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

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 for easy use in your own office, 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.

Volume 1

CHAPTER 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)

CHAPTER 2
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

CHAPTER 3
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

CHAPTER 4
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

CHAPTER 5
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

CHAPTER 6
[Reserved]
CHAPTER 7
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

CHAPTER 8
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

CHAPTER 9
Stock Purchase Agreements
Henry P. Massey, Jr. -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

CHAPTER 9A
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

CHAPTER 9B
Registration and Investor Rights Agreements
Gregory C. Smith
Error! Not a valid heading level range. CHAPTER 10
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 A Forward-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

CHAPTER 11
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)

CHAPTER 11A
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

CHAPTER 12
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

CHAPTER 13
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

CHAPTER 14
Employee Benefit Plans
Manes Merrit, Barry L. Salkin & Richard Zuckerman
-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

CHAPTER 15
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

CHAPTER 16
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

CHAPTER 17
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

CHAPTER 18
Contracts
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

CHAPTER 18A
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

CHAPTER 19
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

CHAPTER 20
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

CHAPTER 21
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

CHAPTER 22
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

CHAPTER 23
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

CHAPTER 24
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

CHAPTER 25
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

CHAPTER 26
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

CHAPTER 27
Merger Agreements
Celeste E. Greene
-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

CHAPTER 28
Ancillary Documents to Merger Agreements
Celeste E. Greene and Robert E. Zivnuska
-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

INDEX

Gregory C. Smith

Gregory C. Smith is the founding partner of Woodside Counsel, PC, a boutique law firm in the silicon Valley focused on the representation of emerging growth companies. He was a partner for over a decade in the Palo Alto office of Skadden, Arps, Slate, Meagher & Flom LLP. He has extensive experience representing start-up and emerging growth companies as well as underwriters, financial advisors and venture capitalists. Mr. Smith received his B.A. from Stanford University in 1985, where he was a member of 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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