Powerscreen Simulation Memo

Re: PowerScreen Simulation Memo (We were attorneys for Hacker)

Question 1: Did you get a wise outcome?

Our outcome was optimal because we conducted our negotiations with rationality and empathy. We quickly arrived at a place of compromise by taking into consideration the interests of all parties involved while distilling the core matters that we focused on throughout our negotiations.

Success for both parties meant keeping the business in tact but allowing for both Hacker and Star to focus on their specific interest in the company. For Hacker, it meant more time to focus on R&D while receiving recognition for his work. For Star, it meant managing risk and allowing the business to develop in a manner that is most compatible with the financial health of the company.

The topics of interest and final outcomes are such:

1. Management Structure: Mostly importantly, both sides were able to recognize and agree that keeping the company intact was not only beneficial for both parties but also made the most sense financial. The lawsuit was quickly dropped and disregarded as a topic of discussion. In addition, in order for the company to functional properly and harmoniously in the future, we agreed that each person should focus on a role that utilized their expertise and allowed them to maximize their contribution to the company. These are the new roles:

a. Hacker will take on the role of head of R&D - This way he can focus solely on development while not being pulled in managing the day to day operations.

b. Star will take on the role of CFO - As a primary investor in the company; Star will focus on the financial health of the business and allow other to take care of strategic development and marketing decisions.

c. Hire an individual to take on role CEO/Business Development - In order for Star and Hacker to focus on their fields of expertise, the person in this role was crucial to the future success of the organization. In this role, the CEO/ Business Development will make the strategic and marketing decisions.

2. Additional Funding: Both parties were able to quickly identify that in the current state, additional funding was necessary. While it was important for Star to maintain majority control of the company, in order to find and attract a CEO caliber talent to the company they needed help. This, allowing VC investment of $300K in exchange for 30% share of company provided not only an infusion of financial support but a network of talent.

3. New Contracts: With the involvement of a VC investor, we (Hacker) felt ensured that items 1 and 2 above would be realistically feasible. This meant that the company had a better strategic guidance and thus will turn the corner in cash flow issues. Therefore, the new contracts were drawn highlighting the following:

a. Hackerstar Inc is committed to launch at least 1 new R&D project given the projected financials indicate a positive cash flow.

b. Employment contract re-signed with Hacker staying on for a minimum of 8 years.

4. Incentive Structure: Last but certainly the corner stone of the discussion was incentive for Hacker. This was an important piece of the discussion because the long term success of the company depended upon Hacker's motivation to continue to develop innovative new software. Both parties were very keen to agree to Hacker receiving 10% of the profit made in the first year by any new product.

Question 2: Lessons learned from preparation

We had some major question before we started preparing:

1. What are the implications if we dissolve the firm?

2. How would the $220K litigation payment be handled?

3. Does it make sense to keep Hacker and Star under the same firm? Buyout option?

4. If we keep them under the same firm, how to keep them apart yet maintain the control.

5. What if we bring in external investor? What would be the reaction of Star while giving up a percentage of company? What percentage share could we collectively give up? How would we structure the deal?

6. How to manage cash flow issues? What if the PS sales aren't enough? Is it really worth litigating?

7. Etc..etc...

The preparation enabled us to organize these thoughts and then formulate plan of action based on the situation we come across during negotiation with Star's attorneys. We could identify various possible outcomes based on how the counter party could react to our proposal. Once we identified their interests rest was up to our creativity to craft an attractive and "Yessable" deal. The common interests played an important role based on which we could create an offer that would be hard to refuse.

In the heat of keeping our counterpart's interests in mind, we end up neglecting our client's interests. Although we identified various options but we focused more on the viability of the business operations rather than on our client's interests. No doubt, as a result we were able to craft a creative deal but it was in long term. As our client's priority - to maintain recognition of work, appropriate compensation, enhanced marketing budget, and avoid similar issues in future - we did not address all of these effective immediately. The issues were supposed to be resolved first but we focused on firm's growth more than our client's interests.

Secondly, we missed certain details; Star's attorney proposed that Star is willing to pitch in $200K into the venture whereas Star, according to case details, mentioned that "he will not invest even a dime more at this moment". Due diligence is very important and we should have had all these details handy before negotiation.

Question 3: Lessons learned during the actual negotiation

Although, we missed our client's interests but our counterparts we not adequately focused and prepared either. They misrepresented the information - Star is willing to loan out $200K - about their client that we without further investigation readily relied upon. Although they started out good, very focused but our attractive offer to create value for everyone in long term and for the growth of the company, they got off track too. It is important to keep your own interest in mind and stay focus.

Although, we prepared well, at least we thought so, but we