Category Archives: Practice Tips

Where’s the Money At- 3 Places that Venture Capital Firms Call Home

To quote a great movie, where’s the money at Lebowski? The Dude may not have had the funds, but there are a host of venture capital firms that definitely have enough cash to fund the countless startups of the world. If you work in the emerging business sector, it is important to know where these venture capital firms reside. Not surprisingly, Wikipedia has a chart listing some notable venture capital firms along with their locations, but here are 3 places where there are a large concentration of venture capital firms in the United States.

Sand Hill Road

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Sand Hill Road is a street in Menlo Park, California famous for its concentration of venture capital firms. It is the original home base for many venture capital firms. For countless successful startups, Sand Hill Road is where they first pitched their business proposals and it continues to be home to some of the largest venture capital firms in the world, including DFJ, DCM, Andreesen Horowitz, and Kleiner Perkins.

South Park

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South Park is a neighborhood in San Francisco, south of Market. Many startups have made the move up to San Francisco from the Silicon Valley, and the venture capital firms have followed. Many venture capital firms have opened offices in South Park, even when they have an office in Silicon Valley, including Kleiner Perkins, Google Ventures and Accel.

Silicon Alley

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Venture capital firms are on both coasts, and many can be found in New York City. Silicon Alley is a metonym for the various districts of New York City like the Flatiron District and Chelsea where many venture capital firms like DFJ, NEA, Accel and FirstMark Capital have set up shop.

5 Tips for Working While Flying with a Baby

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Flying with a baby is a challenge unto itself but trying to work during a flight with your baby is a true test of multitasking ability. With a little advanced preparation and a bit of luck, you can get work done with your little one in tow.

5 tips for working while flying with a baby

Tip #1: Leave Early and Work from Airport

Babies and billable work are both unpredictable, so I always aim to arrive at the airport at least 2 hours in advance and work from the airport if needed.

Tip #2: Invest in a Mobile Hotspot or Learn to Use Your Phone as a Personal Hotspot

Most airports have a free or paid wireless option at the airport, but I find that these are not always reliable or the speed is so slow with people passing the time watching Netflix that Citrix refuses to load. Having a mobile hotspot or using my phone as a hotspot is a good way to ensure I will have internet connection to fire off any important emails while waiting at the airport.

Tip #3: Use a Diaper Backpack and a Small Crossbody Bag

I opt to use a diaper backpack when traveling, as it’s large enough to fit all of baby’s necessities plus my work laptop. To make check in and security clearance easy, I use a small crossbody bag to hold my wallet, cell phone and boarding pass. I have never been stopped for having 3 carry-on bags (roller bag, diaper backpack and crossbody bag), but I always make sure the diaper backpack has a little extra space where I can stuff my crossbody bag just in case.

Tip #4: Sit in a Window Seat on Your Non-Dominant Side

I am right handed so I make sure I sit in a window seat on pilot’s left side of the plane so I can cradle the baby on my left arm with his head near the window. This protects the baby from traffic in the aisle and potential spilled drinks, plus allows me to hold a pen to easily mark up agreements during the flight.

Tip #5: Go Old School with a Pen and Paper

Working on a laptop is nearly impossible with a baby in your lap or even a small child next to you. There isn’t a lot of space in economy seating, plus baby hands and milk are a constant moving target. To make the most of limited space, I print out the agreements I need to review or bring a legal pad with me and do any revisions or drafting the old school way. Pen and paper are also easier to stow at the end of the flight when there is the mad rush to make sure the baby is feeding to protect their little ears.

What is an Acquihire?

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Defining Acquihire

An acquihire is an acquisition of a company for the key purpose of recruiting a target’s employees. In the last few years, acquihires have become increasingly popular in the technology sector, as good talent is one of the most valued and rare assets.

3 Tips for Lawyers Working on an Acquihire Transaction

An acquihire transaction has nuance differences compared to standard acquisitions. When staffed on an acquihire transaction, lawyers should mind the following.

1. Acquihire Reps and Warranties Focus on Personnel

If you look at a form M&A agreement, you are bound to see representations and warranties related to physical properties/leases, accounts receivable, software usage and other reps that make sense if buyer is acquiring target with the intention of maintaining or integrating operations. In an acquihire, the people are what matter which means you can trim down the reps related to tangible property and beef up the reps related to personnel.

2. Non-Competes in California Are Enforceable if Connected to Sale of a Business

Non-competition agreements in California are generally void as a matter of law, except under limited situations enumerated in Section 16601 of the California Business and Professions Code. Employees typically receive payout as equity holders and also payment through a retention program of some sort. Given that they are selling their equity interests in a business, a non-competition agreement would be enforceable in an acquihire (and should be obtained from each of the key employees selling their interests who are joining buyer), although lawyers should take note to tie the non-competition agreement to the sale of the equity interest and not to the continued employment.

3. Don’t Delay Getting Shareholder Approval

In an acquihire, the bulk of the consideration payout may be pushed by the buyer into the retention program rather than the purchase price for the company. This tends not to sit well with investors who may not receive the return multiple they were hoping for. To avoid delays, lawyers should work with their clients early to ensure that shareholder approval can be obtained and the deal will not be blocked.

Mergers and Acquisitions Weekly Watch

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Mergers and Acquisitions: Heinz and Kraft

The merger of H.J. Heinz Co. and The Kraft Foods Group as announced last week was big news as it will create the fifth largest food and beverage company in the world. It also made headlines due to the involvement of Warren Buffet’s company, Berkshire Hathaway, one of the major shareholders in Heinz and a multinational conglomerate holding company wholly owning or partly owning some of the most well-known companies in the world.

Takeaways from Deal Terms

For corporate lawyers, the true excitement of the Heniz-Kraft merger can be found in the deal terms and a recent article by the New York Times highlights some of these gems. Here are a few deal terms related to the Heinz-Kraft merger that I found most interesting and which highlight key issues corporate lawyers should consider when advising on the structure of a merger:

1. Consideration of Stock and Cash

Kraft shareholders will receive one share of Heinz stock for each share of Kraft stock, plus a cash dividend of $16.50 per share. The transaction consideration is important in two ways.

Cash and Stock

The consideration includes cash as well as stock to ensure that Berkshire and 3G together retain control of the new company. When stock is contemplated to be issued as consideration in a merger, the analysis of who will control the company post-transaction should be done immediately.

Get Tax Lawyers Involved ASAP

This deal highlights one of the most important tenets that I have learned as a corporate lawyer, which is get tax lawyers involved at the structuring phase as early as possible. According to the NY Times, the cash is being paid as a dividend in order to not trigger a buyback of Kraft’s debt and to ensure that the stock component of the merger consideration is tax-free.

2. MAE

Given the size of both companies and the fact that both are in the business of packaged foods, the merger will be subject to HSR (Hart Scott Rodino Antitrust Improvement Act of 1976). Heinz has agreed to take all necessary steps to file for HSR approval, except “as would have a material adverse effect”. The NY Times notes that material adverse effect (MAE) is not defined in the merger agreement, which in my experience is not uncommon, although depending on the terms of the deal, a defined MAE term may be useful. The NY Times also notes that this type of requirement is known as a “modified hell or high water provision”.

3. Minority Shareholder Protection

Minority stockholders will be left to rely on the general protections for stockholders set forth in the Delaware General Corporation Law, as there will be no protective provisions for their benefit in the organizational documents of the new company. Depending on the deal and the parties involved, protection for minority shareholders may be something to include.

4. Forum Selection

Kraft has already amended its bylaws to include a forum selection provision providing that any litigation shall be brought in Virginia. Including a forum selection clause is fairly common practice, especially when a merger is likely to attract litigation. As the NY Times points out though, a forum selection provision in anticipation of litigation may be struck down by the courts. When structuring deal terms, corporate lawyers should certainly consider the risk of litigation and take appropriate precautions, including, at least for the time being, adopting a forum selection provision.

Corporate Lawyers Guide to Deal Sheets

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End of the fiscal year means not only a last push towards the billable requirement finish line but also the obligatory self-assessment for annual reviews. In my junior associate years, I found myself looking back through time sheets and emails in an attempt to reconstruct a year’s worth of work. This process took a considerable amount of time and in the world of billable hours, time is scarce and precious. I quickly learned that the key to a smooth self-assessment process was advanced preparation by maintaining a deal sheet.

What is a Deal Sheet?

A deal sheet lists the transactions which a lawyer has worked on. It is typically used in a job search to accompany one’s resume and provide greater details on experience, but it can also be used to take stock of one’s experience for annual reviews and general self-evaluation.

Deal Sheets: What to Include

I find it easiest to create a deal sheet in Excel, with one tab for each year. Here are the categories I typically include in my deal sheet:

  • Date the transaction closed
  • Type of transaction (ex: venture financing, M&A, securities offering)
  • Description of transaction (ex: acquisition of private company by public company, Series C follow on financing)
  • Value/Consideration of transaction (ex: $200M of which 50% was paid in cash and 50% paid in buyer’s common stock)
  • My role and examples of work done (ex: lead associate, drafted initial merger agreement and all major ancillary agreements, participated in all negotiations alongside partner in charge)

Maintaining a deal sheet can be challenging, especially when the work flow is heavy but I have found that setting aside a few minutes to update my deal sheet after completing each transaction is a far more efficient use of my time rather than engaging in a time intensive reconstruction process at the end. This method also ensures that I can reference details in my self-assessment to showcase my contributions to the firm.

Delaware Forum Selection Amendment Proposal

The Council of the Corporation Law Section of the Delaware State Bar Association recently released proposed amendments to the Delaware General Corporation Law. One such proposed amendment would add a new Section 115 to the Delaware General Corporation Law that would (a) permit a provision in either the certificate of incorporation or the bylaws requiring all “intracorporate claims” to be brought solely in a Delaware court and (b) prohibit a provision in either the certificate of incorporation or the bylaws precluding claims from being brought in a Delaware court. An “intracorporate claim” would be defined as a claim that either (i) is based on a violation of a duty by a current or former director, officer or stockholder in that capacity or (ii) comes under the jurisdiction of the Delaware Court of Chancery based on another provision of the Delaware General Corporation Law. The amendment is intended to reduce inefficiency and expenses related to litigating the same issue in multiple courts.

If adopted, this amendment would be effective on August 1, 2015. For corporate lawyers, the adoption of this amendment would mean not only a revision of standard forms of certificate of incorporation and bylaws, but also consideration on a per client basis as to whether an amendment to a company’s existing organizational documents should be and can be done. Of note is that the amendment only addresses a company’s organizational documents and would not preclude an exclusive non-Delaware forum provision to be contained in another agreement.

Unenforceability of Indefinite Indemnification Obligations

A recent court decision by the Delaware Court of Chancery has found unlimited indemnification obligations unenforceable against stockholders who have not signed the merger agreement.  Cigna Health and Life Ins. Co. v. Audax Health Solutions, Inc., C.A. No. 9405-VCP, 2014 WL6784491 (Del. Ch. Nov. 26, 2014). Defendant closed a Section 251 merger with the requisite board/stockholder approval, however, Plaintiff, a stockholder of Defendant, did not vote in favor of the merger. One of Plaintiff’s claims was that the indefinite indemnification obligations of stockholders set forth in the merger agreement violated Section 251 of the Delaware General Corporation Law because it effectively made the stockholders liable for the debts of the company. Defendants contended that that the indefinite indemnification obligations were similar to that of an escrow agreement, which is well accepted as enforceable.

The Delaware Court of Chancery found that the lack of temporal and monetary restrictions on the indemnification obligation was more akin to a post-closing adjustment rather than an escrow agreement.  Section 251(b) provides that the terms of the merger agreement are dependent on facts ascertainable within the four corners of the merger agreement.  Given that the indemnification obligation at issue were not fully ascertainable as they continued indefinitely and with no monetary cap, such indemnification obligation violated Section 251.

It is typical for certain “fundamental representations” in a merger agreement to survive indefinitely. These include representations related to organization, authorization, capitalization, and brokerage fees, and can often include tax, environmental and intellectual property representations. The Cigna-Audax decision highlights that, at this point, it looks far preferable to state a specific time period (e.g., five years) and monetary limit in the merger agreement for fundamental representations rather than to default to indefinite survival and unlimited obligation. This decision will necessitate a change for many M&A attorneys.

Business Card Tips

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Working for the firm was the first job I had where I was given a business card. I recall receiving a box of 500 business cards with my name, associate title and contact information emblazed on thick quality cardstock and thinking it will take me my entire legal career to hand these out. It has been seven years and I have gone through a few boxes of business cards, learning along the way how to best present them and myself.

Always on Hand

When I was a first year associate, I rarely carried business cards with me because I either forgot or I assumed that the only business card that a client or potential client would want was that of the partner. I have since learned that it is crucial to have my business cards with me at all times. Clients want to know all the members of their legal team. Further, having a business card to present sends a positive signal that you bring something to the table. Having business cards on hand does not only apply during billable hours. I have met several contacts interested in learning more about the kind of corporate legal work I provide while I was out running errands on the weekends or traveling with my family on vacation. You never know who you may meet, so it’s always best to have your business cards on hand.

Receiving and Giving Business Cards

I default towards a formal approach to giving and receiving business cards, regardless of whether it’s with clients in big business wearing suits, founders in start ups wearing jeans or legal counsel across the conference table. By maintaining consistency, I ensure that those who appreciate the gesture are not disappointed. I receive and give business cards with both hands. I pause to read each business card and am sure to flip it over in case there is additional information on the other side. If I receive multiple business cards at once, I collect them first and then take time to read each of them once all introductions have been made. I keep the business cards out next to my notebook and only put them away in my bag once the meeting is over. This helps to ensure I address people by the right name and title during the meeting and once we are about to part ways.

Record Immediately

Although it can be easy to find contact information online, I make sure to record any business cards I receive in my contacts list as soon as possible. Often, a business card may include a piece of information like a cell phone number that may not be on a person’s online profile. Additionally, I like to include notes in the person’s contact information, such as when/where we first met, mutual friends and business associates or other interesting facts that I may be able to refer to later.

Section 204 Ratification of Defective Corporate Action

Corporate lawyers play a host of roles for a corporation, most common of which is problem solver. A common problem we face is remedying the failure of a company client to formally take action. Previously the rules on ratification of defective corporate action were unclear, but in April of 2014, Section 204 of the Delaware General Corporation Law (DGCL) became effective. Section 204 formally codified the steps necessary to ratify a defective corporate action. Section 204 provides a safe harbor procedure for ratifying corporate acts that would otherwise be void or voidable due to a “failure of authorization[1]”.

The following sets forth the analysis necessary to determine whether Section 204 ratification is available and the steps necessary to properly ratify a defective corporate action under Section 204. Despite the fallback option of Section 204, corporate lawyers should attempt to ensure that their company clients maintain corporate formalities in the hopes of avoiding the need for ratification.

Is Section 204 Ratification Necessary or Available?

Section 204 does not represent the exclusive means of ratifying and validating defective corporate acts in Delaware. Other means of ratification and validation remain in effect, including general ratification through a fully informed vote by the board and/or stockholders, as applicable, approving an action that does not legally require board and/or stockholder approval as a prerequisite to effectiveness.

Section 204 ratification is only available (i) if there is a valid board of directors to adopt the ratifying resolutions and, (ii) if stockholder approval is required, all outstanding shares entitled to vote are not shares of putative stock. If Section 204 ratification is not available, then Section 205 of the DGCL provides that the Delaware Chancery Court may either determine the validity of a corporate action or modify the requirements of Section 204 to have the board/stockholders of a company ratify.

Actions and Filings Needed for Section 204 Ratification

Board Resolution

The current board of directors should adopt a resolution stating the following:

  • the defective corporate act to be ratified;
  • the time of the defective corporate act;
  • if such defective act involved the issuance of shares of putative stock, the number and type of shares of putative stock issued and the date or dates upon which such putative shares were purported to have been issued;
  • the nature of the failure of authorization in respect of the defective corporate act to be ratified;
  • that the board approves the ratification of the defective corporate act; and
  • (optional) at any time before the validation effective time, notwithstanding adoption of the resolution by stockholders, the board of directors may abandon the resolution without further action of the stockholders.

The current board of directors must approve the ratification. Additionally, if the certificate of incorporation, bylaws or any agreement in effect as of the time of the defective corporate act would have required a larger number of directors or certain specified directors, such directors would need to approve as well. The exception is if a director was appointed or nominated by the holders of any class or series which are no longer outstanding, or by a stockholder who is no longer a stockholder, approval by such director shall not be required.

Stockholder Consent

If the defective corporate action in question would have required stockholder approval at the time originally taken, the current board of directors must then submit the ratifying resolution to the stockholders, including a notice that the action is a defective corporate action that is void or voidable.

Current stockholders holding both valid and putative stock (subject to the current voting requirements) must approve the ratification. Additionally, stockholders holding both valid and putative stock at the time of the defective corporate action (subject to the voting requirements effective at the time of the defective corporate action) must also approve the ratification. The exception is if identities and addresses cannot be determined from corporate records, or if a class of stock is no longer outstanding, approval by those specific stockholders shall not be required.

Certificate of Validation

If the defective corporate action in question would have required a filing with the Delaware Secretary of State (ex: certificate of amendment), then a certificate of validation must be filed with the Delaware Secretary of State.

Notice to Stockholders

Notice of the Section 204 ratification must be provided to all stockholders who actually or putatively held stock in the corporation at the time of the defective act or at the time of the ratification.

 

[1] DGCL 204(h)(2): “Failure of Authorization” means the failure to authorize or effect an act or transaction in compliance with the provisions of this title, the certificate of incorporation or bylaws of the corporation or any plan or agreement to which the corporation is a party, if and to the extent such failure would render such act or transaction void or voidable.