Monday, January 4, 2016

Fort Worth, Texas magazine's 2015 Top Attorney

I'd like to thank Fort Worth, Texas magazine for including me on their annual list of Top Attorneys for 2015.  I was among those honored in the Corporate Finance/Mergers and Acquisitions category. 

This is the second year I have been included on their list. Among the perks of being selected for this award is being invited to their annual reception for award winners at the Fort Worth Club.  The event was well organized and a lot of fun to attend.

Here's what the magazine cover looks like:

Sunday, October 18, 2015

Texas Transfer on Death Deed

Effective September 1, 2015, Texas has adopted the Texas Real Property Transfer on Death Act ("TODA") (codified as Chapter 114 of the Texas Estates Code), which authorizes people to convey real property in Texas by means of a Transfer-on-Death Deed ("TODD").

TODDs are expected to be attractive to Texans with modest estates because TODDs allow people to transfer real property outside of the (sometimes expensive) probate process. By signing a TODD and filing it with the county real property records, the TODD creates a transfer of the real property which becomes effective upon the transferor's death, regardless of any contrary provisions in the transferor's will. Accordingly, TODDs are similar to bank accounts which are "Payable on Death" in their ability to avoid the probate process,

TODDs may be made or revoked by the transferor at any time prior to his or her death, but may not be created by a power of attorney. To be effective, the revocation must be signed after the TODD being revoked and filed in the county records before the transferor's death.

For a TODD to be effective, its beneficiary is not required to be notified of the TODD, to be delivered the TODD, or to accept the TODD, during the transferor's lifetime.  However, a designated beneficiary may disclaim all or part of such beneficiary's interest in the property once the designated beneficiary learns of the TODD.  The beneficiary must survive the death of the transferor by 120 hours. If the beneficiary accepts the property, the beneficiary takes the property subject to any existing liens, encumbrances, mortgages or other third party interests.

TODDs are effective only if signed on or after September 1, 2015, by a transferor who dies on or after September 1, 2015.

The complete text of the Texas Real Property Transfer on Death Act, including an optional form of TODD and an optional form of revocation of a TODD (each of which is included in Subchapter D of the TODA), is available here.

Sunday, October 11, 2015

Praise for "The Boom"

Last month I had the pleasure of attending an event at TCU at which Russell Gold was the keynote speaker.  The event was part of the "Leaders in Energy" speaker series sponsored by the TCU Energy Institute.  Russell Gold is the Senior Energy Editor at the Wall Street Journal and the best-selling author of "The Boom: How Fracking Ignited the American Energy Revolution and Changed the World."

I read "The Boom" recently and cannot recommend it highly enough for anyone interested in the energy industry, technology, the environment, the North Texas history and economy, or the world economy. The book explores history, technology, and personalities that have developed and exploited hydraulic fracturing (a/k/a "fracking") to change the oil and gas industry, which is in turn changing the world. Although it no doubt increases my interest in the book that some of our own clients and my own friends are mentioned and quoted in its pages, I suspect that most readers would find the material in the book interesting and well organized and presented.

It is hard to believe how much the world has changed since the first successful modern frack of a natural gas well in shale rock was conducted by Mitchell Energy on the S.H. Griffin #4 well in Ponder, Texas on June 11, 1998.

Given that generally everybody in the oil and gas business credits George P. Mitchell of Mitchell Energy with being the father of modern fracking, this blogger cannot help but wonder why more public buildings, roads or other public structures have not been named after him, especially here in Tarrant County, the heart of Barnett Shale country.

Here's a picture of Mr. Gold signing my copy of "The Boom":

Sunday, September 13, 2015

Heroes and Devils

One of the cool things about practicing law at a firm that is 130+ years old is that it seems I'm always hearing new bits of our firm's history.  

A recent example is an article in the August 24-30 issue of Fort Worth Business about H.H. Holmes, America's first serial killer.  Mr. Holmes and his murder spree at the 1893 World's Fair in Chicago was the subject of the best selling book by Erik Larson titled "Devil in the White City."  

According to the article, the co-founder of Cantey Hanger LLP (originally Capps & Cantey), Willam Capps, represented three of Mr. Holmes's victims, and Mr. Capps's investigation of their mysterious deaths was a factor in Mr. Holmes choosing to depart from Fort Worth before completing construction of the "murder manor" Mr. Holmes was building in downtown Fort Worth near the present-day Mercury Chop House. Mr. Holmes used a similar "Murder Castle" that he built in Chicago as the venue to torture and kill many of his victims.

Hence, our firms intrepid founder's investigation may well have saved the lives of many Cowtown residents by hastening Mr. Holmes's exit from town before the murder manor could be completed and placed into operation. Well done, Mr. Capps, well done.

Monday, August 17, 2015

The Endless Shareholder Agreement

Congratulations to the Texas legislature for authorizing the Endless Shareholder Agreement.

Virtually every closely held private corporation should have a shareholder agreement to address, if nothing else, restrictions on transfer of the shares. Otherwise, you may find that one of your fellow shareholders has transferred his shares of the company's stock to the company's biggest competitor, or worse yet, your ex-wife!  Shareholder agreements are especially important for a corporation taxed as an S-corporation, because a transfer of shares to a person who is not eligible to be a shareholder of an S-corp can terminate the company's S-corp status and result in adverse tax consequences for the company's shareholders. Shareholder agreements can also address other issues, such as establishing a procedure for shareholders to buy or sell each other's shares (i.e., a buy-sell agreement), modifying shareholders' statutory voting rights or strengthening shareholders' information rights.

But for shareholder agreements adopted prior to September 1, 2015, there has been a trap for the unwary.  Under Section 21.102 of the Texas Business Organizations Code (TBOC),  shareholder agreements were only effective for ten years unless the agreement provided otherwise. Thanks to recently adopted S.B. No. 860, which amends Section 21.102 of the TBOC, however, the default assumption for shareholder agreements will flip on September 1, 2015.  Shareholder agreements adopted after that date will be effective forever unless the shareholder agreement provides otherwise. Shareholder agreements adopted before that date will continue to be subject to the 10-year limit under the prior law, unless the agreement provides otherwise.

The new law is probably more consistent with shareholders expectations and is therefore a step forward for Texas business law.       

Saturday, August 1, 2015

M&A and the Wisdom of Seinfeld - Vol. 2

George Costanza: That's why I'm different. I can sense the slightest human suffering.
Jerry Seinfeld: Are you sensing anything right now?

This is my second blog post in my occasional series on "M&A and the Wisdom of Seinfeld."  You can read my first blog on knowledge qualifiers here.  I'm a big believer in the notion that practically every aspect of our lives has been commented upon in a Seinfeld episode!

The exchange between George and Jerry above is a great example of the importance and utility of materiality qualifiers in an M&A transaction.  Materiality qualifiers help ensure that parties to an M&A transaction aren't unduly damaged by the slightest suffering.  Let me explain.

Let say BigCo wants to acquire TargetCo and the parties enter into an asset purchase agreement (APA) with a purchase price of $50 million. The APA includes numerous representations and warranties by TargetCo, including a representation that TargetCo's financial statements are true and correct in all respects.  Suppose also that one of BigCo's conditions to closing the APA is that all representations and warranties of TargetCo are true and correct in all respects. Finally, let's suppose the indemnification provisions of the APA permit BigCo to sue TargetCo for the breach of any representation or warranty, whether or not BigCo knew about the breach prior to the closing.  

Now assume that after the APA is signed but before the transaction closes BigCo determines that the amount of cash on TargetCo's balance sheet was misstated by $2.37.  Under a strict reading of the APA, BigCo can now weasel out of the deal and refuse to close!  One of TargetCo's representations and warranties was false, so one of the conditions to BigCo closing the deal cannot be satisfied, and BigCo can walk.

Suppose instead that TargetCo had represented and warranted only that its financial statements were true and correct "in all material respects."  Or suppose the closing condition only required representations or warranties to be true and correct in all material respects.  In either case, arguably the $2.37 misstatement would be deemed immaterial in the context of a $50 million transaction, and if BigCo wanted to walk the deal, it would be forced to try to find another reason to do so. 

Likewise, if TargetCo had added a materiality qualifier to the representation and warranty regarding the accuracy of its financial statements, or if the indemnification provisions of the APA included a materiality qualifier, TargetCo could avoid being sued for a breach of the APA as a result of the financial statement error (again, assuming the $2.37 misstatement was indeed immaterial with respect to the transaction).             

Thursday, July 16, 2015

Drones Ahoy!

This week I had the pleasure of attending the Unmanned & Autonomous Systems (UAS) Consortium, which is sponsored by the North Texas Association of Manufacturers (NTAM) and the Arlington Chamber of Commerce's Center for Innovation (CFI).

Unmanned & Autonomous Systems (a/k/a drones) are getting more important and more common every day for military operations, hobbyists, news and entertainment, agriculture, and many other areas.

According to their website, which is available here, the UAS Consortium was formed "for the research, development, implementation and commercialization of new technologies to improve all aspects of the unmanned aircraft system industry, and the related education and training needed to ensure a competitive workforce."

North Texas is the perfect place to hold such a consortium because of the many aviation industry participants and defense contractors that call this area home.  This week's consortium featured presentations by representatives of NTAM, who manages the UAS Consortium, Romeo Engineering, who designs and builds some amazing machinery for the defense industry and private industry, and Texas Tech University, where some important research on drones is being conducted.

The North Texas area is lucky to have so many leaders in the emerging UAS industry.

If you'd like to learn more about the use of drones in Texas, my partner, Scott Fredricks, recently published an article on the use of drones in Texas which is available here.