Andrew Abramowitz

A Few Etiquette Tips for Corporate Attorneys in Dealing with Other Attorneys

This is an update of an earlier post.

Etiquette for Attorneys When Dealing with Other Attorneys

Over my 25 years of practicing transactional law, I’ve often been mildly (or sometimes not so mildly) exasperated by common inconsiderate behaviors by opposing counsel on my deals.  Of course, our primary job as attorneys is to represent our clients and not befriend opposing counsel, but unnecessarily agitating other attorneys does not, in the long run, serve our clients’ interests.  The following are some frequently-occurring examples of bad corporate attorney etiquette to avoid:

Sending Uneditable Drafts. Often I will receive initial drafts of an agreement in PDF or read-only form.  In other words, I can’t easily get into the document to provide edits. Sometimes it’s possible to convert the PDF to Word, but the formatting is garbled. Of course, I can provide the comments in other ways besides directly editing the document, but the point is that you’ve made it harder for me to do my job. If the intent in doing this is to discourage commenting, at least with me it may have the opposite effect, by reducing my trust of the other side. The time to create PDF versions is when both sides are in agreement and ready to execute.

Lawyers: Would You Encourage Your Children to Become Lawyers?

My son is graduating college this spring, and he will then start work at a law firm in New York as a paralegal, to give him an opportunity to see law in action and decide whether he wants to apply to law school. My wife and I have been aggressively neutral as far as trying to shape our children’s career choices. We’ve been careful not to push them into law, but we’re not discouraging it either.

Should Aspiring Lawyers Take Career Advice from Older Lawyers?

In talking to other parents over the years, some are neutral like me, but a significant number who are themselves lawyers say they strongly discourage their children from entering the law. I can’t think of anyone I know at the other extreme, who affirmatively try to push their children into a legal career, which is a contrast to the more intrusive parental approach of many years ago. (Though I should point out that when I was growing up, my trial lawyer father and novelist mother took a neutral and supportive role as I now have.)

The Advantages of Rule 506(c)

There is something weirdly contradictory about Rule 506(c) under Regulation D, which has been available for less than 10 years. Regulation D was adopted years before that as a safe harbor for private offerings under Section 4(a)(2) of the Securities Act. In other words, for companies who didn’t want to undergo the costly and involved process of registering their offering publicly, they could do a simpler offering that’s not marketed widely. That process is reflected in what is now Rule 506(b). However, Rule 506(c), even though it’s within the rule that’s supposed to be for private offerings, expressly permits “general solicitation or general advertising” – so, public marketing of the offering.

There are two conditions for the use of Rule 506(c) that aren’t requirements for Rule 506(b):

            1.  Every single participant in the offering must be an accredited investor (up to 35 non-accredited investors can be included under Rule 506(b)); and

            2.  The accredited investor status of each investor must be verified, e.g., through examination of tax returns or brokerage statements, to confirm income or net worth, so, the company cannot just rely on a written representation by the investor.

Thoughts About the Wordle Acquisition

There are those who are addicted to the new online word game, Wordle, and then there are those who gripe about their friends who post their Wordle scores on social media every day. This being a blog about corporate and securities law and transactions, I am not writing to opine on this question, though the fact that I’m mentioning the game at all probably tells you where I stand.

The New York Times recently agreed to acquire Wordle from its Brooklyn-based creator, Josh Wardle, as reported by the, well, New York Times. According to the newspaper/acquiror, the purchase price is “in the low seven figures.” I’m not sure whether that means a million-ish or some amount that is less than $5 million, but in any event, it is a nice payday for Mr. Wardle for a product released just a few months ago.

The BuzzFeed Option Exercise Dustup

The New Yorker magazine, not my usual source of prompts for blog posts on corporate and securities law, posted a piece on the recent hiccup with stock option exercises by the newly public media company BuzzFeed. BuzzFeed went public by merging with a SPAC. Longtime employees that were hoping to cash in on their stock options were unable to do so right after the merger, at which point the company’s stock price sharply declined, making the options less valuable. The employees are aggrieved at the missed opportunity to exercise options and sell shares at the higher price.

Continental Stock Transfer & Trust Company is featured prominently in the piece. Continental is BuzzFeed’s transfer agent, a category of service provider unknown to most people outside the corporate finance world. As the back-office company responsible for keeping track of who owns which of BuzzFeed’s shares, Continental’s job, among others, is to process the exercise of BuzzFeed’s options and issuance of shares to the employees. (I’ve worked with Continental for years with my public company clients but have no personal connection to the BuzzFeed controversy.)

Equity for Legal Fees (2021 Update)

Equity for Legal Fees | Andrew Abramowitz, PLLC | New York, NY

The payment of legal fees by issuing stock or other equity to the law firm in lieu of cash became popular in the late 1990s with Silicon Valley startups and has gone in and out of fashion since then.  The appeal of the structure, particularly with startups, is obvious.  Before these companies start generating revenue, cash may be hard to come by, so if both sides are willing, the payment of service providers like attorneys, at least initially, with equity, may be an attractive alternative.  It is also possible to have hybrid structures where, for example, the law firm is granted a small piece of equity issued in exchange for the firm’s agreement to discount cash fees and/or defer their payment for a period.

Thoughts on Remote Work from a (Relative) Pioneer

I can’t claim to have invented remote work, but I can say that I was doing it well before the majority of the workforce was forced into it in early 2020. My firm’s address, since its formation in 2010, has been at 565 Fifth Avenue in midtown Manhattan. For the first several years, I took the Long Island Railroad in every day and worked in my office, like any other lawyer. As the firm evolved, I built a network of freelance attorneys that worked for the firm. Especially given that the first two of them resided in Spain and Alabama, respectively, I was never going to need to provide extra space for the attorneys; accordingly, they worked from wherever they wanted.

After a few years of this, it occurred to me that without any opportunity for literal face-time with my co-workers, it was kind of silly for me to endure the commute on days where I had no meetings with clients or others. So, I set up shop in a spare bedroom at home in Port Washington, LI, and went into the city only when there were meetings. Aside from the occasional unwanted noise during conference calls from dogs or teenagers, it’s worked quite well.

Assessing the Costs of SPACs

The casual reader of the business pages has seen over the past year or so many articles about SPACs, the financial structure du jour, which have actually been around for a while. (I worked on some in the ‘00s.) The acronym stands for Special (or Specified) Purpose Acquisition Company. For those of my readers that are not corporate finance professionals, the way to conceptualize a SPAC is that it’s a private equity fund that is publicly traded. In other words, investors put funds in a newly created entity via an initial public offering (IPO). The entity has no operations other than a plan to acquire an operating company with the IPO funds within the next couple of years, with a management team that is tasked with doing the acquiring. From the perspective of the operating company being acquired, it’s a way to go public, by merging with the already-public SPAC, as an alternative to a traditional IPO. (In a traditional IPO, there is no merger; rather, a bunch of new shares in the private company are sold to the public, and poof, it’s a public company.)

The investment community has been abuzz recently about an academic paper, summarized here, that found the costs of going public via SPAC merger to be much higher on average than doing so via a traditional IPO. For my non-finance professionals out there, the most concise way I can put it is that the typical SPAC structure is designed to favor the initial sponsors and initial investors, over investors who buy shares in the open market after the SPAC’s IPO and the target company shareholders. This is because of two concepts present in most SPACs but not in most other contexts: the promote and warrants.

A promote is a form of compensation for the management team that forms the SPAC, brings it public and finds an acquisition target. Generally, this sponsor team gets, for nominal cost, 20% of the post-IPO shares of the company. Ultimately, these shares dilute the ownership of the SPAC investors and of the target company’s shareholders, post-merger, in a way that doesn’t occur in a traditional IPO.

Additionally, in most SPACs, the IPO is done as a sale of units, comprised of regular shares and warrants to purchase additional shares. The warrants (which are like stock options for those unfamiliar with the term) have an exercise price somewhat higher than the IPO price. The warrants are essentially a free add-on for the SPAC IPO investor. They can elect to have the company redeem their shares in advance of the merger and get their invested money back, but they still can keep the warrant and cash in if the stock pops. The additional shares that are issued when warrants are exercised constitute dilution to other holders, again in a way that wouldn’t occur in a traditional IPO. At least as compared to the promote, a warrant exercise for cash would bring funds into the company, but if the warrant is in the money (i.e., the market price exceeds the exercise price), then the shares are being purchased at a discount, which is not the kind of dilution that existing holders want to see.

Ultimately, there are some advantages for private companies in going public by SPAC merger over a traditional IPO. For example, whether an IPO can be completed can depend on general market conditions at the time of pricing of the IPO that are completely outside the company’s control. A SPAC merger may be the right choice for certain companies. But they need to be sure they are taking into account and fully understand the SPAC structure before choosing this option over other alternatives, like a traditional IPO, an acquisition by another operating company or private equity fund, or simply staying put as a private company.

New York Relents on Form D Filings

Form D FilingsAs of December 2, 2020, New York has joined other states in requiring that Form Ds filed with the SEC for securities offerings be submitted to the state via the EFD electronic system, replacing the state’s previously-required Form 99.

New York has long been a holdout on this front since 1996 when Congress passed the National Securities Market Improvement Act, which was intended to rationalize the crazy quilt patchwork of individual state “blue sky” laws to be complied with wherever securities were sold. NSMIA expressly preempted any requirements from a state beyond filing a copy of the Form D along with a filing fee and a consent to service of process. Most states quickly amended their blue sky laws to require only what NSMIA permitted. New York, however, continued to require the filing of a Form 99, which clearly required more disclosure from issuers than was permitted under NSMIA. …

The Golden Age of Non-Interruption

The Golden Age of Non-InterruptionI have found over my 23 years of law practice that, assuming I’ve consumed my usual copious amount of coffee, I can be quite productive and efficient when I get into a flow. When that flow is interrupted – by a phone call, someone popping into my office for a quick question, a car alarm going off, etc. – it can be difficult to get back into the groove. The good news is that a number of workplace trends in recent years have resulted in a general decline in interruptions, leading to more efficient work.

At least for me, the key development has been the advent of email. Everyone likes to complain about email – not me! As long as you don’t set your email system to notify you of every incoming email, which for me would be crazy-making, you are in control of when you look at it. Unlike someone making a phone call, the sender of an email is not expecting a literally immediate response. Of course, law is a service business and clients have reasonable expectations of a prompt reply, but the checking of the email can wait until you’ve finished reviewing that convoluted contractual provision.