Origami and the Three Bears

Origami and the three bears:

Getting your transactional partners to

provide training for junior lawyers that is “just right”

Charles Fox, Fox Professional Development LLC

and

Virginia Melvin, Mayer Brown LLP

NALP / PDI Conference December 2013

This document has three components.

1. The first, “Questions for Junior Transactional Associates,” is a list of 50 questions that can be used to assess junior transactional lawyers’ substantive knowledge. Although a large number of subject areas are covered, including corporate law, securities, secured transactions, bankruptcy, contract law, commercial law, debtor-creditor law, and basic financial literacy, the authors believe that any effective deal lawyer should know the answers to all of these questions.

These questions can be used to assess associates at any level. Two uses that have been discussed in this program are (a) assessing the gaps in knowledge that incoming associates have, in order to help target training at the right level, and (b) assessing associates’ substantive knowledge after basic training targets have been met, to determine the efficacy of the training.

2. The second part of this document is a “just right” training checklist for trainers.

3. The third part is a “just right” training checklist for PD professionals. It includes suggestions relating to the use of associate co-trainers.

Please feel free to adopt, adapt and use any or all of these materials. The authors would appreciate any suggestions or feedback you may have.

Questions for Junior Transactional Associates

Associates being asked to answer these questions should be instructed to do so (a) without adding or assuming additional facts, and (b) based on what the answer would be in the most commonly-encountered circumstances. [Answers are in bold]

True or false: A landlord has recourse against a tenant’s subsidiary if the tenant fails to pay rent on a timely basis.

TrueFalse

True or false: The owner of an item of equipment cannot be determined by looking in the UCC filing records.

TrueFalse

An arrangement in which a third party agrees to hold cash or documents and to deliver the cash or documents to a specified person upon the occurrence of certain events is called
A security agreement
An escrow
Subrogation
An indemnity

A company that is unable to pay its obligations as they come due in the ordinary course of business would be described as insolvent.

List the three main categories of intellectual property. Copyrights, patents and trademarks

True or false: As a general rule, a company is not permitted to take actions that would be to the significant detriment of its bondholders.

TrueFalse

True or false: It is generally unacceptable to rely on “apparent authority” in determining whether a contract has been properly signed.

TrueFalse

True or false: Party A owes money to both Party B and Party C. Party A and Party B can agree that Party B’s claim has priority over Party C’s.

TrueFalse

Complete this sentence by adding ten words or less: “The main burden on public companies, in contrast to private companies, is [having to continually publicly disclose all material information about themselves].”

True or false: Senior officers of public companies are elected at the companies’ annual shareholders meetings.

TrueFalse

Party A has sold raw materials to Party B, which Party B has promised to pay for in 30 days. From Party A’s perspective, this promise is best described as
An obligation
A preference
An asset
An account payable

True or false: It is usually the case that most aspects of the legal relationship between a limited liability company and its members are governed by the limited liability company statute of the state where the limited liability company was organized.

TrueFalse

True or false: When a company does an IPO, the offering price does not have to be approved by the Securities and Exchange Commission.

TrueFalse

Company A has promised to pay Company B $1 million on each of May 1, 2014 and August 1, 2014. It is likely that Company B can sell its claim against Company A that is due on August 1 for more than the claim that is due on May 1.

True
False
Neither claim can be sold

True or false: The terms “balance sheet” and “financial statement” are synonymous.

TrueFalse

True or false: A “no action letter” is a letter from a company’s bank that states that the bank will not take any adverse action against the company under their credit agreement for a stated period of time.

TrueFalse

True or false: A licensee would prefer to make quarterly royalty payments in arrears, instead of in advance.

TrueFalse

True or false: Because the US government has the ability to print money, to date US Treasury securities have never lost market value.

TrueFalse

True or false: All corporations issue equity.

TrueFalse

True or false: In most cases, Party A’s failure to disclose a material adverse fact regarding the subject matter of a contract between Party A and Party B will not result in potential liability on the part of Party A.

TrueFalse

True or false: A limited liability company can be created by a course of conduct among the parties.

TrueFalse

True or false: Party A borrows $200 from Party B on January 30, and borrows $100 from Party C on October 31. On December 31, Party A is liquidated. Its assets are sold for $200. It has no other creditors other than Parties B and C. Party B gets paid $200 in the liquidation.

TrueFalse

True or false: It is possible to structure an entity so that one equityholder invests 1% of the capital but receives 25% of the profits.

TrueFalse

Joe owns 80% of the voting common shares of ABC Inc. Is it likely that he controls ABC Inc., and if so, how? He can elect a majority of the directors.

True or false: Due diligence is conducted primarily in connection with securities offerings.

TrueFalse

True or false: A company’s balance sheet net worth is generally a good indicator of the company’s market value.

TrueFalse

True or false: To be enforceable, a contract between two corporations must contain a recital of consideration.

TrueFalse

True or false: A company is liquidated. The company’s obligations under its publicly-issued bonds are not required to be paid before its obligations to its suppliers.

TrueFalse

What is the name of the annual filing that a public company is required to make under the Securities Exchange Act of 1934? Form 10K

True or false: Typically the existing management of a company that has filed a petition under Chapter 11 of the bankruptcy code is replaced by a bankruptcy trustee.

TrueFalse

What is a derivative? A contract under which a party incurs obligationsthat are based on an external financial benchmark or event.

True or false: A parent company may not enter into contracts on behalf of one of its subsidiaries.

TrueFalse

True or false: Limited liability company interests are “securities” for purposes of the Federal securities laws.

TrueFalse

True or false: Parent Corp. owns 100% of the outstanding common shares of Sub Inc. Sub Inc. must get the approval of the board of directors of Parent Corp. before it borrows a substantial amount of money.

TrueFalse

In a purchase agreement, the seller makes a representation and warranty that there are no liens on the asset being sold. When the contract is signed, this is true. However, after signing but before closing a tax lien is placed on the asset. Does the buyer have to close or not? Explain your reasoning. Yes, because it is likely that a condition to buyer’s obligation to close is that all of the seller’s representations and warranties are true on the closing date, and the existence of the tax lien makes the lien representation untrue.

A company buys a piece of equipment for $1,000. On which type of financial statement would the value of the equipment be recorded, the company’s balance sheet or income statement? Balance sheet

True or false: Party B has a contractual obligation to Party A. Party B delegates that obligation to, and it is assumed by, Party C. Party A still has recourse against Party B.

TrueFalse

If there is a discrepancy between the wording of a contract and what the parties to the contract intended, which will govern, and why? Unless the provision is unclear or ambiguous, the parol evidence rule requires the plain language of the contract to govern.

In an acquisition, the business being acquired has a liability that the buyer wants nothing to do with. From the buyer’s perspective, should the deal be structured as an asset sale or a stock sale? Asset sale

True or false: A bank takes a mortgage on a business’s manufacturing facility to secure a loan. If the business defaults on the loan, the bank may transfer title to the manufacturing facility into its own name.

TrueFalse

True or false: It is easier to do a hostile acquisition of a private company than a public company.

TrueFalse

True or false: Company A is owed $100 by one of its customers. Company A’s claim against the customer for payment is freely transferable.

TrueFalse

Party A owes Party B $100. Party C promises Party B that Party C will pay the $100 to Party B if Party A fails to do so. Is this arrangement an indemnity, a guarantee or a keepwell? Guarantee

List two key differences between the debt and equity of a corporation.

Equity represents ownership of an entity; debt represents a right to be repaid
Stockholders get to vote on the election of directors; debtholders do not
Stockholders have no claim against the corporation to get their investment back; debt holders do
The rights of stockholders are set forth in the corporation’s organizational documents; the rights of debt holders are set forth in a contract

True or false: The board of directors of a corporation has the legal power to decide that the assets of the corporation’s wholly-owned subsidiary should be sold.

TrueFalse

True or false: Party A and Party B are parties to a contract. Unless the contract states otherwise, schedules to the contract provided by Party A may be updated from time to time by Party A.

TrueFalse

What is the legal distinction between a subsidiary and a division? A subsidiary is a separate legal entity; a division is not.

In the last year or so, there has been a widely-reported controversy relating to the London inter-bank offered rate (LIBOR). In a sentence or two, describe the controversy. LIBOR is a benchmark that is used to establish interest rates on a variety of financial instruments. Employees of several large financial institutions have been charged with manipulating LIBOR in order to improve financial performance.

True or false: Mr. Jones owns 65% of the outstanding common shares of XYZ Corp. He cannot grant a security interest in the shares without the consent of XYZ Corp.

TrueFalse

The Internal Revenue Code treats limited partnerships, limited liability companies and large corporations differently.

TrueFalse

Checklist for “Just Right” Training
For Trainers

Thank you for agreeing to train associates. This checklist describes the Firm’s philosophy and recommended processes for developing and implementing internal training. We look forward to working with you to make the training effective and an enjoyable experience for both the associates and you.

Adult learning principles

Merely presenting information is the least effective way to get the associates to improve.

The associates you are working with:

Need to understand the relevance of the subject matter to their lives and activities.

Will benefit greatly from your use of a number of teaching methods.

Are goal-oriented.

Lawyers, in particular, prefer to be given the opportunity to achieve something, instead of being passive receptors.

Will learn more effectively if they feel that they are respected.

An important part of this is including them as much as possible in the learning process.

Learn by doing.

“I hear and I forget. I see and I remember. I do and I understand.” Confucius

Everything in this guide is aimed at applying these adult learning principles in order to

Leverage your time and efforts

Make our associates better lawyers

Improve the service we provide to clients

Make the learning experience more gratifying to both associates and trainers

Developing your content

The best use of your time (both in preparing and training) is not to try to cover as much information as possible

You won’t have time to cover everything the associates need to learn

Extensive details and information can and should be contained in a handout, which can serve as a reference for later “as needed” training

Instead, your expertise and time is best used:

Deciding what aspects of the topic the associates most need to know at their particular level

Determining, for each hour of training time, the ten most important points that you want the associates to understand and retain

Deciding how best to convey those ten points, using a combination of lecture, examples, stories, questions, hypotheticals and interactive activities

Ideally, you will not lecture for more than five minutes at a stretch without alternating with one of the above techniques

Draft a detailed timed outline of the points you want to cover

As you prepare your outline, consider what the associates need to know in order to understand the material you are covering

There is a good chance that you will assume that associates know more than they do.

One component of this is terminology – using terms that they are not familiar with.

If there is a reasonable chance that the associates do not have some prerequisite knowledge, you should cover it first.

For example: New associates without any experience are not likely to know what “representations and warranties” are. Your discussion of the pros and cons of knowledge qualifiers will just be confusing to the associates unless they have a good understanding of what representations and warranties are in the first place.

If in doubt on whether the associates are likely to know something (including as a result of previous firm training they may have received), please ask us.

Consider how to convey to the associates the relevance of the content to their work. For example, if you are talking about issues surrounding corporate board actions, provide a set of board resolutions as a handout and explain how the issues you have been discussing may ultimately be treated in the language of the board resolutions.

Please share your outline with the professional development department at least __ days before the date of the training.

Building interaction into your training

In order to facilitate effective learning, it is important to provide the associates with things to do other than sit and absorb information.

Here is a list of potential ways to foster interaction with the associates:

Present examples of what you are covering as a basis for discussion

For example, if you are covering materiality standards for securities law reporting purposes, give them a few examples of facts relating to a specific public company, and ask them to rank the facts as to level of materiality.

This is an example of getting the associates to participate without putting them on the spot with a “right or wrong” question.

Ask a very easy question and push hard to get someone to answer. Then continue a dialogue with that person on more complex aspects of that question.

If they begin to flounder, end the process gently; you do not want to make the associates reluctant to participate. One way of bailing the associate out is to ask others for their thoughts. It is usually easier to get associate participation in this context than it is getting the first person to “break the ice.”

Develop a hypothetical and ask the associates to apply the content that they have just been taught to the hypothetical. Ask them to both identify an issue and develop solutions.

For example, if you have been talking about the need for third-party consents for a closing, provide a hypothetical case involving the need to get an uncooperative landlord to consent under an anti-assignment clause. Encourage the associates think of a possible solutions.

Any activity that gets the associates’ competitive juices flowing is very likely to be successful (as well as energizing and entertaining).

Examples: (1) If your topic is attention to detail, give the group 15 minutes to find all of the mistakes in a badly-done document, and then see who found the most errors. (2) If your topic is writing more succinctly and clearly, provide them with an overwrought sentence or paragraph and see which associate can express the same concept in the fewest words.

Having small groups (3 – 6 people) do any of these activities is often more effective than having the associates doing them singly. The benefits of engaging in activities on a group basis are:

It encourages associates to think and participate: small group dynamics deter passivity.

It is easier to ask a group to discuss something than an individual – there is less of the feeling that you are putting someone “on the spot.”

This generation feels very comfortable with group activities.

Powerpoints

No more than [25] words per slide; if more words are needed, use multiple slides.

Do not put all of the material you plan to cover in the powerpoint. If you do, you risk losing your audience as they try to read it and stop listening to you.

The powerpoint should essentially be the skeleton of what you are going to cover, so that you will be filling in the blanks with your talk.

Poll your audience by listing a question on a slide and ask them to jot down the answer. After discussing the answer, ask how many got it right. This will give you immediate feedback as to whether your message is being understood.

It is easy to find graphics. And graphics are often more memorable than words. If, for example, you are talking about flood insurance covenants, you could, google “tsunami pictures” and you will have access to thousands. Make sure the image you pick isn’t marked as proprietary.

Structure diagrams are especially useful. Many lawyers are visual learners who understand abstract concepts more clearly if they are given a visual representation.

Please share your slides with the professional development department at least __ days before the date of the training.

Handouts