Chapter 7 - 11
August 19, 2005 | Filed Under In the News
Do you want a Slurpee with that petition?
The Washington Post reports that changes to the Bankruptcy Code which go live on October 17 may result in a number of companies filing before then:
“I think we’ll see some major corporate bankruptcies between now and October as companies choose to avoid dealing with the new (bankruptcy) bill,” said Robert Keach, co-chairman of the Business Reorganization Committee at the American Bankruptcy Institute and chairman of the bankruptcy and restructuring practice group at law firm Bernstein Shur in Portland, Me.
“What you may find is that companies who were going to file (for bankruptcy) anyway will file earlier to avoid what they consider the more difficult provisions of the new bill,” he said.
Among other things, the new law limits potential extensions of time that a debtor can file an exclusive plan of reorganization; it will be limited to 18 months. A good summary of the changes is provided by the Orrick firm here. Limits on executive compensation and retention arrangements could also enter into the calculus.
One company that may fit this description is on our radar in the Midwest: Northwest Airlines. Minnesota Public Radio reports on this. Part of the NWA bankruptcy threat is playing out in negotiations with mechanics, who will likely strike as soon as this weekend.
Because of these changes, observers think some Chapter 11 reorganizations may end up as Chapter 7 liquidations. According to the Washington Post:
“Under the new code, it’s less likely that they can survive after Chapter 11″ as opposed to undergoing a liquidation, said Edward Altman, director of the credit and debt markets program of the Salomon Center at New York University Stern School of Business, who expects to see a small spike in the number of bankruptcies from companies that are facing a financial crunch.
The fresh start may become the final act.
The Price of Cooperation
August 17, 2005 | Filed Under Governance, In the News
As president, talking to the board is likely part of your job description. But “cooperation” with an investigation? That may be another matter.
United Rentals disclosed yesterday that it had fired president/CFO John Milne, because he “has been unwilling to respond to questions of the special committee of the board reviewing matters relating to the previously disclosed SEC inquiry of the company.” More on the event in an 8-K filed by URI.
CFO.com probes further, mentioning that Mr. Milne had been given a 30-day deadline to comply with a “mandate” to cooperate with the special committee on investigations into company accounting practices.
Mr. Milne, through a spokesperson, told Reuters that the CFO does not agree with the board’s decision:
“In his view, the unwillingness of the Board’s Special Committee to agree to mutually acceptable terms precipitated his decision not to submit to an interview. This does not constitute grounds for termination with cause,” the spokesman said.
Mr. Milne is likely somewhat constrained right now in what he is saying. Mr. Milne’s titles included president, CFO, chief acquisition officer, and secretary–a rather non-conventional way to parcel out executive duties.
Moving beyond the United Rentals matter, the notion of “cooperating” with internal corporate investigations is becoming more of a vexing issue for companies and their general counsel. Professor Peter Henning covers this angle in the ongoing tax shelter investigation at KPMG. (Thanks to Tom Kirkendall for this pointer).
If federal agencies and prosecutors continue to equate “cooperation” with turning over all information and essentially forcing all involved to talk (or be terminated by the company, likely with cause asserted), executives will have some very difficult decisions to make.
Check your by-laws (indemnification?), employment agreement (definition of “for cause”) and D&O policies (which can exclude coverage for some intentional or illegal acts). See also definition #2 of cooperate.
Update (18 Aug 05): The New York Times reports this morning about KPMG’s new legal offensive against former clients. Seems rather risky, but KPMG is walking a tightrope right now between civil suits and the ongoing government investigation. Professor Ribstein weighs in as well.
Update II (19 Aug 05): There’s a good article from the NLJ covering some of these same issues written by George Terwilliger of White & Case.
The SEC Search of Google
August 15, 2005 | Filed Under Regulation, In the News
Reporter Verne Kopytoff of the San Francisco Chronicle wrote a fascinating article yesterday about Google’s arduous quest to get SEC clearance to launch their IPO last year. The paper had filed an FOIA request with the SEC, and was able to review the extensive correspondence that took place between the agency and the search giant.
The SEC apparently took a dim view of the idealism that Google founders Larry Page and Sergey Brin wanted to convey in the S-1 (an early version of which is here). The SEC didn’t like use of the first names of key Googlers, wanted more disclosure on privacy issues related to Gmail, and was not amused by the interview Larry and Sergey gave to Playboy (work-safe link here courtesy of Jason Kottke for those who don’t read it for the articles). The auction-style offering terms undoubtedly also gave the SEC pause.
And Mr. Kopytoff reports that before the IPO could proceed, the SEC needed something more:
… Google’s attorneys were required to draft a letter agreeing that anything said by regulators in prelude to the IPO could not be used later as a defense in any trial.
So as we head to the first anniversary of the Google IPO on August 18th, thank goodness the SEC dragged them around Wall Street by the ear for awhile. Many investors (such as yours truly) thought it might be just another dot-bomb. The 52-week range is 95 on the low side and 317 on the high side. GOOG opens today at 289 and change.
I would hate to have this sort of nonsense mucking up my portfolio.
Update (18 Aug 05 AM): Broc Romanek at TheCorporateCounsel.net Blog provides additional information (see entry at the bottom of the page) and a kind link. More on the Tandy letter concept is provided by Mr. Romanek here.
Update II (18 Aug 05 PM): Google announces this morning plans to raise an additional $4 billion with a follow-on stock sale of over 14 million shares. The Google form S-3 explains more, as does their press release. When an audience is clamoring for an encore, give it to ‘em.
Selling the GC - Lesson #2
August 12, 2005 | Filed Under Selling the GC
Marie-Anne Hogarth writes an excellent article for the Recorder about the burgeoning world of legal marketing. (The “pitch” descriptor in the headline is great, especially during the baseball season).
I was interested to learn about the differences between business development, marketing and sales. That last s-word is no longer avoided; the Womble Carlyle firm even has a director of sales:
Womble Carlyle Sandridge & Rice is believed to be the first firm to hire a director of sales, which it did four years ago. “At Womble Carlyle, we call a spade a spade,” says director of sales Steven Bell, who goes on pitches with — and sometimes without — lawyers.
“It works best when there is a teaming between lawyer and salesperson,” he says.
Mr. Bell doesn’t seem to show up yet on the firm website. I might have described things a bit differently, but Mr. Bell is clearly not a shrinking violet.
Since I haven’t yet caught a pure solo sales pitch, I thought about it in the context of another profession. Say I was approached by representatives from rival orthopedic surgery practices who wanted preferred status for work on company personnel. I would listen intently, and certainly use the pens and sticky notes left behind. But before someone cuts on a colleague, I think I’d check out individual doctors with people I know and trust who have used them.
So for the purists who think that any mention of sales is antithetical to how legal services are marketed, three words come to mind: get over it. And for the marketing mavens who would have you believe that corporate legal services are just another commodity to be sold, three different words come to mind: not so fast.
Business Development can get lawyers thinking about marketing, and better skilled at it. Marketing can get a firm positioned to make a sale. Sales can get a firm to a “yes/no/maybe later” decision.
But the decision is informed by all these things, and then is probably made by a GC after checking on the firm and lawyers with someone she trusts who is speaking from personal experience.
So here’s Selling the GC - Lesson #2:
Pitching is still defense; a personal referral is the best offense.
Brad Smith’s Message to Spammers
August 10, 2005 | Filed Under Technology, In the News
Microsoft GC Brad Smith sent an open letter to the cyber-world yesterday, touting Microsoft’s $7 million settlement with Scott “Spam King” Richter.
Mr. Richter had been in Microsoft’s gunsights for some time; and he had earlier settled with NY AG Eliot Spitzer for $50,000. Brad Smith can apparently out-muscle the Lord of Regulation.
Mr. Smith notes what Microsoft plans to do with the part of the settlement:
After covering our legal expenses for the case, Microsoft will then reinvest every penny from this settlement. We’ll dedicate $5 million dollars to increase our Internet enforcement efforts and expand technical and investigative support to help law enforcement address computer-related crimes.
$2 million to catch one spammer? But perhaps not, read on:
In appreciation of the role of the New York Attorney General, another $1 million of this settlement money will be directed to New York state through Microsoft Unlimited Potential donations, which help community centers to expand computer-related skills training for youths and adults.
One presumes that MUP 101 will not be “Mass E-Mailing for Fun and Profit.”
Incredibly, Richter was alleged to have sent out as many as 38 billion spam messages a year. By my count, the settlement works out to a penalty of .018 cents per errant message. Not bad when it costs 23 cents to mail a postcard.
Mr. Smith gets off a good line when he notes:
This one legal victory will not end spam, but it is a relief to know that the magnitude of spam attacks need no longer be measured on this particular Richter scale.
No word whether Microsoft debated sending Mr. Smith’s message out in e-mail form to all users of its products.
A tip of the cap to Microsoft. In the long run, however, bringing one spammer to justice is like catching one mosquito. There’s probably a few others in the dark woods waiting to strike, particularly those in countries without laws like our CAN-SPAM.
Ultimately, there needs to be a system or software solution to the spamdemic. Hopefully Microsoft has as many engineers as it has lawyers working on the problem.
Update (14 Aug 05): Tomorrow’s New York Times finally covers this case and one involving AOL. Also linked is a great cartoon from David Horsey of the Seattle Post-Intelligencer.
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