BIO UTAH LIFE SCIENCE SUMMIT 2013: Legal Considerations and Practical Advice

November 6, 2013

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I. BUILDING A SOLID VENTURE – GETTING READY FOR TAKE-OFF

• Experienced Team – Who is really important?• Simple, Clean Structure – Selection of the Right Entity:

A. Corporation• Best-developed body of law, but less flexible and harder to maintain• Liability protection for stockholders and directors – but avoid risk of “piercing

the veil”• Governance:

• Officers, directors and stockholders • Directors and officers have fiduciary duties

• Federal taxation: Corporations can be taxed as a “C” or “S” corporation

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I. BUILDING A SOLID VENTURE – GETTING READY FOR TAKE-OFF (cont.)

B. Limited Liability Company• Newest and most flexible form of business, both in terms of governance and

taxation• Liability protection for members and managers – but avoid risk of “piercing the

veil”• Governance:

• Member-managed or manager-managed• Operating agreement provides much flexibility

• Federal taxation: - By default a flow-through entity, but LLC can “check the box”• State law governs the rights and obligations of members/managers

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I. BUILDING A SOLID VENTURE – GETTING READY FOR TAKE-OFF (cont.)

C. Limited Partnership• Newer than corporations• Limited partners not liable for the debts of the company, but general partner

has full liability• Governance:

• General partner (who manages all aspects) and any number of limited partners• Fiduciary duties

• Federal taxation:• Taxed as a pass-through entity• Like the “S” corporation, partners taxed on partnership income, even if not

distributed

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I. BUILDING A SOLID VENTURE – GETTING READY FOR TAKE-OFF (cont.)

• Accounting and financial systems and management reporting

• Establishing an effective board of directors and scientific advisory board

• Agreements with Employees and Consultants

• Equity-based Compensation

• Ownership/protection of intellectual property

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II. POSITIONING YOUR COMPANY FOR THE FUTURE – STAYING THE COURSE

• Strategic Alliances• Be prepared for due diligence• A few tips for avoiding litigation:

• Adopt a Shareholder Agreement

• Resist the temptation to use “Finders”

• Obtain Assignments of Intellectual Property

• Use Nondisclosure Agreements to protect your Sensitive Information

• Seek legal advice about important Supply Agreements

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II. POSITIONING YOUR COMPANY FOR THE FUTURE – STAYING THE COURSE (cont.)

• Preparing for the M&A Exit:• Contractual Provisions• Agreements with Investors• Due Diligence• Investment Brokers• Deal Structure• Consideration

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III. RECENT TRENDS IN CORPORATE COMPLIANCE

• Increased Enforcement of Anti-Bribery Laws• Foreign Corrupt Practices Act (1977)• Focus on Life Sciences Industry• U.K. Bribery Act of 2010

Recent laws and guidelines:• US Dodd-Frank Act:

• The 2010 Act created an incentive program for whistle-blowers providing information on violations of the FCPA. This program allows these individuals to collect 10%-30% of the assessed monetary sanctions in excess of US$ 1 million.

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III. RECENT TRENDS IN CORPORATE COMPLIANCE (cont.)

• OECD: • In 2010, the OECD adopted the “Recommendation for Further Combating

Bribery of Foreign Public Officials in International Business Transactions”. Annex II to this document, “Good Practice Guidance on Internal Controls, Ethics and Compliance”, provides guidance on internal controls, ethics and compliance programs, and measures for preventing and detecting bribery of foreign public officials.

• UK Bribery Act:• In 2010, the UK issued the most draconian anti-bribery legislation in the world,

demonstrating international commitment to corruption prevention. The Act has broad extraterritorial reach, applies to any bribery and provides for strict liability for failure to prevent bribery, unless there are adequate procedures in place.

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III. RECENT TRENDS IN CORPORATE COMPLIANCE (cont.)

• UK Bribery Act Guidance: • In early 2011, the UK Serious Fraud Office (SFO), which is responsible for

enforcing the law, issued this document, a portion of which provides guidelines for assessing whether a company has “adequate procedures” to prevent bribery.

• US Foreign Corrupt Practices Act (FCPA) Guidance: • In November 2012, the US Securities and Exchange Commission (SEC) and the

US Department of Justice (DOJ) issued a joint FCPA resource guide, which sets forth procedures similar to the “Adequate Procedures” guidance issued under the UK Bribery Act of 2011 and the OECD’s “Good Practice Guidance on Internal Controls, Ethics and Compliance” of 2010.

• US Sunshine Act: • In early 2013, final rules were issued regarding the US Physician Payments

Sunshine Act. The Act requires annual reports on certain payments and gifts of value to HCPs and other recipients.

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III. RECENT TRENDS IN CORPORATE COMPLIANCE (cont.)

• How to Create an Effective Anti-Corruption Compliance Program:• Conduct a corruption risk assessment

• Develop a clearly written corporate anti-corruption policy

• Implement specific anti-corruption policies and controls based on risk (third-party intermediaries; gifts; travel and entertainment; fee-for-service arrangements with HCPs; sponsorships; banning of facilitation payments; and donations and charitable giving).

• Establish a hotline for reporting potential violations

• Implement anti-corruption financial controls

• Identify, control and monitor third parties: More than 90% of reported FCPA cases involved the use of third-party intermediaries

• Conduct anti-corruption compliance training

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III. RECENT TRENDS IN CORPORATE COMPLIANCE (cont.)

• Monitor the program (anti-corruption audits as stand-alone reviews)

• Incorporate anti-corruption due diligence procedures into mergers and acquisitions and joint ventures

• Periodically reassess risk and modify the program

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CONTACT INFORMATION

CONTACT INFORMATION:

Barbara BagnasaccoOne Utah Center, Suite 800201 South Main StreetSalt Lake City, UT 84111-2221Telephone: 801-517-6831Email: bagnasaccob@ballardspahr.com