ask yourself about their bottom line. It’s critically important to understand the financial underpinnings of any potential partner or component. This is not as easy as it seems. Expert attorneys and accountants can help you determine not only the earning power of the potential company mate, but also what the expected outlay would have to be to merge, consolidate or expand your operations.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is just one measurement of the health of a company. Do not rely on this one statistic as the sole determinant of your decision.

Don’t overstate the cost savings and underestimate the costs of merging. Often companies get excited over saving money in staff expenses and equipment and this can add up to a lot. But you won’t be able to just halve your staff in one fell swoop and for a period of time, you may be paying for twice as many people as you need. In addition, you will incur other costs for these synergies like severance payments and possible relocation costs for both people and equipment. It is highly likely that there will be up-front expenses prior to any cost savings.

Consider the down-side of merging. Are there any disadvantages to this merger or acquisition? Would you lose any key employees or significant customers? How would this affect your functioning or your bottom line? What difficulties do you anticipate in terms of management, financing of the acquisition, and the continued flow of operations? Are these aforementioned issues ones that can be overcome? All of these issues are called transition risk and should be a large part of your decision, just as significant as the price of the M&A.

Mergers and acquisitions, when conducted thoughtfully, can be a highly effective way to effectuate strategic growth. All companies are advised to consider the many aspects of these transactions before taking any action and to consult attorneys who specialize in mergers and acquisitions before making any decisions.

The post Making a Decision about a Merger or Acquisition: What You Should Consider appeared first on Dawda PLC.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, Amortization.

EBITDA is often the gold standard by which interested parties determine how successful a company is and if it is a good buy or a good candidate for merging. Certainly, it’s easier to crunch the numbers to come up with an EBITDA figure then wade through dense financial statements.

EBITDA is a good measure of certain aspects of a business, but it is not the complete picture.

EBITDA is helpful in determining:

• Cash flow
• Balance sheets (a good companion to EBIDTA)
• What the company will owe in the short term
• The condition of the assets of the company
• A ballpark figure for valuation of the company (with the caveats listed below).

EBITDA does not take into account:

• What will be required in terms of capital investment to maintain the current and future growth of the company
• The complicated tax picture which varies wildly by the type of business
• Costs of integrating two companies
• The amount of leveraging within the company, which can magnify losses into intolerable levels
• The true picture of the depreciation: The company could require tremendous re-investment every year in equipment, as opposed to depreciation which is essentially an accounting tool that helps to spread out the decreasing value of significant assets but doesn’t actually cost a company significant cash outlays

EBITDA should be part of your algorithm of analysis, but it should not be the only tool at your disposal. Be sure that you have a clear understanding of the true financial picture of any company you are considering purchasing or merging with. As always, consult with trusted specialized attorneys as you enter the research and negotiation phase and avoid hasty decisions.

The post EBITDA: I Can’t Even Say It, Let Alone Understand It appeared first on Dawda PLC.

In this week’s blog, we offer some suggestions for preventing fraud at your office or practice:

• Divide and conquer. What we mean by this is to divide up responsibilities for dealing with money and financial information so that one person does not have too much power. Consider how you could add a balance of power and responsibility in the structure of how you handle payroll and incoming cash, two key areas of fraud. Some possible suggestions include segregating record-keeping from cash handling duties by making two people ultimately responsible for these functions. In addition, multiple people should be participating in the payroll procedures to be sure the information reflects what is actually occurring and that no irregularities are being overlooked. This is particularly the case when payroll is managed off-site.
• Hire the experts. Consider using so-called forensic accountants who specialize in devising systems to prevent fraud and who can look at your books and standard operating procedures to see where your areas of greatest exposure are.
• Create an environment of integrity in your place of business. Take a serious look at the elements of transparency in terms of accounting, payroll and billing. Ask yourself if you have a palpable sense of corporate ethos and a feeling that everybody is playing by the same rules.
• Educate your leadership team about possible signs of fraudulent activity. These can include an employee who refuses to take vacation time and retains tight control over a number of significant components of the business, which can also describe a very ambitious employee, so they can be tough to spot. Another red flag can be conspicuous spending patterns on the part of an employee.

Fraud does not have to be inevitable. Trustworthy employees who operate in a system of open communication, balanced with appropriate supervision and division of powers can be a part of a healthy, profitable endeavor.

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