Start-Up & Emerging Companies: Planning, Financing & Operating the Successful Business with Forms

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by Gregory C. Smith, With Contributing Experts

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Here's all the practical information you need to organize, finance and run a new enterprise. Start-Up & Emerging Companies: Planning, Financing & Operating the Successful Business brings you the legal and business savvy of leading experts from law, investment banking and venture capital firms. You'll find extensive coverage of: the venture financing process and negotiating strategies; corporate, securities and tax laws; corporate governance; registration and investor rights; the interplay between business and legal considerations; limited liability companies; joint ventures and strategic alliances; employee benefit plans; stock options; contracts; accounting procedures; intellectual property strategies; merger agreements and ancillary documents; exit strategies; and developments in Internet law and e-commerce.

In addition, this book features over 75 sample forms, clauses, agreements, checklists and term sheets online, including: documents for use in the formation of a corporation; organizational resolutions; employment agreements and offer letters; and forms for meetings of shareholders and boards of directors. For anyone starting a new enterprise or overseeing its growth, this is the ideal legal guide.

Book #00592; looseleaf, two volumes, 2,113 pages; revised edition published in 1997, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-031-9.

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  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 2113
  • ISBN: 978-1-58852-031-9
  • Pub#/SKU#: 592
  • Volume(s): 2
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  • Gregory C. Smith
Gregory C. Smith. (Editor and author of Chapter 4 “Federal Securities Law Considerations of Raising Capital: A Practical Guide,” Chapter 8 “Venture Capital Analysis and Negotiation,” Chapter 9B “Registration and Investor Rights Agreements” and Chapter 23 “Sample Start-Up Company Forms” and other designated Sections). Mr. Smith is the founding partner of Woodside Counsel, P.C., a boutique law firm that specializes in the representation of start-up and emerging growth companies and the investors and professionals that work with them. Previously, Mr. Smith practiced corporate law for over twenty years at the law firms of Skadden, Arps, where he assisted with the opening of their Palo Alto office and served as a corporate partner for over a decade, and Cooley Godward, where he also served as a corporate partner. 
Mr. Smith has significant experience in the areas of corporate finance, mergers and acquisitions, licensing and partnering transactions and corporate restructurings for public and private companies, both internationally and domestically. He has also represented numerous underwriters and financial advisors in a broad array of financing, restructuring and acquisition transactions. 
Mr. Smith has been selected for inclusion in publications such as Chambers Global: The World's Leading Lawyers and Chambers USA: America’s Leading Lawyers for Business. He also was one of the “Top Twenty Under Forty” in 2002 in the California Law Business section of The Daily Journal. 
Mr. Smith has an active interest and background in music and the performing arts. While at Stanford University, he was winner of the Stanford Concerto Competition (piano) and the Dean of Humanities and Sciences Award in music. In addition, he has appeared as a soloist with the Utah Symphony on several occasions and continues to perform from time to time. Mr. Smith has served on the Board of Directors of the Friends of Music at Stanford University.
Mr. Smith received his B.A. from Stanford University in 1985 with a double major in music and history (with distinction; Phi Beta Kappa) and his J.D. from Columbia Law School in 1988, where he was a Harlan Fiske Stone Scholar.

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  • With Contributing Experts

Thomas J. Ivey - Skadden, Arps, Slate, Meagher & Flom, Palo Alto, CA

Stephen C. Ferruolo - University of San Diego School of Law, San Diego, CA

Ronald S. Laurie - Inflexion Point Strategy, LLC, Palo Alto, CA

Jack S. Levin and Jeffrey T. Sheffield - Kirkland & Ellis, Chicago, IL

Kenton J. King - Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto/San Francisco, CA

Susan Cooper Philpot - Cooley LLP, San Francisco, CA

Kristin Major - Hewlett-Packard, Palo Alto, CA

Alan E. Salzman - Vantage Point Venture Partners, San Francisco, CA

Mark G. Borden - Wilmer Hale LLP, Boston, MA

Joseph Yaffe  - Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto/CA

James D. Marver - Vantage-Point Venture Partners, San Francisco, CA

Scott Joachim - Fenwick & West LLP, Mountain View, CA

Hina Ahmad - Capital Dynamics, Inc., New York, NY

Jay Dratler, Jr. - University of Akron, Akron, OH

Henry P. Massey, Jr. - Wilson Sonsini Goodrich & Rosati, Palo Alto, CA

Gregory V. Varallo - Richards, Layton & Finger, Wilmington, DE
Daniel I. DeWolf - Dawntreader Ventures, New York, NY
Richard S. Kolodny - The Portfolio Group, Los Angeles, CA
Jerome S. Engel, CPA - University of California, Berkeley, CA

Joseph Yang - PatentEsque Law Group, LLP, Menlo Park, CA

Derek Willis - General Counsel, Volusion, Inc., Austin, TX

Thomas C. Klein - General Counsel, Persistent Systems, Ltd., Santa Clara, CA

Michele Kulerman - RCS Capital, New York, NY

Anna B. Pope - Cooley LLP, San Francisco, CA

Volume 1

Initial Decision on Choice of Entity

John B. Power and Richard S. Kolodny
§1.01 Scope of Chapter
[1] Introduction
[2] Overview of Chapter
§1.02 Summary of Major Considerations in Choice of Entity
[1] Checklist of Characteristics
[2] Additional Factors to Consider
§1.03 Preliminary Considerations
[1] Introduction
[2] Gathering Information
[3] Regulatory Considerations
[4] Governing Law
[5] Formation and Maintenance Costs
[6] Deadlock and Dissolution
§1.04 The Role of Counsel
§1.05 Sole Proprietorships
[1] Fundamental Characteristics
[2] Formation and Maintenance Costs
[3] Governing Law
[4] Continuity of Existence
[5] Transferability of Interests
[6] Ease of Changing the Entity
[7] Conclusion
§1.06 General Partnerships
[1] Preliminary Considerations
[2] Governing Law
[3] Formation of the General Partnership
[4] Formation and Maintenance Costs
[5] Informal Partnerships
[6] Liability for Partnership Obligations
[7] Management and Control
[8] Mutual Agency of Partners
[9] Fiduciary Relationships
[10] Continuity of Existence
[11] Transferability of Interests
[12] Conclusion
§1.07 Limited Partnerships
[1] Preliminary of Considerations
[2] Formation of the Limited Partnership
[3] Formation and Maintenance Costs
[4] Governing Law
[5] Limited Liability
[6] Management and Control
[7] Fiduciary Relationships
[8] Continuity of Existence
[9] Transferability of Interest
[10] Conclusion
§1.08 Corporation
[1] Preliminary Considerations
[2] Formation of the Corporation
[3] Formation and Maintenance Costs
[4] Governing Law
[5] Limited Liability
[6] Piercing the Corporate Veil
[7] Management and Control
[8] Fiduciary Obligations of Directors and Officers
[9] Continuity of Existence
[10] Transferability of Interests
[11] Accommodation to Alternative Forms of Capitalization
[12] Statutory Close Corporations
[13] Conclusion
§1.09 Specialized Entities
[1] Overview
[1A] Limited Liability Companies
[2] Joint Ventures
[3] Professional Corporations
[4] Business Trusts
[5] S Corporations
[6] Limited Liability Partnerships and Limited Liability Limited Partnerships
§1.10  Indemnification and Insurance
[1]  Overview
[2]  Indemnification
[3]  Indemnity Agreements
[4]  Director and Officer Insurance
§1.11  Form: Indemnification Agreement (Delaware Corporation)

Legal Mechanics of Organizing Corporations

Mark G. Borden
§2.01 Introduction
§2.02 Selection of Corporate Name
§2.03 Choice of State of Incorporation
[1] Consideration for Issuance of Stock
[2] Stockholder Consents
[3] Voting Agreements
[4] Election of Directors
[5] Number of Directors
[6] Appraisal
[7] Call of Stockholders Meetings
[8] Anti-Takeover Statutes
§2.04 Articles of Incorporation
[1] Name of the Corporation
[2] Purposes and Powers
[3] Authorized Capital
[4] Name and Address of Resident Agent
[5] Duration
[6] Other Permissive Provisions
[7] Filing of the Articles
§2.05 Bylaws
[1] Meetings of Directors
[2] Voting Rights
[3] Officers
[4] Indemnification
[5] Fiscal Year
§2.06 Organizational Meeting of Directors
§2.07 Other Mechanical Steps
[1] Corporate Seal
[2] Stock Book and Minute Book
[3] Application for Employer Identification Number
§2.08 Certain Tax Considerations
[1] Section 351
[2] Thin Capitalization
[3] Organizational Expenses
§2.09 Foreign Qualification
§2.10 “Doing Business as” and Fictitious Business Names
§2.11 State Information Filings
§2.12  Reports to Shareholders
§2.13 Other Agreements
§2.14 Form: Sample Organizational Resolutions

Mechanics of Forming Partnerships

Susan Cooper Philpot
§3.01 Introduction
§3.02 Formation Documents
[1] General Partnership
[2] Limited Liability Partnership Registration
[3] Certificate of Limited Partnership
[4] Certificate of Limited Liability Limited Partnership
[5] Limited Liability Company Articles of Organization
§3.03 The Partnership Agreement
[1] Name
[2] Term
[3] Purpose
[4] Designation of Agents and Officers
[5] Admission of Partners
[6] The Capital Account
[7] Capital Contributions
[8] Allocations of Profits and Losses
[9] Distributions
[10] Governance
[11] Compensation of Management
[12] Fiduciary Duties; Exculpation and Indemnification
[13] Meetings and Voting
[14] Transferability of Interests
[15] Buy/Sell Arrangements
[16] Books and Records
[17] Withdrawal and Expulsion
[18] Dissolution and Termination
[19] Amendments
§3.04 Other Partnership Formation Matters
§3.05 Special Considerations for Partnership Entities
[1] Income Tax Treatment
[2] Cost and Complexity of Formation and Maintenance
[3] Raising Capital
[4] Employee Equity Incentives
[5] Acquisition Structures
[6] Exit Strategies
§3.06 Businesses Best Suited to the Partnership Form
§3.07 Form:Sample Limited Liability Company Operating Agreement
[1] Introduction
[2] Sample Form

Federal Securities Law Considerations of Raising Capital: A Practical Guide

Gregory C. Smith §4.01 Overview
§4.02 Statutory Framework
[1] The Concept of a Security
[2] An “Offer”
[3] A “Sale”
[4] Section 5 of the Securities Act
§4.03 Exemptions
[1] Private Placement Exemptions
[2] Other Exemptions
[3] Integration of Public Offerings and Private Placements
[4] Minimum/Maximum and All-or-None Offerings
[5] Placement Agents or other Selling Representatives
§4.04 Antifraud Disclosure Obligations
[1] Section 12(a)(2) of the Securities Act
[2] Rule 10b-5 of the Exchange Act
§4.05 Remedies
[1] Violations of the Registration Requirements of Section 5—Section 12(a)(1)
[2] Violations of the Antifraud Provisions
§4.06 Chart Summarizing Exemptions

State Securities Laws Considerations of Raising Capital

Bruce E. Johnson
§5.01 Introduction
[1] Overview of the State Securities Laws
[2] Applicability
[3] Registration or Exemption? Development of the State Securities Laws
§5.02 Development of the State Securities Laws
§5.03 Jurisdictional Bases
[1] Summary
[2] “Offer” or “Sale”
[3] “Security”
[4] “In the State”
§5.04 Raising Capital—Exemptions from Registration
[1] Registration Requirement
[2] Exemption for the Security
[3] Exemption for the Transaction
[4] Organizational Exemptions
[5] Exemption for Small Offering
[6] Institutional Investor Exemption
§5.05 Rule 506 Limited Offering Pursuant to Regulation D
[1] Background
[2] Requirements for Rule 506 Offering
[3] State Notice Filing Requirements
[4] Sales Commissions
[5] New York
§5.06 Exemption for Limited Public Solicitation of Accredited Investors
[1] Generally
[2] General Announcement of the Offering
[3] Electronic Posting and Delivery of Additional Information
[4] Conditions of Exemption
§5.07 Unusual Limited Offering Exemptions
[1] Summary
[2] California
[3] New York
[4] Texas
§5.08 Uniform Limited Offering Exemption (ULOE)—Regulation D
[1] Background
[2] Election of Rule 505 Exemption
[3] Rule 505—Provisions of the ULOE
§5.09 Employee Benefit Plan Exemptions
[1] Summary
[2] State Exemptions Based on Rule 701
[3] Benefit Plan Exemptions
[4] Coverage of the Plan
§5.10 Broker-Dealer and Agent Registration Exemptions
[1] Summary
[2] Broker-Dealer Registration or Exemption
[3] Agent Registration Exemptions
§5.11 Public Offering Pursuant to Rule 504 of Regulation D or to Regulation A
[1] Registration of Securities for a Small Public Offering
[2] Qualification Procedures
[3] Review Standards
[4] Small Corporate Offering Registration
[5] Selling Agent
§5.12 Coordinated Equity Review
§5.13 Civil and Criminal Liabilities
[1] Summary
[2] Administrators Powers
[3] Criminal Penalties
[4] Civil Liabilities


The Venture Financing Process

Alan E. Salzman and L. John Doerr§7.01 Overview
§7.02 Developing a Company Financing Strategy
[1] The Key Components
[2] Determining Capital Requirements
[3] Evaluation of Financing Alternatives
[4] Relationship of the Financing Strategy and the Business Plan
[5] Valuation
§7.03 The Business Plan
[1] Overview: The Functions of a Business Plan
[2] Executive Summary
[3] Company Description
[4] Management
[5] The Product
[6] Marketing and Sales
[7] Manufacturing Operations
[8] Corporate Organization
[9] Financial Statements and Projections
[10] Appendices
§7.04 Working with Venture Capitalists
[1] Overview and Objectives
[2] Initial Contacts
[3] Presentation
[4] Due Diligence
[5] Negotiations and Closing
§7.05 Form: Term Sheet for Venture Capital Investment

Venture Capital Analysis and Negotiation

Gregory C. Smith§8.01 Overview
§8.02 Analysis and Negotiation of Key Provisions
[1] Valuation and Capitalization
[2] Investor Participation
[3] Terms of the Security
[4] Investor Rights Agreement
[5] Co-Sale and Right of First Refusal Agreements
[6] Stock Purchase Agreement
[7] Additional Provisions
[8] Optional Provisions
§8.03 Down-Round Term Sheets
[1] In General
[2] Gross-Up Provisions
[3] Preference and Participation
[4] Voting
[5] Forced Conversion
[6] Drag-Along Rights
[7] Anti-Dilution
[8] Pay-to-Play
[9] Fiduciary Duty
[10] Management Considerations
§8.04 Form: Standard Term Sheet
§8.05 Form: Simple Term Sheet
§8.06 Form: Down-Round Term Sheet

Stock Purchase Agreements

Henry P. Massey, Jr. and Derek Willis§9.01 Overview
§9.02 Discussion of Important Provisions
[1] Representations and Warranties
[2] Conditions to Closing
[3] Covenants of the Parties
[4] Restrictions on Transfer and Registration Rights
[5] Other Provisions
§9.03 Form: Investor Stock Purchase Agreement
[1] Introduction
[2] Form of Investor Stock Purchase Agreement with Commentary
§9.04 Form: Right of First Refusal and Co-Sale Agreement
[1] Introduction
[2] Form of Right of First Refusal and Co-Sale Agreement with Commentary
§9.05 Form: Put Agreement
[1] Introduction
[2] Form of Put Agreement
§9.06 Form: Voting Agreement
[1] Introduction
[2] Form of Voting Agreement
§9.07 Form: Management Rights Letter Agreement
[1] Introduction
[2] Form of Management Rights Letter
§9.08 Form:Employee Restricted Stock Purchase Agreement
[1] Introduction
[2] Form of Employee Restricted Stock Purchase Agreement with Commentary
[3] Form of Spousal Consent with Commentary
§9.09 Form:Escrow Instructions for Escrow of Employee Stock

Amended and Restated Certificate of Incorporation

Stephen C. Ferruolo§9A.01 General
§9A.02 Why Preferred Stock
[1] Financial, Operational and Tax Considerations
[2] Choice of Jurisdiction; Special Considerations for Companies with California Operations
§9A.03 Terms of Preferred Stock
[1] Number of Shares; Par Value; “Blank Check” Provision
[2] Dividends
[3] Liquidation Preference
[4] Redemption
[5] Conversion Rights
[6] Voting Rights
[7] Amendments to Bylaws
[8] Limitation of Liability; Indemnification
§9A.04 Corporate Approvals of Amendments to the Certificate of Incorporation
§9A.05 Preferred Stock Conversion/Anti-Dilution Examples
[1] Introduction and Abbreviations
[2] Basic Conversion Formula
[3] Anti-Dilution Provisions
[4] Where the Action Is
[5] Mechanics/Results
[6] Comparative Charts
§9A.06 Form: Amended and Restated Certificate of Incorporation
[1]  Introduction
[2] Form of Amended and Restated Certificate of Incorporation

Registration and Investor Rights Agreements

Gregory C. Smith
§9B.01 Overview
§9B.02 Analysis of Key Provisions
[1] Restrictions on Transfer
[2] Registration Rights
[3] Other Investor Rights and Restrictions
[4] Company Covenants
[5]  Miscellaneous
§9B.03 Form: Investor Rights Agreement

The Private Placement Memorandum

Douglas A. Tanner
§10.01 Introduction
§10.02 Legal Framework
[1] Overview
[2] Regulation D
[3] Section 4(2) Requirements
[4] Antifraud Protection
[5]  Regulation FD
[6] Plain English Requirements
§10.03 Introductory and Summary Material
[1] Cover Page
[2] Summary Information
[3] Suitability Standards
§10.04 Risk Factors
[1] Discussion
[2] Sample Disclosure
§10.04 AForward-Looking Statements
§10.05 Description of the Offering
[1] Securities Offered
[2] Use of Proceeds
[3] Dilution
[4] Plan of Distribution
[5] Interests of Named Experts and Counsel
[6]  Rule 155(c) Disclosure
§10.06 Description of the Company
[1] Description of the Business
[2] Properties
[3] Legal Proceedings
[4] Trading Market and Dividend Information
§10.07 Management and Ownership Information
[1] Directors and Executive Officers
[2] Executive Compensation
[3] Security Ownership of Major Holders and Management
[4] Certain Transactions
§10.08 Financial Information
[1] Financial Statements
[2] Capitalization
[3] Selected Financial Data
[4] Management’s Discussion and Analysis of Financial Condition and Results of Operations
[5] Projections
§10.09 Additional Information and Exhibits
[1] Tax Disclosures and Opinions
[2] Other Material Information
[3] Exhibits
§10.10 Special Disclosures for Partnership Offerings
§10.11 Form: Officers and Directors Questionnaire
[1] Discussion
[2] Sample Form
§10.12 Form: Subscription Agreement
[1] Discussion
[2] Sample Form

Employment Agreements

Jack H. Nusbaum & Laurence D. Weltman
§11.01 Overview
§11.02 Important Provisions
[1] Scope of Duties
[2] Salary and Other Benefits
[3] Confidential Information
[4] Development of Inventions, Trade Secrets and New Business Ideas
[5] Termination of Agreement
[6] Competition After Termination
[7] Remedies for Breach of Agreement
[8] Key Man Life Insurance
[9] Assignability
§11.03 Form:Employment Agreement for Founder/Entrepreneur
§11.04 Form:Employment Agreement for Key Employee
§11.05 Form:Employment Agreement with President Coupled with Stock Option Grant
§11.06 Form: Confidential Invention and Assignment Agreement for Employee
§11.07 Form: Checklist of Employment Agreement Issues from the Employee’s Perspective
§11.08 Form:Sample Offer Letter to Prospective Employee with Option Grant
§11.09 Form:Employment Agreement (Pro-Employee)

Employee Handbooks

Kristin Major
§11A.01  Overview
§11A.02  At-Will Employment
§11A.03  Equal Employment Opportunity (EEO)
§11A.04  Wage and Hour Policies
§11A.05  Employee Benefits
[1]  Health and Welfare Plan Eligibility
[2]  Holidays/Vacations/Paid Time Off
[3]  Sick Leave
[4]  Leaves of Absence
[5]  Other Leave Mandated by State and Federal Law
§11A.06  E-Mail and Technology Policies
§11A.07  Ethical Standards, Conflicts of Interest and Confidentiality
§11A.08  Other Applicable Policies
§11A.09  Handbook Acknowledgement Form
§11A.10  Sample Employee Handbook

Federal Income Tax Considerations Affecting Start-Up Businesses

Jack S. Levin & Jeffrey T. Sheffield
§12.01 Introduction and Definitions
§12.02 Start-Up Financing-Choosing the Appropriate Form of Business Organization
[1] Corporate Form with No Subchapter S Election
[2] Corporate Form with Subchapter S Election
[3] Limited Partnership Form
[4] Limited Liability Company Form
[5] Combining or Shifting Between Different Forms
§12.03 Problems Peculiar to a Corporation
[1] Section 351
[2] Interest Deductibility
[3] Section 1244 Stock
[4] Section 1202 Gain
§12.04 Problems Peculiar to a Partnership
[1] Substantial Economic Effect
[2] Basis, At-Risk Basis and Passive Activity Losses
§12.05 Problems Applicable to Any Form
[1] Compensating the Service Provider
[2] Original Issue Discount and Imputed Interest—Section 1274, 7872, and 305
[3] Start-Up Expenses

Stock Options

Herbert Kraus
§13.01 Overview
§13.02 Incentive Stock Options
[1] Option Plan
[2] Plan Adoption and Approval
[3] Option Duration
[4] Employment Requirement
[5] Nontransferability
[6] Exercise Price
[7] Quantity Limits
[8] Holding Period
§13.03 Nontax Benefited Stock Options
[1] Options with Cash Bonus
[2] Section 83 Property
[3] Avoiding Taxation as Nonqualified Deferred Compensation
[4] Mixed Option Plans
§13.04 The Stock Valuation Problem
[1] IRS Regulations
[2] Formula Valuations
[3] Buy-and-Sell Contracts
[4] Book Value Shares
§13.05 Other Option Features
[1] Payment of Exercise Price with Stock
[2] Immaculate Cashless Exercise
[3] Reload Options
[4] Stock Appreciation Rights
[5] Financial Assistance
§13.06 Other Considerations
[1] Securities Laws
[2] Accounting Treatment
[3] Securities Exchange Act of 1934
[4] Providing for Future Acquisitions
[5] Limit on Deductibility of Executive Compensation
[6] Federal Wages and Hours Law
§13.07 Form: Stock Option Plan
§13.08 Form: Stock Option Agreement

Volume 2

Employee Benefit Plans

Manes Merrit, Barry L. Salkin and David Fields
§14.01 Introduction and Overview
[1] Introduction
[2] Overview
[3] Summary of Legal and Regulatory Parameters
§14.02 Equity Incentive Plans
[1] In General
[2] Stock Purchase Plans
[3] Stock Option Plans
[4] Junior Common Stock Plans
[5] Convertible Debenture Plans
[6] Book Value Stock Plans
[7] Stock-Oriented Compensation Plans
[8] Employee Stock Ownership Plans (“ESOPs”)
[9] Restricted Stock
[10] Restricted Stock Units
§14.03 Qualified Retirement Plans
[1] Utility for Start-Up Companies
[2] General Discussion
[3] Types of Qualified Retirement Plans
[4] Requirements for Qualification
§14.04 Nonqualified Deferred Compensation Arrangements
[1] In General
[2] Taxation of Nonqualified Arrangements
[3] Tax Treatment of Split-Dollar Life Insurance
[4] Accounting Treatment
[5] Applications for Start-Up Companies
[6] Significant Restriction on the Funding of Nonqualified Deferred Compensation Plans
§14.05 Accident, Health and Life Insurance Plans
[1] Accident and Health Insurance Plans
[2] Long-Term Insurance
[3] Life Insurance Plans
[4] Employer-Owned Life Insurance
§14.06 Supplemental Compensation Devices
[1] In General
[2] Below-Market-Rate Loans
[3] Loans
[4] Executive Financial Counseling
[5] Use of Company Automobile
[6] Educational Assistance Programs
[7] Dependent Care Assistance Programs
[8] Adoption Assistance Exclusion
[9] Athletic Facilities
[10] Miscellaneous Fringe Benefits
[11] Cafeteria Plans
[12] Employee Assistance Programs
[13] Disability Plans
[14] Wellness Programs
[15] Employee Relocation Costs
[16] Group Legal Services
[17] Bicycle Commuting Expense Reimbursement

Proprietary Protection of Product or Service

Michael J. Calvey
§15.01 Introduction
§15.02  Protection for Ideas
§15.03  Copyrights
[1] Nature and Scope of Protection
[2] Attaining and Maintaining Copyright Protection; the Role of the Copyright Notice
[3] Ownership and Duration of Copyrights
[4] Copyright Registration and Recordation of Certain Documents
[5] Copyright Infringement
[6] Semiconductor Chip Protection
[7] “Moral Rights”—Rights of Attribution and Integrity
[8] Copyright and the Internet
§15.04 Patents
[1] Nature and Scope of Protection
[2] Requirements for Patentability
[3] Anticipatory Steps in Working on an Invention
[4] Application for a Patent
[5] Duration and Ownership of Patent Rights
[6] Ownership of Patents
[7] Use of Appropriate “Notices”
[8] Patent Infringement
§15.05 Trademarks
[1] Nature of Protection
[2] Selection of a Trademark
[3] Attaining Trademark Rights
[4] Protective Use of Trademarks
[5] Federal Registration of Trademarks
[6] Assignments and Licenses
[7] Trademark Infringement, Dilution and Unfair Competition
[8] Domain Names
§15.06 Trade Names
§15.07 Trade Secrets
[1] Nature and Scope of Protection
[2] Choice Between Patent and Trade Secret Protection
[3] Maintaining Trade Secret Protection
[4] Trade Secret Infringement
§15.08 Maintaining Confidentiality
[1] Introduction
[2] Sample Form

Licensing Agreements

Jay Dratler, Jr.
§16.01 Overview
[1] Introduction
[2] Reasons for Licensing
[3] Advantages of Licensing
[4] Disadvantages of Licensing
[5] Tax Aspects of Licensing
§16.02 Types of Licenses
[1] Use License
[2] Copying or Manufacturing License
[3] Modification License
[4] Distribution License
[5] Sublicensing
[6] Trademarks
[7] “OEM” and “VAR” Agreements
[8] “Hybrid” Licenses
§16.03 Important Terms of Licensing Agreements
[1] Scope of License
[2] Exclusivity
[3] Obligations to Exploit
[4] Improvements
[5] Cross-Licenses
[6] Royalties
[7] Reports and Audit Rights
[8] Protection of Intellectual Property
[9] Warranties
[10] Technical Assistance
[11] Term and Termination
[12] Limitations of Liability and Remedy
[13] Export Controls
[14] Other Terms
§16.04 Technology Licenses
[1] Patents and Trade Secrets Combined
[2] “Hybrid” Licensing
[3] Royalties
[4] Patent Prosecution
[5] Patent Challenges
[6] Arbitration of Patent Disputes
§16.05 Software Licensing
[1] Subject Matter
[2] Source and Object Code
[3] Machine Limitations
[4] Right to Modify
[5] Derivative Works
[6] Sublicensing and Distribution
[7] Royalties
[8] Warranty and Maintenance
[9] “Boxtop” or “Shrinkwrap” Software Licenses
[10] Enhancements
[11] Source Code Escrow
§16.06 “OEM” and “VAR” Agreements
[1] Combined Sale and License
[2] Control of Lower-Level License
[3] Manufacturing Licenses
[4] Other Multilevel Issues
§16.07 Special Issues
[1] Defense Department Contracts
[2] Special Issues in International Licensing
§16.08 Form:License Agreement
[1] Introduction
[2] Form of License Agreement

Bridge Financings

Thomas C. Klein
§17.01 Introduction
§17.02 Reasons for a Bridge Financing
§17.03 Types of Bridge Financings
[1] Term and Maturity
[2] Unsecured Debt
[3] Secured Debt
[4] Upside Alternatives
§17.04  Alternatives to Bridge Financing
[1] Equity Financing
[2] Chapter 11 or Pre-Chapter 11 Financing
§17.05  General Considerations in a Bridge Financing
[1] Company Considerations
[2] Investor Considerations
[3] Tax Considerations
[4] Accounting Considerations
§17.06  Specific Terms of the Bridge Financing Documents
[1] The Note (and Warrant) Purchase Agreement
[2] The Bridge Note
[3] The Security Agreement
[4] Warrants
§17.07  Form:Term Sheet for Bridge Financing
§17.08  Form:Note and Warrant Purchase Agreement
§17.09  Form:Demand Note
§17.10  Form: Bridge Financing Warrant
§17.11  Form: Bridge Financing Promissory Note
§17.12  Form: Security Agreement for Bridge Financing
[1] Introduction
[2] Form of Security Agreement


Hina Ahmad and Edward L. Turner III
§18.01 Overview
§18.02 Sales Contracts
[1] Introduction
[2] Basic Law
[3] Battle of the Forms
[4] Electronic Contracting
[5] Price, Payment and Related Terms
[6] Warranties and Disclaimers
[7] Limitations on Liability
[8] “Boilerplate”
§18.03 Service Contracts
[1] Introduction
[2] Nature of Services to Be Performed
[3] Compensation
[4] Personnel
[5] Warranties and Indemnification
[6] Inventions and Confidentiality
[7] Nonsolicitation
§18.04 Form: Services Agreement with Commentary
§18.05 Distribution Agreements
[1] Introduction
[2] Nature and Scope of Relationship
[3] Product Issues
[4] Termination
[5] Miscellaneous Provisions
§18.06 Form: Distribution Agreement with Commentary
§18.07 Form:Dealer Agreement with Commentary
§18.08 Equipment Leases
[1] Introduction
[2] The Vendor Lease
[3] Third-Party Leases

Real Estate Leases

Anna Pope and Seagrumn Gilbert
§18A.01 Introduction
§18A.02 The Premises
§18A.03 Expansion Rights
§18A.04 Term; Early Termination Rights
§18A.05 Rent
§18A.06 Commencement Date
§18A.07 Use Clause
§18A.08 Alterations
§18A.09 Compliance with Laws
§18A.10 Subordination
§18A.11 Destruction of Premises
§18A.12 Condemnation
§18A.13 Assignment and Subletting
§18A.14 Landlord’s Access
§18A.15 Default Provisions and Remedies
§18A.16 Insurance
§18A.17 Security Deposit
§18A.18 Rules and Regulations
§18A.19 Execution and Exhibits
§18A.20 Work Letter
[1] Form of Work Letter
[2] Budget/Allowance
[3] Schedule
[4] Design Team
[5] Contractors
[6] Construction Contracts
[7] Ownership of Completed Improvements; Removal and Restoration

Exit Strategies

Daniel I. De Wolf and Eric M. Roth
§19.01  Overview
[1] Why Are Exit Strategies Important?
[2] Types of Liquidity Events
§19.02  IPOs
[1] Introduction
[2] Advantages of Going Public
[3] Disadvantages of Going Public
§19.03 Preparing for a Public Offering
[1] Selecting the Listing Entity
[2] Board Composition
[3] Audit Committee
[4] Compliance with Sarbanes-Oxley
[5] Compliance with GAAP
[6] Issues Impacting Financial Statements
§19.04 Selecting an Underwriter
[1] Types of Offering
[2] Role of the Analyst
§19.05 Liquidating Shares After the IPO
[1] Registration Statements
[2] Rule 144
[3] Rule 701
[4] Restrictive Legends
§19.06 Reverse Mergers
§19.07 Sales and Mergers
[1] Sales of Portfolio Companies
[2] Consideration Received on the Sale
[3] Compliance with GAAP, the Sarbanes-Oxley Act and Other Regulations
[4] Issues with Affiliates
[5] Indemnification
[6] Section 3(a)(10) Hearings
§19.08 Conclusion

Dissolution of the Privately-Held Company

Scott Joachim and Matthew Stewart
§19A.01 Overview
§19A.02 Perpetual Existence
[1] Annual Reports
[2] Franchise Taxes
[3] Income Taxes
§19A.03 Termination of Existence
[1] Merger or Consolidation
[2] Revocation or Forfeiture of Charter
[3] Transferring to or Domesticating in a Foreign Jurisdiction
§19A.04 Voluntary Dissolution
[1] Generally
[2] Mechanics
[3] Fairness of Plan of Dissolution
[4] Constituents Responsible for Dissolution Process
[5] Alternatives to Dissolution
[6] Franchise Taxes
[7] Three-Year "Winding Down" Period
[8] Revocation of Dissolution
§19A.05 Voluntary Dissolution
[1] Examplar Dissolution Documents
[2] Board Consent
[3] Stockholder Consent
[4] Notice to Stockholders
[5] Certificate of Dissolution
[6] Plan of Liquidation
[7] Certificate of Adoption of Plan of Liquidation
Accounting and Related Tax Issues

Jerome S. Engel, CPA & Marc H. Berger, CPA
§20.01 Introduction
§20.02 The Need for Accountability
§20.03 Corporate Governance and Effective Internal Controls
§20.04 Financial Reporting
[1] Introduction
[2] Financial Statements
[3] Accounting Policy Selection
[4] Revenue Recognition
[5] Organizational Expenses
[6] Research and Development
[7] Depreciation/Amortization
[8] Inventory
[9] Contract Accounting
[10] Development-Stage Enterprises
[11] Stockholders’ Equity
§20.05 Tax Policy Selection
[1] Introduction
[2] Cash Versus Accrual Accounting Method
[3] Year-End Selection
[4] Start-Up Expenses
[5] Research Tax Credits
[6] Qualified Retirement Plans
[7] Stock Plans
[8] State and Local Taxes
[9] International Taxes
[10] Tax Considerations When Selecting Financing Alternatives
[11] Domestic Production Activities Deduction
§20.06 Developing the Financial Management System
[1] First Stage—Start-Up
[2] Second Stage—Production/Financing
[3] Third Stage—Rapid Growth
[4] Fourth Stage—Expansion
§20.07 The Public Accounting Profession
[1] Introduction
[2] The Profession’s Requirements
[3] The Public Accounting Firm
[4] Services
[5] Fees
§20.08 Selecting a CPA
§20.09 Assisting the Start-Up—The CPA’s Role
[1] Early Stage Advisor—The Business Plan
[2] Middle Stage Advisor—Helping Manage Growth
[3] Later Stage Advisor—Recurring Service Needs
[4] Going Public
[5] Sale of the Company

Planning the Business for a Future Initial Public Offering

James D. Marver
§21.01 Introduction
§21.02 Being Truly Public
[1] Float
[2] Investor Appeal
[3] Research Coverage
[4] Market Makers
§21.03 Management and Employees
[1] General Selection Criteria
[2] The Chief Financial Officer
[3] Compensation
[4] Stock Splits
[5] Options for Business Partners
§21.04 Services
[1] Counsel
[2] Accountants
§21.05 “Certain Transactions“ That May Cause Problems
[1] Why the Transactions Should Be Avoided
[2] No Explicit Criteria
[3] Guidelines
[4] Examples
§21.06 Interim Financing
[1] Type of Security
[2] Timing
[3] Selecting Investors
[4] Pricing
[5] Clauses to Avoid
§21.07 Miscellaneous Pre-Public Considerations

Organizing a Delaware Corporation

Wendell Fenton & Gregory V. Varallo
§22.01 Introduction
[1] Why Delaware?
[2] Scope of Forms in this Chapter
§22.02 Formation
[1] Certificate of Incorporation
[2] Filing Mechanics
[3] Powers of Incorporators
§22.03 Bylaws
[1] General Discussion
[2] Form: Bylaws with Commentary
§22.04 Corporate Management
[1] Board of Directors
[2] Officers
[3] Mechanics of Board Actions
[4] Organizational Forms
§22.05 Stock Purchase Agreement
[1] The Stock Purchase Agreement
[2] Form:Stock Purchase Agreement
[3] Form:Subscription Agreement
§22.06 Permitted Capitalizations
[1] Classes or Series of Capital Stock
[2] Voting Rights
[3] Preferences
[4] Conversion and Other Rights
[5] Mechanics and Controls on Stock
§22.07 Form of Notice of Meetings
[1] Form:Notice of Directors’ Meetings
[2] Form: Notice of Stockholders’ Meetings with Commentary
§22.08 Checklist of Additional Documents that May Be Necessary

Sample Start-Up Company Forms

Gregory C. Smith
§23.01 Incorporation
[1] Action of Sole Incorporator Electing Directors
[2] Action by Written Consent of Board of Directors (Upon Incorporation)
[3] Minutes of First Meeting of Board of Directors
§23.02 Certificate of Incorporation
[1] Certificate of Amendment to Certificate of Incorporation
[2] Certificate of Amendment to Certificate of Incorporation (Effecting Name Change)
[3] Introductory Language for Amended and Restated Certificate of Incorporation
[4] Certificate of Elimination
[5] Action by Written Consent of Board of Directors (Amending Certificate of Incorporation)
§23.03 Board of Directors
[1] Notice of Special Meeting of Board of Directors
[2] Waiver of Notice of Meeting of Board of Directors
[3] Minutes of Regular Meeting of Board of Directors
[4] Sample Resolutions of the Board of Directors
§23.04 Stockholders
[1] Consent in Lieu of Meeting of Stockholders
[2] Notice of Special Meeting of Stockholders
[3] Notice of Annual Meeting of Stockholders
[4] Declaration of Mailing of Notice of Stockholders’ Meeting
§23.05 Stock Certificates and Issuance
[1] Stock Ledger and Capitalization Summary
[2] Sample Common Stock Certificate
[3] Certificate Regarding Lost Certificate and Indemnity
[4] Legends
§23.06 Stock Transfer and Sale
[1] Transferee Representation Statement
[2] Short-Form Stock Purchase Agreement (Resale)
[3] Additional Purchaser Representations and Warranties
[4] Revocable Proxy
[5] Irrevocable Proxy
[6] Irrevocable Stock Power
§23.07 Miscellaneous
[1] Secretary’s Certificate
[2] Due Diligence Request

Intellectual Property Strategy in Joint Ventures

Ronald S. Laurie, Joseph Yang, Karen Spindler
§24.01 Introduction
§24.02 Joint Venture Structural Models
[1] Contractual Model
[2] Entity Model
[3] Two-Stage Model
§24.03 IP Allocation Generally
[1] Default Allocation Paradigm: Joint Ownership
[2] Preferred IP Allocation Strategies
§24.04 Application of IP Allocation Strategies to the Joint Venture Structural Models
[1] Contractual Model
[2] Entity Model
[3] Two-Stage Model
§24.05 Exit Strategies
[1] Merger or Acquisition of the Joint Venture Entity
[2] Dissolution of the Joint Venture
§24.06 Conclusion

Joint Ventures and Strategic Alliances

Kenton J. King
§25.01 Overview
§25.02 Alternatives to Legal Joint Ventures
§25.03 Choice of Entity
[1] In General
[2] Corporation
[3] Partnership
[4] Limited Liability Company
§25.04 Form:Joint Venture Term Sheet
[1] Introduction
[2] Sample Preliminary Nonbinding Term Sheet

Legal Issues Associated with Creating and Operating Web Sites

Rita Rodin
§26.01 Overview
§26.02  Building the Site (Web Site Development Agreements)
[1] Introduction
[2] Drafting a Web Development Agreement
§26.03 The Back-End (Web Hosting/Infrastructure Agreements)
[1] Introduction
[2] Types of Web Hosting Facilities
[3] Aspects of Web Hosting Agreements
§26.04 Digital Identity (Domain Names and Trademark Protection)
[1] Introduction
[2] TLDs
[3] Selecting a Domain Name
[4] Domain Name Acquisition
[5] Cybersquatting / Trademark Protection
[6] The UDRP
[7] The ACPA
[8] Purchasing a Domain Name Held by a Third Party
§26.05 Creating a Safe Environment
[1] Introduction
[2] Encryption
[3] Digital Signatures
[4] Encryption of Documents
[5] Third-Party Certification Services
[6] Security of Stored Data
[7] Confidentiality Agreements
[8] Avoiding Distributed Denial of Service Attacks
[9] Implementing a Proper Disaster Recovery Plan
§26.06 Online Contracts
[1] Introduction
[2] Drafting a Terms of Use Agreement
[3] Enforceability of Click-Wrap and Browse-Wrap Agreements
[4] Creating Enforceable Online Agreements
§26.07 Privacy
[1] Introduction
[2] Drafting a Privacy Policy
[3] Developing a Privacy Program—Third-Party Certification
[4] Responsible Use of Cookies and Web Bugs
[5] Privacy Legislation in the United States
§26.08 Internet Jurisdiction
[1] Introduction
[2] Jurisdiction in the United States
[3] International Jurisdiction.
§26.09 Taxation and the Internet
[1] Taxes on Internet Access
[2] Taxes on Goods Sold Via the Internet
§26.10 Copyright and Trademark Issues
[1] Introduction
[2] The Digital Millennium Copyright Act
[3] Framing
[4] Deep Linking
[5] Webcasting

Merger Agreements

Celeste E. Greene and Thomas J. Ivey
§27.01 Overview
§27.02 The Merger Agreement
[1] General
[2] Merger Mechanics
[3] Representations and Warranties
[4] Covenants of the Parties
[5] Conditions to Closing
[6] Termination of the Agreement
[7] Indemnification
§27.03 Form: Merger Agreement

Ancillary Documents to Merger Agreements

Celeste E. Greene, Robert E. Zivnuska and Thomas J. Ivey
§28.01 Overview
§28.02 Form: Indemnification Escrow Agreement
[1] Introduction
[2] Form of Indemnification Escrow Agreement with Commentary
§28.03 Form: Noncompetition Agreement
[1] Introduction
[2] Form of Noncompetition Agreement with Commentary
§28.04 Form:Voting Agreement
[1] Introduction
[2] Form of Voting Agreement with Commentary
§28.05 Form: Registration Rights Agreement
[1] Introduction
[2] Form of Registration Rights Agreement with Commentary