Sell! Sell! Sell! James Cayne of Bear Stearns dumps it all.

Wow!  The day after JP Morgan Chase accounced a 400% increase in its offer for Bear Stearns’ stock, James Cayne, who recently ranked among the Forbes 400 richest Americans and is the Chairman of Bear Stearns, sold his entire stake of over 5.61 million shares of company stock Tuesday at $10.82 a share, according to a company filing with the Securities and Exchange Commission.

This raises a number of important questions, not the least of which involves insider trading:

1. Does he know something the rest of us don’t?  In other words, is this the best offer that Bear Stearns is likely to get, beyond a doubt? Because if it’s not, it seems unlikely that Cayne would want to dump everything now, given the impact this trade might have on the deal prospects.  And the street has bet that somehow Bear Stearns will fetch more than the $10/share on the table from JPMorgan currently, given that the stock is trading above $10/share.
2. How does this reconcile with typical executive behavior around a deal?  I mean, he dumped everything, and his wife sold another $500k in stock as well.  Isn’t there some type of protocol that insiders should follow?  Please, comments welcome.
3. Is it possible that, in a strange (and maybe unexpectedly sacrificial way), the sale by Caynes may somehow be supportive of the deal?  Difficult to rationally accept, but maybe Caynes is saying that his sale is not a reflection of how the market will react to the deal, but it simply is a reflection of his personal situation, and if it were at all likely to affect the deal he wouldn’t have sold his shares.

I haven’t uncovered his executive comp deal yet, but I’ll post it shortly.  In the meantime, look here if you want to see a lot of executive compensation agreements or other executive employment agreements.

JPMorgan Chase and Bear Stearns – Upping the ante

JPMorgan Chase significantly sweetened the pie today as it aggressively moved to lock up its acquisition of Bear Stearns and head off legal challenges at prices which are still some 70% below what Bear Stearns was trading at only two weeks earlier.

The new bid is at $10/share, five times the $2/share offer tendered only seven days earlier, which is geared to soften the blow to existing Bear Stearns’ shareholders.  The new or amended filings include:

1)  An Amendment to the JPMorgan Chase Bear Stearns Merger Agreement, which includes important termination provisions, an option on the Bear Stearns’ headquarters property, refinements to operations of certain deal collateral, and the termination of an option agreement from last week whereby JPMorgan could have acquired 20 million shares of Bear Stearns’ stock for $2/share.

2)  A Share Exchange Agreement, enabling JPMorgan to acquire 95 million shares of newly issued Bear Stearns common stock at the current price equivalent of $10/share, giving JPMorgan 39.5% of Bear Stearns for $10/share. Effectively, when combined with the holdings of Bear Stearns’ Board, it gives JPMorgan close to 43% of the potentially outstanding share of Bear Stearns’, very close to the majority approval required from shareholders.  This is a similar functionality, but a different mechanism, than the top up provisions I’ve discussed previously.

3)  Revisions to the Guaranty Agreement, thereby providing greater viability to the ongoing operations of Bear Stearns.  This effectively helps preserve the value in the going concern of Bear Stearns for JPMorgan.

You can access these documents via the SEC filings of JPMorgan or Bear Stearns.  If you want to be able to search across thousands of these types of documents (Merger Agreements and Guaranty Agreements), I suggest searching at www.RealDealDocs.com. 

Amgen Credit Agreement – a brief case study on leveraging legal agreements

I frequently talk about the benefits of finding and leveraging legal agreements and clauses that have been created by others to help professionals get their work done more quickly, add more value to their clients, and avoid making costly and time consuming drafting mistakes.  I thought it would be helpful to use a recent example of a credit agreement from a well-know biotechnology company to highlight these benefits.

But first, a bit of background for those of you who aren’t familiar with me or the company I co-founded eight years ago, which is Practice Technologies.  The primary purpose of our flagship product, the RealPractice suite, is to profile legal agreements, litigation documents, and other attorney work product to make it easier for attorneys at large law firms to find documents that are very similar to what they are currently working on.  There are a lot of different ways to describe this:  knowledge management; leveraging or reusing work product; work product retrieval; collaboration; etc.  In short, it’s a very sophisticated term paper service.  Frequently, implementing this is only a viable solution at mid-sized to very large law firms due to the economics, as well as the large document repositories required to make this an effective solution across an organization.

With RealDealDocs, we’ve opened this opportunity up to see hundreds of thousands of real legal agreements, drafted by top law firms and executives of public companies, to the broader universe of professionals without having to install any software.  Members of RealDealDocs.com include lawyers at firms of all sizes; investment and consulting professionals; business development, marketing and financial executives; benefits professionals, etc., and they get access to all this information on a subscription basis.   But now, back to our “case study”.

I accessed the Amgen Credit Agreement by browsing within Loan Agreements.  You could also access it by using the advanced search functionality on the site.  For your convenience, I’ve uploaded the loan agreement as a Word document here:  Amgen Credit Agreement.

If you are looking at the website to review the document, you’ll immediately see that the service captures a lot of relevant information, which is useful as noted below:

1. The legal document has been profiled as a particular type – in this case loan agreements – to facilitate finding similar types of agreements.  When coupled with other search criteria across the library of thousands of similarly profiled documents, the result is a very valuable research and drafting resource.
2. The governing law (which tells you which jurisdiction’s laws control how the document will be interpreted by a court in the case of any disputes) is specified.  This is important in a wide variety of types of agreements, particularly for finance, employment agreements, and corporate organizational documents, as the deal terms may vary significantly by jurisdiction.
3. The title, parties, industry and law firms on the deal are captured and displayed.  This is not only helpful in quickly scanning and validating the potential quality of the document, but it is also useful competitive intelligence about what certain companies or law firms are negotiating and drafting, or for profiling what market rates and conditions are for certain types of deals or industries.
4. The rest of the document is laid out, which is further searchable via full text or by clause searching on the RealDealDocs.com site to pinpoint language which you may want to incorporate into your own deal.

Again, this is a very high level review of how you can use a particular legal agreement, or more broadly an effective search and document retrieval tool, to improve the quality of your work while helping to get you out of the office a bit quicker.

I’m happy to answer any questions or comments, or if any of you would like me to drill into this in greater detail, please let me know.

Distribution agreements

Distribution agreements can provide tremendous leverage for small and medium sized businesses to get the word out, particularly if they are done on a cost effective basis.  Many of these types of distribution agreements are available in the public record for review, and I’ve provided a link to a helpful resource at www.realdealdocs.com above.  Despite my role as a founder and early employee of several early stage businesses, I am by nature pretty conservative when it comes to evaluating business opportunities.  In my experience, distribution agreements are entered into far too easily, with a “shoot the moon” type of mentality.  I believe that there are several seemingly obvious but important considerations to review prior to entering into a distribution agreement:

1. What are your real business objectives?  Is it to spread the word, or to actually deliver tangible, short term sales increases?  Too often, the ideas about getting the message out are good, but the actual mechanics are too far removed from getting customers to buy.
2. Is the distribution partner appropriate to your target audience?  There are times when your partner is in “your space”, but their target market isn’t in your sweet spot.  For example, if your company targets law firms (as ours does, among other markets), the purchasing dynamics are very different for small law firms as opposed to larger law firms.  A distribution partner for one of our particular product offerings needs to really fit the right market segment.
3. How are you compensating the distribution partner?  Of course, you want to link compensation to performance, but many times payment schemes arent’t tied closely enough with results.  There are any number of ways to reward performance for distribution agreements and partnerships, and a great way to see how performance is compensated in distribution agreements is to review other similar agreements.  You can review hundreds of distribution agreements drafted by top law firms, and there are millions of searchable legal agreements and agreement clauses available at www.RealDealDocs.com.

Marketing agreements for small to mid-sized business owners

Marketing agreements can provide tremendous leverage for small and medium sized businesses to get the word out, particularly if they are done on a cost effective basis.  Many of these types of marketing agreements are available in the public record for review, and I’ve provided a link to a helpful resource at www.realdealdocs.com above.  Despite my role as a founder and early employee of several early stage businesses, I am by nature pretty conservative when it comes to evaluating business opportunities.  In my experience, marketing agreements are entered into far too easily, with a “shoot the moon” type of mentality.  I believe that there are several seemingly obvious but important considerations to review prior to entering into a marketing agreement:

1. What are your real business objectives?  Is it to spread the word, or to actually deliver tangible, short term sales increases?  Too often, the ideas about getting the message out are good, but the actual mechanics are too far removed from getting customers to buy.
2. Is the marketing partner appropriate to your target audience?  There are times when your partner is in “your space”, but their target market isn’t in your sweet spot.  For example, if your company targets law firms (as ours does, among other markets), the purchasing dynamics are very different for small law firms as opposed to larger law firms.  A marketing partner for one of our particular product offerings needs to really fit the right market segment.
3. How are you compensating the marketing partner?  Of course, you want to link compensation to performance, but many times payment schemes arent’t tied closely enough with results.  There are any number of ways to reward performance for marketing agreements and partnerships, and a great way to see how performance is compensated in marketing agreements is to review other similar agreements.  You can review hundreds of marketing agreementsdrafted by top law firms, and there are millions of searchable legal agreements and agreement clauses available at www.RealDealDocs.com.

Bridge Loan Agreements for the Small to Mid-Sized Business

One of the financing mechanisms I have not discussed recently concerns bridge loan funding for small to mid-sized businesses. 

In an earlier post about obtaining a credit line for a venture-backed business, I highlighted some of the considerations involved in determining whether a credit line was right for that stage of a company’s evolution.  Many of those issues are the same for an emerging company reviewing the applicability of a bridge loan.

The difference between the two forms of credit (a credit line versus a bridge loan) are subtle but distinct.  To review, a credit line typically has the following characteristics:

• it is typically used as to complement working capital
• it can be used in a venture-backed company environment as a bridge to an important valuation milestone, but the company typically must be able to service the debt from current operations,
• it is generally collateralized against working capital and/or all the assets of a business

A bridge loan has similar characteristics, but it is typically used in shorter-term circumstances to help the company “bridge” the gap between its current resources and a future, typically near-term funding event.  For example, if a company is in the process of raising another round of capital or selling a portion of its business and it requires an immediate capital infusion to cover its current operations, it may obtain a bridge loan to meet those requirements.  Since repayment may very likely be contingent on that future event happening, there are several risk premiums associated with the bridge loan.  These may include:

• an interest rate premium
• extensive collateralization against the company’s assets
• a short-term maturity (typically on the earlier of a year or the occurrence of the funding event)
• a conversion to equity feature, typically with some sort of premium valuation feature

One of the many lasting benefits of the dot-com boom is that it left us with a number of surviving publicly held companies which are still relatively small.  As with all public companies in the US, they are required to file material contracts with the Securities and Exchange Commission, which are then publicly available.  These include bridge loan agreements, revolving credit agreements, credit lines, and many other loan agreements.   They can be reviewed by potential borrowers to better understand what the potential deal provisions might be.  I’ve highlighted one such bridge loan agreement for a small (~$5million revenue) software provider, and you can find hundreds of similar agreements at www.RealDealDocs.com. 

Employee expense reimbursement in California

As a supplement to an earlier post, our colleagues at one of our client firms, Thelen Reid Brown Raysman & Steiner (www.thelen.com) have provided a discussion of how the California Supreme Court views the treatment of various employee expense reimbursement policies at:  http://www.constructionweblinks.com/Resources/Industry_Reports__Newsletters/Jan_07_2008/alte.html

 Again, if you want to see how employee reimbursement policies are treated at thousands of publicly traded companies, including how many executive employment agreements are drafted by for the Fortune 500 companies and many other firms by top law firms in the AmLaw 200, go to the Employment Agreements section of our new preview site at http://agreements.realdealdocs.com. 

If you need some help, or want a temporary password, feel free to drop me a note.  Of course, you can review the hundreds of thousands of legal agreements, and millions of clauses, from top law firms at www.RealDealDocs.com.

Activity in Construction Agreements and Construction Loan Agreements and their implications on the economy

Every month at www.RealDealDocs.com, we profile thousands of agreements that have been drafted by top law firms for their public clients.  While there is a slight (typically 30-60 day) lag time, we are able to observe and monitor trends about economic activity.

Over the past 12 months, we have noticed a significant decline in the number of new Construction Agreements and Construction Loan Agreements that have been filed with the SEC.  We attribute this decline to the current credit crunch in addition to a downturn in the US real estate market  In spite of this decline, at least with regard to public companies, there continues to be significant activity around search engine searches for these types of agreements.  To us, this appropriately reflects the continued albeit reduced activity in construction in many parts of the world, and the continued desire to review these types of agreements to better negotiate new deals and avoid “reinventing the wheel”.

To review many of these types of agreements, which have been drafted by top law firms in the US and overseas, visit us at www.RealDealDocs.com, or you can visit our new preview site at http://Agreements.RealDealDocs.com.

Reviewing Restaurant Franchise Agreements and Operations Opportunities

My brother, who operates a very successful restaurant in Tucson called Bistro 44 called me this week to discuss opportunities to become a franchise restaurant operator.  He was just beginning to check into what the opportunities might be, and he had recalled that I had performed some restaurant franchise valuation work earlier (a long time ago!) in my career.

I was able to pass on some thoughts about some of the less obvious considerations around how to develop a top-performing franchise operation, which include finding  great operations management (usually 1-2 experienced managers) and leveraging them across several restaurants, pricing considerations, and some other issues.   One of the other issues we discussed is how, as a potential franchise operator, he should review a variety of franchise agreements to better prepare him for the negotiations with the restaurant chains.  I pointed him to some actual Franchise Agreements from various public restaurant companies, ranging from a Krispy Kreme Donuts Franchise Agreement to a major restaurant chain’s (Applebee’s Franchise Agreement) to what I believe is a Haagen Dazs Franchise Agreement.  Franchise agreements, and many other types of actual agreements and clauses prepared by top law firms, are available in their entirety at www.RealDealDocs.com.