Category Archives: Practice Tips

How My Mentors Found Me

Finding a mentor is like looking for the Perseid meteor shower in the city. It takes time, dedication and a bit of luck to see 1 falling star.

Like a stylish black blazer, mentors have become part of the must haves of the professional world. Mentors provide invaluable advice, connections, advocacy and strength. We are in the thick of on campus recruiting  and the most frequent question I get from candidates is how does your firm assign mentors. I tell them, we have a formal program, but honestly, my mentors found me.

While there are hundreds of articles that talk about how to find a mentor, there are less that talk about how a mentor finds you. I am fortunate to have several mentors but the ones that have impacted my life the most are those who decided they would invest time in me not those who were told to invest time in me. These senior rain makers and influencers recognized the commitment I had to their clients and the firm at large. They recognized that my success would translate to success for others. No discussions were had about this wonderful development. It was not like in the movies where I was ushered into a corner office and told I had become the heir apparent.

It started with receiving more feedback (both positive and negative). It grew to invitations to events and emails suggesting I take certain actions. Eventually it peaked with positive endorsements and them knocking down doors. I acted quickly on every single suggestion given. Most challenging was accepting the criticism. I ruminated for days and a few times was inconsolable. Eventually the haze would clear and I would remind myself something an early mentor told me- If I did not care about your growth, I would never bother to say anything to you. 

This is not to say that all it takes to get a mentor is to do good work and they will find you. I stepped up my game every project I could, actively finding ways to get in front and show everyone what I had to offer. I lost hours of sleep. I spent too many non-billable hours refining my process. I missed a few fun events in the name of professional growth. I did these things not because I was looking to attract a mentor but because I wanted to be great at what I do. I crave the happiness that comes from doing what you love well.

The great mentors are busy people and they will not waste time on someone who isn’t hustling for excellence. Mentors help those who can bring something to their mentors. Mentors help those who can bring something to others, be it the law firm at large, an alma mater or even a specific cause.

Mentors offer opportunities and inspiration. You should absolutely be on the lookout for them. Just remember mentors are on the lookout as well and you can actively take steps for them to find and choose you.

 

Excel for Lawyers

I am often asked whether my MBA helps my corporate law practice (more on that in a forthcoming post).  One skill I credit to business school is proficiency in Microsoft Excel. Corporate law is not an area of law where one can escape math and numbers. Sorry to break that to those who went into law because math was not their thing. Here are a few ways that Excel is regularly used by lawyers:

  1. Liquidation Waterfall- Being able to use Excel to model how proceeds will be distributed to stockholders in the event of a change in control is important for any lawyer representing emerging growth companies or involved in mergers and acquistions.
  2. Calculating Interest– Although calculation of interest on a loan can be done through programs or with paper and pen, Excel is useful when modeling how principal and interest is converted into capital stock.  The Excel spreadsheet can be set up automatically adjust when variables are changed (such as date of conversion).  It also provides an easier way to ensure all parties are in agreement and obtain sign off on the numbers.
  3. Stockholder Votes– For emerging growth companies, the ability to amend corporate documents or engage in particular activities may require the consent of different stockholders based on different thresholds. Excel can be used to more efficiently track stockholder votes to ensure that the requisite approval threshold is reached.

Knowing your way around Excel also helps you to speak the language of your clients in the business sectors. Fortunately an MBA is not the only way to learn Excel.  There are dozens of online resources for Excel (including this), as well as books on the subject or even through Google/trial and error. It is definitely worth your time to learn the basics of Excel.

Data Room Password Tips

I often find myself adrift in a sea of data room passwords.  Not only am I remembering each unique deal name but also each deal data room and corresponding unique password.

Here are some practical tips for data room passwords:

Keep Personal and Professional Separate

The natural tendency is to use the same password for everything. That is not a good idea. It’s also not a good idea to use the same password for data rooms and personal sites. You may have to give your password to your assistant to print documents and you may not want him/her to know your personal business.

Let Your Browser Be

Many data room sites do not allow for a browser to save passwords and remember identities for easy login. It may be painful to remember all those passwords, but it’s more painful to explain to clients failure to protect their corporate information.

Don’t Sweat It

The Forgot Password button is there for a reason. Just don’t forget the answers to the secret questions.

Secondment Lessons Learned

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Secondment Lessons Learned – Part One

Secondment is a great opportunity for learning. In particular, I am enjoying the opportunity to learn first hand what it is clients value and how law firms can improve their services and the overall client experience. Here are a few lessons I have learned so far.

1. Clear Conflicts

Secondment Lesson: Be sure to clear conflicts otherwise you may be at risk of being the subject of heated discussion in the break rooms. Trust me, no one wants that.

2.  Be Patient

Secondment Lesson: Corporations especially large corporations have many procedures and protocols that need to be followed and can take a lot of time. This can lead to delays that lawyers in big law firms often have trouble understanding. If you have a client who is radio silent on an engagement letter, be patient as it is highly likely that this is just the way the business operates and in house counsel or your point of contact may not be able to expedite the process.

3.  Lunch is at Noon

Secondment Lesson: At the firm, lunch breaks are taken whenever lawyers can squeeze in a break between billable hour, client requests and firm citizenship activities. I’ve learned that for a large company, the masses typically lunch at noon. That is when the cafeteria lines are long, the tables full and calls may go unanswered. If you are looking to connect with the business folks, you may want to consider blocking off 12-1pm as folks take the time to refuel. This may be the perfect time for lawyers to refuel as well.

 

More lessons to come!

What is a Ratchet (IPO Edition)?

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Square Reveals Ratchet Right

In corporate speak, a ratchet usually refers to a form of anti-dilution calculation, however, the term has expanded its meaning to apply to initial public offerings. Square, the mobile payment processing company, filed its S-1 with the Securities and Exchange Commission yesterday. In the prospectus, it was revealed that certain institutional investors would be guaranteed a return of at least 20% in the initial public offering (“IPO”), regardless of whether the IPO is valued lower than the last round of private financing.

What is a Ratchet

What is a ratchet in the IPO context? A ratchet in the IPO context is similar to a ratchet in the anti-dilution context and provides that investors will receive additional shares of the company’s stock if the IPO is priced at a low value.

A Lawyer’s Take

This application of the ratchet right is great for lawyers representing investors in a late stage investment where the company is targeting an IPO. Depending on the amount of leverage your client may have, the amount of investment and a host of other factors, this may be a negotiable ask. Square’s prospectus is also a great example that although a prospectus can be lengthy and difficult to sift through, sometimes they contain nuggets of great information that one can use to be a better equipped lawyer. Learn from good examples and expand your knowledge base.

What is Circular 7?

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One of the most important jobs of a corporate lawyer is to issue spot and if need be, recruit colleagues in a specialized practice area like intellectual property, employee benefits or tax to opine on a particular issue. Issue spotting is a skill (remember the bar exam?) and it can be particularly tricky when dealing with cross border transactions.

Defining Circular 7

I recently completed a transaction involving a target company with assets in China and the issue of Circular 7 was raised pretty early on. Circular 7 refers to a tax provision by China’s State Administration of Taxation that provides that:

“a nonresident enterprise transferring shares in an offshore intermediary enterprise that directly or indirectly holds an equity interest in a PRC enterprise re subject to PRC tax on the gains from the transfer if the PRC tax authorities determine that the arrangement lacks a bona fide commercial purpose and re-characterizes the indirect transfer as a direct transfer of the PRC enterprise”.

Why Circular 7 Matters to Lawyers

Tax is an area I leave to the experts given the many fine nuances and the financial risks if tax assessment/tax planning is not done well. If you’re interested in learning more about Circular 7, please see the linked article above from Deloitte. Otherwise, remember that if you are working on an M&A where a target company has a connection to China, Circular 7 may be an issue. You may not be able to opine on its particulars, but in spotting this potential issue, you have definitely made a value add to the transaction.

Practice Tips for Drafting Earn-Outs

Covenant of Good Faith and Fair Dealing and Its Application in Earn-Out Provisions

20150603Earn-outs are a common provision in merger agreements, allowing the buyer to defer paying a portion of the purchase price until the seller has “earned” it, meaning that seller has achieved some financial target or other agreed upon condition.  In the recent case of Lazard Technology Partners, LLC, v. Qinetiq North America Operations LLC, April 23, 2015, Strine, L., 2015 WL 1880153, the Delaware Supreme Court made an important ruling regarding the covenant of good faith and fair dealing and its application in earn-out provisions, from which attorneys can learn good practice tips for earn-outs.

Background

Qinetic North America Operations (“Buyer”) acquired Cyveillance, Inc. (“Seller”) for $40M. The merger agreement included an earn out provision that said that if certain revenue targets were achieved, Seller may receive up to an additional $40M. The key language from the earn out provision reads as follows:  Buyer was prohibited from “taking any action to divert or defer revenue with the intent of reducing or limiting the Earn Out Payment” (“Earn Out Provision”).

Not surprisingly, revenue targets weren’t reached and earn out payments weren’t made. Lazard as the seller’s representative brought suit against the Buyer alleging (1) breach of the Earn Out Provision and (2) violation of the covenant of good faith and fair dealing by Buyer for failing to take certain actions that Seller believed would have resulted in the revenue target being reached.

Ruling

Delaware Supreme Court affirmed the Court of Chancery’s decision in favor of Buyer, finding that (1) there was no proof that Buyer intended to avoid the earn out and (2) the implied covenant of good faith and fair dealing couldn’t be relied on because “there was no gap to be filled”, i.e. the Earn Out Provision was clear on the obligations of Buyer.  Both courts took a 4 corners approach to the merger agreement and found that there was no violation.

Practice Tips for Drafting Earn-Outs

The Lazard Qinetic case yields good practice tips for drafting earn-outs that attorneys representing either buyer or seller can apply.

In representing the buyer attorneys should either (a) disclaim any implied duty of good faith and fair dealing or (b) make very clear in the earn out provision of the merger agreement what the express post-closing obligation of Buyer is, including the standard to be used. In this case, the Earn Out Provision was clear that it was an intent based standard.  What helped in this case was that there was a track record during negotiation that Buyer rejected all attempts by Seller to include more stringent post closing covenant (ex: act in good faith to maintain level of business, preserve customer relationships, etc.). Seller agreed to not include these provisions so the court wasn’t going to second guess the final merger agreement.

In representing the seller attorneys should (a) seek an express good faith obligation to maximize the earn out and (b) be weary of using an intent standard in a post closing affirmative covenant.

In general, I think another good practice tip is to not assume that the implied covenant of good faith and fair dealing will help to expand a party’s obligations in a dispute involving earn-outs. Attorneys should draft the merger agreement to very clearly lay out each party’s obligations.

Distinction between Ownership, Management and Control

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I just finished reading Zero to One: Notes on Startups, which is a good read not only for those interested in or working on their own startup but also for lawyers representing startups. One of the things author Peter Thiel mentions is the distinction between ownership, management and control. This distinction is key for any corporate lawyer and something which I try to teach early on to junior associates.

What Does Ownership Mean?

Ownership means who owns stock in a corporation or who are the stockholders. Initially, ownership is limited to the founders of a startup but over time, the owners expand into new hires and investors. Stockholders have certain rights as owners of the corporation as provided by the state laws of the corporation’s state of incorporation and the corporation’s organizational documents. As lawyers, we should be aware of all the rights afforded to stockholders by virtue of their ownership of stock, for example, information rights. Ownership however does not always translate into influence over the corporation (see Management and Control below).

What Does Management Mean?

Management means who has the ability to make daily business decisions for the corporation or who are the officers and key personnel in a corporation. Management makes a plethora of decisions which impact the operations of a corporation, however, they are limited from taking certain key actions by those who exert control (see Control below). As lawyers, we should be aware of the distinction between management and control in order to properly advise management when they need to seek approval prior to taking certain actions.

What Does Control Mean?

Control means who has the power to effect important changes for a corporation. Control is held by two groups, the board of directors and the controlling stockholders. The board of directors is empowered with the responsibility to oversee the activities of a corporation. There can be overlap with the board of directors and management as certain officers like the CEO or President may also sit on the board of directors, however, that officer cannot act unilaterally to effect change. There is also overlap between controlling stockholders and owners of a company. The distinction between ownership and control is that not all owners can exert control over the company. As lawyers, we must determine which stockholders are in fact controlling stockholders based on their individual or combined percentage holdings of the company. Keep in mind, that it’s not always a test of who owns majority of the stock. Depending on what the corporation’s organizational documents or agreements say, a larger percentage approval may be required for certain actions.

Remember that Distinction between Ownership, Management and Control is Fluid

Knowing the distinction between ownership, management and control is key to advising your corporate clients on how to take actions. Just remember that the composition of each group is subject to change based on new stock issuances, capital raises and appointments to officer/director roles.

Legally Lean: 4 Tips for Counseling Lean Startup Clients

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What is a Lean Startup?

Lean Startup is a business approach first developed by Eric Ries which advocates that startups take a scientific approach to the development and deployment of their products and services. The key is quick iterations and validated learning. Ries’ book ‘The Lean Startup’ is a New York Times best seller and widely regarded as a must read book for anyone looking to form a startup.

Lean Startup has also become an adjective for certain startups, who pride themselves on being dynamic, cost conscious and ready to pivot their model based on early feedback. This can be appealing to both prospective employees and investors; as it’s a chance to be involved with a company which is fast moving, fiscally resourceful, responsive to customer feedback and (if you believe the tenets espoused in ‘The Lean Startup’) more likely to hit the acclaimed unicorn status. See: What is a Unicorn? 

Tips for Counseling Lean Startup Clients

Your Lean Startup clients are going to want to move fast, and they will want their lawyer to do the same. Tailoring your counsel accordingly will help you and your Lean Startup clients succeed. Here are 4 tips for counseling Lean Startup clients:

1. Provide quick and timely turn around of any work product

With all clients, it is safe to assume that they want work product as soon as possible. For Lean Startup clients, this is even more imperative as delays are detrimental to the Lean Startup methodology. When counseling Lean Startup clients, lawyers should ensure that they provide all work product when promised and be upfront as to when work product will be ready.

2. Provide a useful tailored NDA

One of the key agreements Lean Startup clients need is a non-disclosure agreement (NDA), particularly one that is lean yet broadly protective, admittedly a tough order. Resist the urge to provide the standard long form NDA as many Lean Startup clients face push back from prospective customers and partners who may be put off by lengthy legal documents at such a preliminary stage in the business relationship. Take the time to tailor the purpose clause and protective provisions. Walk through with your Lean Startup clients how the NDA works and the process they should go through to have third parties sign the NDA.

3. Pick up the phone and limit round trip turns of legal agreements via email

So much of business nowadays is conducted via email and through the electronic exchange of marked up agreements, but for Lean Startup clients, this can cause unnecessary delays waiting for schedules to be synced and lawyers to find the time to markup agreements. Maximize efficiency by picking up the phone to discuss lengthy markups or to answer questions your Lean Startup clients may have.

4. Counsel Lean Startup clients to get key terms in writing

Your Lean Startup clients are busy doing exciting things and the legal formalities are surely the last thing on their minds. Protect your client’s interests and make your job easier when the time comes to draft a formal agreement by counseling Lean Startup clients to get all key deal terms in writing. Although it may be quicker to verbally agree on terms, encourage your Lean Startup clients to get all key deal terms in writing, even if it’s informal bullet points on a back of a napkin. This will help to avoid unnecessary disputes between the parties when the formal agreement is prepared and help your Lean Startup clients quickly move on to the next step in their ever evolving business plan.

Water Cooler Syndrome and Lawyers

What is Water Cooler Syndrome and How Lawyers Can Avoid It

20150506- Water CoolerDefining Water Cooler Syndrome

Water cooler syndrome for lawyers is an organizational behavior phenomenon where lawyers find it difficult to do their job or meet their ethical obligations because they interact regularly with certain personnel. This may be an issue for in house lawyers or law firm lawyers who are on secondment to a client. The people you see every day become your friends and as a result, it can be more challenging to speak up or take a difficult action especially if it directly involves your friends.

Corporate lawyers represent the corporation. This can be a tricky distinction when the corporation is small and lawyers have formed strong business relationships and even friendships with management and key personnel. Water cooler syndrome can come into play when lawyers find it challenging to do their job because it is hard to say no to someone you see every day by the proverbial water cooler.

Tips for Avoiding Water Cooler Syndrome

My friends who work as in house counsel often talk about how the legal department is physically segregated from the rest of the company, often times working in a completely different building detached from the majority of the office. Physically distancing yourself may not be possible or preferable, but there are  other actions that lawyers can take to avoid water cooler syndrome.

1. Don’t give legal advice to individual personnel

Remember that your client is the corporation and that all legal advice given should be in the best interest of the corporation and not any one person. When legal advice for an individual is warranted (e.g. issues related to refresher grants to the CEO, advising a board member on how to disclose a conflict of interest to the entire board), err on the side of caution and put the advice in writing.

2.  Consider consulting outside counsel

Sometimes a second opinion is helpful. Outside counsel can provide an unbiased opinion as they likely will not have the same relationship with key personnel. You can also point to outside counsel in the blame game if needed.

3.  Be prepared and confident to say no to avoid ethics being compromised

Lawyers can’t force their client to take any actions. It’s our duty to relay the law and advise on best actions but at the end of the day, the ball is in their court. If you ever find yourself in a serious ethical dilemma where your integrity as a lawyer is at stake, be prepared and confident to say no, and if need be, to walk away.