• Tender Offers – Private company equity awards can be a meaningful component of employee compensation, but one of the key drawbacks of such awards is their illiquidity unless and until a liquidity event occurs, which may take several years (if such event occurs at all). However, late-stage start-ups can create opportunities for employees to participate in liquidity events that allow shareholders to monetize their equity compensation without waiting for the company to undergo an IPO or sale transaction via a tender offer. A tender offer is a transaction in the secondary market in which employees and/or early investors can sell their vested shares to the company. Typically, tender offers are transactions that are only available for late-stage companies that have issued outstanding equity awards with imminent expiration dates, but such a company is not in the process of undergoing a sale or IPO. Companies set the price, terms and eligibility requirements of the offering and distribute offering documents detailing such key terms. The disclosure documents require legal review since the decision to participate in the tender offer is an investment decision, which will raise securities law considerations. Further, the transaction will result in a variety of tax consequences for both the company and the employees, including, but not limited to, different tax treatment for different types of equity awards and forfeiture of certain potential tax benefits for tax-qualified stock options. Employees will need to weigh various factors in their decision. For example, does the immediacy of the access to liquidity presented by the tender offer outweigh the potential future increases in the value of the equity awards if they continue to remain outstanding or forfeiture of the favorable tax treatment of tax- qualified stock options if certain applicable holding period requirements are not met? Employees who opt to participate need to understand the financial and tax implications of their participation and that the company is not offering any professional advice on their decision to participate or not participate in any capacity.
8 | BASS, BERRY & SIMS
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