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Ask HN: Any recourse for a f***ed contract?
Hi HN!
Way back in ~2011 I advised a startup, Company1, and got a contract for a small portion of equity in exchanging for advising them. I did some r&d work for them and completed the contract.
They moved to SF, I moved to SF, we had a conversation: hey the contract is done, but please keep coming by, after all this only has value if there’s an exit. I did off and on for maybe 1-2 years after end of contract.
THE DUMB THING I DID: I misread the contract. I needed to execute the contract right at the end of the 2y advising window. It had a clause, options would be good for ~7 years. I misread that as time to execute. I was wrong. The big moral: get legal advice.
Company1 is about to merge with Company2 for a $3bn valuation. I don’t think there’s any recourse at this point (I had a talk with a founder two years ago who was apologetic but said there was nothing to be done,) and I wonder - is there any recourse at this point? Or can I just write up the story and share it so that someone else new to advising doesn’t get f**ed the way I did?
Clearly the mistake is mine. Curious if there any avenues I am missing.
Thanks!
- toomuchtodo 5y ago> The big moral: get legal advice. Have you spoken with an attorney to have a consultation to review your contract and explore if you have any recourse? If not, that’s the first thing on your todo list tomorrow morning. I personally recommend George Grellas [1]. [1] https://news.ycombinator.com/user?id=grellas https://news.ycombinator.com/user?id=grellas
- _asql 5y agoThank you. Of course. I pulled up some lawyers to talk to tomorrow morning. Will post back.
- deleted 5y ago[deleted]
- _asql 5y agoThank you for the specific recommendation - will write now and call in the morning.
- toomuchtodo 5y agoGood luck, I wish you a positive outcome.
- cormacrelf 5y agoI can’t believe people are directly asking for legal advice on HN. Lawyers don’t don’t give out legal advice on the internet for free. OP, You might find one on here but don’t read any apparent advice; the comments will self-select against being legal advice. Nobody here has read your contract and not even a lawyer can answer your questions based on this information. Don’t take that as a hint to post more information! Your counterparty probably reads HN too. (Edit: there you go, post above edited to include a referral.) (Edit 2: OP should probably delete the substantive parts of their post or just delete the entire thing. It will show up on Google and their lawyers will find it.)
- deleted 5y ago[deleted]
- _asql 5y agoI mean I know it's obvious but talk to a lawyer ASAP was what I needed to hear. Honestly I've just bottled my feelings about this for years and then they're pretty blinding uncorked. Lawyer is correct.
- cormacrelf 5y agoCan I reiterate that you should ask HN admins to delete this post in its entirety? Highlighting from the reasons I linked above about why public message boards are a bad place for legal assistance -- > *If there are actual or threatened legal proceedings, anything posted on this website may potentially be used in evidence against a person.* At the very least, tell the lawyer you end up hiring that you posted this. They would really, really want to know.
- TechBro8615 5y ago> Lawyers don’t don’t give out legal advice on the internet for free Why not? They some kind of information cartel running some kind of racket?
- cormacrelf 5y agoIt's not information that is protected, it is the giving of advice. Giving it away without establishing a formal, confidential relationship with accountability is bad for so many reasons. Probably the biggest one is that if lawyers do it, they can be fined, or face other disciplinary action by their professional body. Go to any for-lawyers-by-lawyers subreddit and they will happily explain why. Here's the Australian /r/AusLaw's explanation, linked in the sidebar and in a advice-request-detector bot: https://www.reddit.com/r/auslaw/comments/zuv4m/why_cant_we_provide_legal_advice_in_this_subreddit/ https://www.reddit.com/r/auslaw/comments/zuv4m/why_cant_we_p...
- ghufran_syed 5y agoGet legal advice straight away, from someone with experience in this area. Honestly, even if you don’t have a strong case, the company would have to disclose a lawsuit to the purchasing company. So they are likely to settle just to avoid detailing or delaying the acquisition. Facebook settled with the winklevoss twins, and they had a pretty weak case too…
- fy20 5y agoThis is why freelancers and contractors should not accept lower (or no) pay in exchange for equity. Even if you do get something on paper that says you own equity, there are so many ways they can screw you over to avoid actually paying you in the end.
- chrisandchris 5y agoAnd how is that different from the persoective of an employee?
- inshadows 5y agoCould you please explain the option thing in the contract? I don't understand what this means "It had a clause, options would be good for ~7 years. I misread that as time to execute."
- _asql 5y agoI needed to execute the contract within sixty days of the advisor contract ending. The options would then be good for 7 years after. I misread it: I thought I had 7 years to execute the contract.
- LurkingPenguin 5y agoYou should speak to a lawyer ASAP obviously but I'm confused: you signed a contract that required you to sign the contract at the end of the contract?
- intev 5y agoI think they meant they got options which they can execute at a fixed price within a limited amount of time after their tenure. Most early stage companies give their (ex) employees a small window to execute these options after they leave.
- _asql 5y agoWhat intev said
- LurkingPenguin 5y agoOk, the OP's wording was weird. If this is the case, basically he was granted stock options and failed to exercise them, which would have also had tax consequences since they must have been NSOs if he wasn't an employee. Not quite fair for the OP to talk about the contract being "f**ed" and using the word "recourse", as if the company did something wrong.
- a-dub 5y agokind of a wild idea: have you considered contacting both management teams, explaining the situation and asking if they'll write you a new contract that retroactively allows you to put things in a state as if you had exercised? you did work for them in good faith, they offered renumeration in good faith. you made a mistake which leaves you out the equity... if they really did intend to compensate you with the equity, i see no reason why they couldn't do it retroactively now. they may at first blush just interpret the old agreement without thinking, but if they intended for you to end up with that equity, why wouldn't they make it right now... before lawyers get involved.
- Meph504 5y agoThere are tons of reasons why a company wouldn't give up millions of dollars. if his percentage was say even just 3% that would be in the neighborhood of $90,000,000. Now, if they do this, how many potential others may come back with similar claims. Also, consider that every investor that made the choice to invest wasn't aware of this, and rightly so as the window had closed, That ends up a lot to unpack, and a lot of possible legal issues, and I'm sure that merger did not include that debt. It just wouldn't be practical, and may not even be legal.
- a-dub 5y agoif i was running a company, and this happened to someone who helped me in the founding days in a material way, i would do whatever was necessary to make them whole. ideally there wouldn't be any others who would come back with similar claims, because if you did your job right, they wouldn't lose their comp on a legal technicality. isn't that a big reason why you have leaders and executives, to make things right when things don't go as planned?
- gtsteve 5y agoI'd do this if I were OP. There is nothing to lose. It certainly seems to me as a non-lawyer that if the facts are as they are written it would be at their discretion. Perhaps the original deal won't be honoured but a token payment for good karma could happen. It could still be significant given the numbers involved. I would personally have not named the companies in a post on HN though. I suggest the OP edit this if they still can.
- dweekly 5y ago1) All options expire. Liquidity timelines are such that expiration of some options predates a liquidity event. This is not unusual or the company trying to screw you over. 2) As an advisor, you should ask for early exercise 83(b) rights on your options at time of issue and avail yourself of that right immediately. (Don't forget to file the 83b timely with the IRS!!) You should also ask for full acceleration on change of control. I once helped a startup land some key hires and was 1/24 of the way through my advisor vesting when they were acquired and I didn't have an acceleration clause. Really beat myself up on that one. Overall shareholders have a lot more rights and privileges than option holders. Exercising does take capital but it starts both the long term cap gains clock (1yr) as well as QSBS (5yr) if company valuation is <$50m (and if you're part of the first $1m in, if the company goes belly up you'll get to claim Section 1244 loss against ordinary income!). Shares don't expire - though yes of course they can get diluted or become worthless via giant reverse splits etc.
- deleted 5y ago[deleted]