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Financing and Protecting California Businesses

Advise your clients with assurance on the practical issues of raising capital, tax and regulatory compliance, and protection of business operations.

Advise your clients with assurance on the practical issues of raising capital, tax and regulatory compliance, and protection of business operations.

  • Capital sources and strategy
  • The business plan
  • Private placements; venture capital agreements  
  • Equity and debt financing, including private offerings under Regulation D and crowdfunding
  • Initial public offerings
  • Equipment leases; letters of credit
  • Business insurance
  • Intellectual property protection
  • Cybersecurity
  • Licenses, permits, and registrations
  • Tax and accounting elections; tax compliance
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Advise your clients with assurance on the practical issues of raising capital, tax and regulatory compliance, and protection of business operations.

  • Capital sources and strategy
  • The business plan
  • Private placements; venture capital agreements  
  • Equity and debt financing, including private offerings under Regulation D and crowdfunding
  • Initial public offerings
  • Equipment leases; letters of credit
  • Business insurance
  • Intellectual property protection
  • Cybersecurity
  • Licenses, permits, and registrations
  • Tax and accounting elections; tax compliance

1

Seeking Capital: Sources and Strategy

Neal H. Brockmeyer

  • I.  OVERVIEW  1.1
  • II.  ANALYSIS AND STRATEGY
    • A.  Preliminary Analysis  1.2
    • B.  Determining Type of Financing  1.3
    • C.  Designing Capital Structure  1.4
    • D.  Preparing Business Plan  1.5
    • E.  Identifying Appropriate Sources  1.6
    • F.  Approaching Potential Sources  1.7
  • III.  SOURCES OF CAPITAL
    • A.  Friends, Relatives, and Business Associates  1.8
    • B.  Angels  1.9
    • C.  Government Programs  1.10
      • 1.  Federal Government
        • a.  Small Business Administration
          • (1)  Overview of the Small Business Administration  1.11
          • (2)  SBA Business Loans: General Requirements  1.11A
          • (3)  SBA 7(a) Loan Program  1.11B
          • (4)  SBA 504 Loan Program  1.11C
          • (5)  SBA Microloans  1.11D
          • (6)  Other SBA Loan Programs  1.11E
          • (7)  SBA Loan Structures
            • (a)  Direct Loans  1.12
            • (b)  Loan Guaranties  1.13
          • (8)  Other SBA Financial Assistance Programs  1.14
        • b.  Other Federal Government Sources  1.15
      • 2.  State and Local Government  1.16
        • a.  State and Local Development Companies  1.17
        • b.  State Tax Incentives  1.17A
        • c.  Other State and Local Sources  1.18
    • D.  Venture Capital  1.19
      • 1.  Private Venture Capital  1.20
      • 2.  Small Business Investment Companies  1.21
      • 3.  New Markets Venture Capital Companies  1.22
      • 4.  Capital Access Companies  1.23
      • 5.  Business Development Companies  1.23A
    • E.  Corporate Partners  1.24
    • F.  Institutional Sources  1.25
    • G.  Incubators and Accelerators  1.26
    • H.  Crowdfunding; Peer-to-Peer (P2P) Lending  1.27
    • I.  Other Sources  1.28

2

The Business Plan

Jacob C. Reinbolt

  • I.  OVERVIEW
    • A.  Uses of Business Plan, Process of Drafting  2.1
      • 1.  Financing Proposal for Investors and Lenders  2.2
      • 2.  Operational Tool  2.3
      • 3.  Satisfy Statutory Requirements  2.4
    • B.  Attorney’s Role  2.5
    • C.  Contents of Business Plan  2.6
      • 1.  Front Cover  2.6A
      • 2.  Executive Summary  2.7
      • 3.  Management Team  2.8
      • 4.  Product or Service  2.9
      • 5.  Intellectual Property Protection  2.10
      • 6.  Manufacturing and Operations  2.11
      • 7.  Human Resources  2.12
      • 8.  The Market  2.13
      • 9.  Competition  2.14
      • 10.  Sales and Marketing  2.15
      • 11.  Company Background and Structure  2.16
      • 12.  Financial Information  2.17
        • a.  Required Financing  2.18
        • b.  Financial Projections  2.19
  • II.  CHECKLISTS: DRAFTING THE BUSINESS PLAN
    • A.  Checklist: Essential Contents of Executive Summary  2.20
    • B.  Checklist: Management and Organization  2.21
    • C.  Checklist: Principals and Key Members of Management Team  2.22
    • D.  Checklist: Product or Service  2.23
    • E.  Checklist: The Market and Marketing  2.24
    • F.  Checklist: Specific Areas to Address About the Competition  2.25
    • G.  Checklist: Financial Information  2.26
    • H.  Checklist: Presenting Business Plan to Investors  2.27
  • III.  FORMS
    • A.  Form: Confidentiality Agreement  2.28
    • B.  Form: Disclosure Agreement re Confidential Information  2.29

3

Agreements Among Founders

David L. Keligian

  • I.  INTRODUCTION
    • A.  Importance of Internal Agreements  3.1
    • B.  Ethical Issues
      • 1.  Conflicts Among Founders  3.2
      • 2.  Conflicts Between Founders and Business Entities  3.3
      • 3.  Rules Regarding Conflicts  3.4
    • C.  Founder Agreements
      • 1.  Typical Agreements  3.5
      • 2.  Determining What Agreements Are Required  3.6
    • D.  Assigning Property Rights; Capital Contributions to Entity
      • 1.  Legal and Business Issues  3.7
      • 2.  Tax Issues  3.8
    • E.  Employment Agreements
      • 1.  When Appropriate  3.9
      • 2.  Key Provisions
        • a.  General Considerations  3.10
        • b.  Arbitration Provisions  3.10A
        • c.  Termination Events  3.11
        • d.  Disability of Founder  3.12
    • F.  Buy-Sell Agreements  3.13
      • 1.  Benefits of Buy-Sell Agreement
        • a.  Provides for Orderly Business Succession  3.14
        • b.  Establishes Fixed Value  3.15
        • c.  Creates Liquidity  3.16
        • d.  Binds Internal Revenue Service to Value  3.17
        • e.  Preserves S Corporation Status  3.18
      • 2.  Types of Agreements  3.19
      • 3.  Coordination With Employment Agreement  3.20
      • 4.  Valuation and Funding Issues  3.21
    • G.  Stock-Based Compensation Arrangements
      • 1.  Stock Options  3.22
      • 2.  Restricted Stock Plan  3.23
      • 3.  Partnerships and LLCs  3.24
      • 4.  Tax Issues Regarding Equity Plans  3.25
  • II.  ASSIGNMENT OF INTELLECTUAL PROPERTY
    • A.  Introduction  3.26
    • B.  Form: Transfer and Assignment of Intellectual Property  3.27
  • III.  SHAREHOLDER BUY-SELL AGREEMENT  3.28
    • A.  Preamble, Recitals, and Definitions
      • 1.  Form: Preamble  3.29
      • 2.  Form: Recitals  3.30
      • 3.  Form: Definitions  3.31
    • B.  Transfers
      • 1.  Form: Permitted Transfers  3.32
      • 2.  Form: Transfers Under Shareholder Agreement  3.33
      • 3.  Form: Involuntary Transfers  3.34
    • C.  Purchase on Death, Termination of Employment, or Disability
      • 1.  Form: Events Triggering Purchase  3.35
      • 2.  Form: Repurchase  3.36
    • D.  Life Insurance
      • 1.  Form: Corporation to Insure Specified Shareholders  3.37
      • 2.  Form: Optional Purchase of Life Insurance by Shareholders  3.38
    • E.  Determination of Fair Market Value  3.39
    • F.  Payment Terms  3.40
    • G.  Optional “Shotgun” Buyout
      • 1.  Introduction  3.41
      • 2.  Form: “Shotgun” Buyout Provisions  3.42
    • H.  Legend on Shares; After-Acquired Shares; Will or Trust Provisions
      • 1.  Form: Legend on Shares  3.43
      • 2.  Form: After-Acquired Shares  3.44
      • 3.  Form: Will or Trust Provisions  3.45
    • I.  Form: Separation or Divorce Affecting Shareholders Who Are Married or Have a Domestic Partner  3.46
    • J.  S Corporation and Actions by Corporation
      • 1.  Form: Notice of Transfer or Prohibition on Ineligible Transfer  3.47
      • 2.  Form: Right of First Refusal  3.48
      • 3.  Form: Transfer Not Permitted Is Void  3.49
      • 4.  Form: Limitations on Corporation  3.50
      • 5.  Form: Shareholder Vote  3.51
      • 6.  Form: Distributions While S Corporation  3.52
      • 7.  Form: Accounting Closing  3.53
    • K.  Voting Agreement; Optional Order of Purchase; Personal Guaranty
      • 1.  Form: Voting Agreement  3.54
      • 2.  Form: Optional Order of Purchase for C Corporation  3.55
      • 3.  Form: Optional Personal Guaranty  3.56
    • L.  Covenant Not to Compete  3.57
    • M.  Provisions for Deferred Compensation in Event of Disability; Termination of Shareholder Agreement; Conflicts of Interest; Nonrepresentation
      • 1.  Form: Deferred Compensation in Event of Disability (Optional)  3.58
      • 2.  Form: Termination  3.59
      • 3.  Form: Conflicts of Interest  3.60
      • 4.  Form: Nonrepresentation  3.61
    • N.  Miscellaneous Matters; Signatures  3.62
      • 1.  Form: Notice to Successor  3.63
      • 2.  Form: Binding on Successors  3.64
      • 3.  Form: Signatures  3.65
    • O.  Exhibits to Shareholder Buy-Sell Agreement
      • 1.  List of Exhibits  3.66
      • 2.  Form: Calculation of Fair Market Value  3.67

4

Structuring a Financing Transaction

Neal H. Brockmeyer

  • I.  INTRODUCTION  4.1
  • II.  COMPANY’S AND PRINCIPALS’ OBJECTIVES  4.2
    • A.  Amount of Capital  4.3
    • B.  Minimal Dilution  4.4
    • C.  Retention of Flexibility  4.5
      • 1.  Subordination  4.6
      • 2.  Antidilution Provisions  4.7
      • 3.  Covenants  4.8
    • D.  Retention of Control  4.9
    • E.  Assistance From Investors  4.10
    • F.  Confidentiality  4.11
    • G.  Compatibility With Tax and Securities Law Goals  4.12
  • III.  INVESTOR OBJECTIVES
    • A.  Return on Investment  4.13
    • B.  Liquidity  4.14
    • C.  Controls  4.15
    • D.  Information  4.16
    • E.  Management’s Continued Participation  4.17
    • F.  Compatibility With Tax and Regulatory Goals  4.18
    • G.  Antidilution Protection  4.19
  • IV.  THE INVESTMENT VEHICLE
    • A.  Basic Considerations  4.20
    • B.  Qualified Small Business Stock  4.20A
    • C.  Common Stock  4.21
    • D.  Additional Classes of Stock  4.22
    • E.  Warrants and Options  4.23
    • F.  Debt Instruments  4.24
    • G.  Combinations of Debt and Equity  4.25
    • H.  Lease Transactions  4.26
  • V.  RELATED AGREEMENTS  4.27
    • A.  Agreements Affecting Control  4.28
    • B.  Agreements Affecting Employees  4.29

5

Forms of Securities

Neal H. Brockmeyer

  • I.  GENERAL REQUIREMENTS  5.1
  • II.  STOCK CERTIFICATES
    • A.  Use of Standard Printed Forms; Exchange Requirements  5.2
    • B.  Form: Basic Stock Certificate  5.3
    • C.  Common Stock
      • 1.  Transfer Restrictions  5.4
        • a.  Form: Restrictions by Issuer  5.5
        • b.  Restrictions by Shareholder Agreement  5.6
        • c.  Restrictions Imposed by Commissioner of Business Oversight
          • (1)  Form: Promotional Shares  5.7
          • (2)  Form: Other Restricted Shares  5.8
        • d.  Restrictions Imposed by Federal Securities Laws  5.9
          • (1)  Form: Private Offerings  5.10
          • (2)  Form: Intrastate Offerings  5.11
      • 2.  Other Statements  5.12
    • D.  Preferred Stock
      • 1.  Rights, Preferences, Privileges, and Restrictions  5.13
      • 2.  Preferred Share Certificate  5.14
        • a.  Form: Statement of Preferences  5.15
        • b.  Form: Shares Subject to Redemption  5.16
        • c.  Form: Convertible Shares  5.17
        • d.  Other Legends  5.18
  • III.  PROMISSORY NOTES  5.19
    • A.  Notes as Securities  5.20
    • B.  Drafting Notes  5.21
      • 1.  Form: Basic Provisions  5.22
      • 2.  Special Provisions
        • a.  Prepayment  5.23
          • (1)  Form: Prepayment Without Premium  5.24
          • (2)  Form: Prepayment With Premium  5.25
        • b.  Form: Reference to Underlying Agreement  5.26
        • c.  Conversion Rights  5.27
        • d.  Form: Subordination  5.28
      • 3.  Legends  5.29
  • IV.  DEBENTURES
    • A.  Definitions  5.30
    • B.  Trust Indentures
      • 1.  Regulatory Considerations
        • a.  Trust Indenture Act Requirements  5.31
        • b.  Commissioner of Business Oversight Requirements  5.32
        • c.  Stock Exchange Requirements  5.33
      • 2.  Drafting Trust Indenture  5.34
    • C.  Debenture
      • 1.  Preliminary Considerations  5.35
      • 2.  Debenture Face
        • a.  Form: Face of Debenture  5.36
        • b.  Legends  5.37
      • 3.  Debenture Reverse
        • a.  Form: Reference to Indenture  5.38
        • b.  Form: Subordination  5.39
        • c.  Form: Conversion  5.40
        • d.  Form: Redemption  5.41
        • e.  Form: Default  5.42
        • f.  Form: Modifications  5.43
      • 4.  Form: Conversion Notice  5.44
  • V.  STOCK PURCHASE WARRANTS
    • A.  Description  5.45
    • B.  Securities Regulation  5.46
    • C.  Warrant Agreement  5.47
    • D.  Common Stock Purchase Warrant
      • 1.  Form: Basic Common Stock Purchase Warrant  5.48
      • 2.  Form: Definitions  5.49
      • 3.  Federal Securities Regulation Provisions
        • a.  Form: Registration Rights  5.50
        • b.  Form: Exercise, Transfer, and Exchange Restrictions  5.51
      • 4.  Form: Exercise  5.52
      • 5.  Form: Delivery of Stock Certificate  5.53
      • 6.  Antidilution Provisions  5.54
        • a.  Form: Stock Splits and Combinations  5.55
        • b.  Form: Reclassifications, Exchanges, and Substitutions  5.56
        • c.  Stock Dividends  5.57
        • d.  Sale or Issuance of Additional Shares  5.58
          • (1)  Sale Below Exercise Price
            • (a)  Form: Earlier Sale at Higher Price Not Recognized  5.59
            • (b)  Form: Earlier Sale at Higher Price Recognized  5.60
            • (c)  Supplementary Provisions
              • (i)  Form: Consideration for Stock  5.61
              • (ii)  Form: Consideration for Stock Dividends  5.62
              • (iii)  Form: Convertible Securities, Options, and Rights  5.63
              • (iv)  Form: Record Date  5.64
              • (v)  Form: Exempt Issuances  5.65
          • (2)  Form: Sale Below Market Price  5.66
        • e.  Unusual Actions
          • (1)  Form: Reorganizations, Mergers, Consolidations, or Sale of Assets  5.67
          • (2)  Extraordinary Distributions  5.68
          • (3)  Form: Prior Notice  5.69
          • (4)  Form: No Dilution or Impairment  5.70
        • f.  Mechanics of Adjustment
          • (1)  Form: Notice of Adjustments  5.71
          • (2)  Form: No Change in Warrant  5.72
      • 7.  Miscellaneous Provisions
        • a.  Form: Reservation of Stock  5.73
        • b.  Form: Listing on Stock Exchange  5.74
        • c.  Form: Replacement  5.75
        • d.  Form: Exchange and Transfer  5.76
        • e.  Form: Warrant Agent  5.77
        • f.  Form: No Rights as Shareholder  5.78
        • g.  Form: Negotiability  5.79
        • h.  Form: Modification  5.80
        • i.  Form: Governing Law  5.81
        • j.  Form: Expiration  5.82
        • k.  Form: Date and Signatures  5.83
      • 8.  Form: Subscription  5.84
      • 9.  Form: Assignment  5.85

5A

Issuing Common Shares to Founders and Investors

Steven T. Anapoell

Russell J. Wood

  • I.  INTRODUCTION  5A.1
  • II.  SCOPE OF CHAPTER  5A.1A
  • III.  LEGAL PRINCIPLES AND KEY CONSIDERATIONS  5A.2
    • A.  Common Versus Preferred Shares  5A.3
    • B.  Redeemable Common Shares  5A.4
    • C.  Voting Rights  5A.5
    • D.  Preemptive Rights  5A.6
  • IV.  PROCEDURES FOR ISSUING COMMON SHARES  5A.7
    • A.  Issuing Common Shares to Founders  5A.8
      • 1.  Determination of Share Value  5A.9
      • 2.  Consideration for Shares  5A.10
      • 3.  Federal and State Securities Law Exemptions  5A.11
      • 4.  California Community Property Law  5A.12
      • 5.  Procedures for Share Issuance to Founders  5A.13
    • B.  Issuing Common Shares to Third Party Investors
      • 1.  Additional Considerations  5A.14
      • 2.  Procedures for Sale of Common Shares to Investors  5A.15
  • V.  FORMS
    • A.  Form: Board Resolutions Authorizing Common Share Issuance to Specific Persons  5A.16
    • B.  Form: Board Resolutions Authorizing Private Offering of Common Shares  5A.17
    • C.  Form: Board Resolutions Approving Private Placement Memorandum and Employment of Brokers  5A.17A
    • D.  Form: Certificate of Investment Intent  5A.18
    • E.  Share Purchase Agreement: Common Shares
      • 1.  Form: Introductory Language and Recitals  5A.19
      • 2.  Form: Purchase and Sale of Securities  5A.20
      • 3.  Form: Purchase Price and Closing  5A.21
      • 4.  Form: Company’s Representations and Warranties  5A.22
      • 5.  Form: Purchaser’s Representations and Warranties  5A.23
      • 6.  Form: General Provisions  5A.24
      • 7.  Form: Signatures  5A.25
    • F.  Form: Investor Questionnaire  5A.26
    • G.  Form: Officers and Directors Questionnaire  5A.27
    • H.  Subscription Agreement: Corporate Shares
      • 1.  Form: Subscription  5A.28
      • 2.  Form: Investment Conditions  5A.29
      • 3.  Form: Issuer’s Representations and Warranties [and Covenants]  5A.30
      • 4.  Form: Purchaser Representations and Warranties  5A.31
      • 5.  Form: Indemnification  5A.32
      • 6.  Form: Choice of Law  5A.33
      • 7.  Form: Subscription for Shares   5A.34
      • 8.  Form: Title to Shares  5A.35
      • 9.  Form: Securities Legends  5A.36
      • 10.  Form: Completion and Acceptance of Subscription  5A.37
    • I.  Form: Restrictive Legend (Federal)  5A.38
    • J.  Form: Investment Representation Letter  5A.39
    • K.  Form: Memorandum to Client Regarding Procedures for Private Offering  5A.40
    • L.  Form: Notice of Transaction Pursuant to Corporations Code §25102(f)   5A.41
    • M.  Form: Bad Actor Questionnaire (Individuals)  5A.42
    • N.  Form: Bad Actor Questionnaire (Entities)  5A.43

6

Private Placements

Christopher J. Husa

  • I.  SCOPE OF CHAPTER  6.1
  • II.  NONPUBLIC OFFERINGS—SECTION 4(a)(2)  6.2
  • III.  ACCREDITED INVESTOR OFFERINGS—SECTION 4(a)(5)  6.3
  • IV.  LIMITED OFFERINGS—REGULATION D  6.4
    • A.  Definitions  6.5
      • 1.  Accredited Investor  6.6
      • 2.  Aggregate Offering Price  6.7
      • 3.  Number of Purchasers  6.8
      • 4.  Purchaser Representative  6.9
    • B.  General Conditions  6.10
      • 1.  Integration
        • a.  Safe Harbor  6.11
        • b.  Integration With Other Offerings  6.12
      • 2.  Information Requirements  6.13
      • 3.  Manner of Offering  6.14
      • 4.  Restricted Securities  6.15
      • 5.  Notice Filing  6.16
    • C.  Rule 504 Offerings  6.17
    • D.  Rule 505 Now Repealed   6.18
    • E.  Rule 506 Offerings
      • 1.  General Requirements of Rule 506  6.19
      • 2.  Offerings Involving “Bad Actors” Disqualified  6.19A
      • 3.  General Solicitation and Advertising  6.19B
      • 4.  Verifying Accredited Investor Status  6.19C
      • 5.  SEC Proposals  6.19D
    • F.  Disqualifying Provision  6.20
    • G.  Effect of Noncompliance  6.21
  • V.  COMPARISON OF EXEMPTIONS   6.22
  • VI.  OTHER EXEMPTIONS
    • A.  Intrastate Offerings  6.23
    • B.  Offshore Offerings  6.24
    • C.  Securities Act Rule 1001  6.25
    • D.  Securities Act Rule 701  6.26
  • VII.  RESALES OF RESTRICTED SECURITIES  6.27
    • A.  Rule 144  6.28
    • B.  Rule 144A  6.29
    • C.  Section 4(1½) and Section 4(a)(7)  6.30
  • VIII.  REGISTRATION OF BROKER-DEALERS  6.31
  • IX.  STATE LAW
    • A.  California
      • 1.  Generally  6.32
      • 2.  Securities Exempt From Qualification  6.33
      • 3.  Transactions Exempt From Qualification
        • a.  Private Offers  6.34
        • b.  Limited Offerings  6.35
        • c.  Qualified Purchasers  6.36
        • d.  Small Offerings  6.37
        • e.  Offers and Sales to Certain Types of Investors  6.38
        • f.  Stock Purchase and Option Plans  6.39
        • g.  Other California Exemptions  6.40
    • B.  Other States
      • 1.  General  6.41
      • 2.  NASAA Uniform Limited Offering Exemption and Statement of Policy  6.42
      • 3.  NASAA’s Electronic Filing Depository  6.43

6A

Drafting a Private Placement Memorandum Under Regulation D

Steven T. Anapoell

  • I.  INTRODUCTION  6A.1
  • II.  FEDERAL AND STATE DISCLOSURE OBLIGATIONS  6A.2
  • III.  SECURITIES LAW EXEMPTIONS FROM REGISTRATION  6A.3
  • IV.  PREPARING A PRIVATE PLACEMENT MEMORANDUM  6A.4
    • A.  Step 1: Engagement Letter
      • 1.  Describe Scope of Services  6A.5
      • 2.  Form: Sample Engagement Letter Clauses  6A.6
    • B.  Step 2: “Process” Letter  6A.7
    • C.  Step 3. Bad Actor Certifications/Questionnaires  6A.7A
    • D.  Step 4: Information Gathering/Due Diligence  6A.8
    • E.  Step 5: Legal Review  6A.9
    • F.  Step 6: Drafting the PPM  6A.10
    • G.  Step 7: Focus on Risk Factors  6A.11
    • H.  Step 8: Cold Review  6A.12
    • I.  Step 9: Initial Client Review  6A.13
    • J.  Step 10: Final Client Review and Delivery  6A.14
  • V.  RULE 502(b) CHECKLIST  6A.15
  • VI.  ELEMENTS OF A TYPICAL PPM  6A.16
    • A.  Cover Page  6A.17
    • B.  Notice to Investors  6A.18
    • C.  Table of Contents  6A.19
    • D.  Summary of Offering  6A.20
    • E.  Risk Factors  6A.21
    • F.  Forward-Looking Statements  6A.22
    • G.  Use of Proceeds  6A.23
    • H.  Offering Price; Capitalization; Dilution  6A.24
    • I.  Plan of Distribution  6A.25
    • J.  Description of Business and Properties  6A.26
    • K.  Material Pending Legal Proceedings  6A.27
    • L.  Management’s Discussion and Analysis (MD&A)  6A.28
    • M.  Management  6A.29
    • N.  Executive Compensation  6A.30
    • O.  Director and Officer Indemnification  6A.31
    • P.  Security Ownership  6A.32
    • Q.  Description of Securities  6A.33
    • R.  Relationships and Related Party Transactions  6A.34
    • S.  Market for Securities and Related Matters  6A.35
    • T.  Dividend Policy  6A.36
    • U.  SEC Position re Indemnification  6A.37
    • V.  Additional Information  6A.38
    • W.  Interests of Legal Counsel and Other Experts  6A.39
    • X.  Financial Statements; Financial Forecasts  6A.40
    • Y.  Exhibits  6A.41
  • VII.  SAMPLE PRIVATE PLACEMENT MEMORANDUM
    • A.  Introduction  6A.42
    • B.  Form: Sample Confidential Private Placement Memorandum  6A.43

6B

Equity Crowdfunding

David M. Lynn

John M. Rafferty

  • I.  REGULATION CROWDFUNDING; SCOPE OF CHAPTER  6B.1
  • II.  GENERAL REQUIREMENTS OF CROWDFUNDING
    • A.  Limit on Capital Raised; Individual Investment Limits  6B.2
    • B.  Offering Through an Intermediary  6B.3
    • C.  Companies Not Eligible for Crowdfunding Exemption  6B.4
  • III.  COMPANY DISCLOSURE REQUIREMENTS  6B.5
    • A.  Form C Disclosures  6B.6
    • B.  Financial Statement Requirements  6B.7
    • C.  Amendments to Form C; Progress Updates; Annual Report  6B.8
    • D.  Termination of Reporting  6B.9
    • E.  Offering Amount and Offering Mechanics  6B.10
    • F.  Types of Securities  6B.11
    • G.  Transfer Restrictions  6B.12
    • H.  Integration  6B.13
    • I.  Restrictions on Advertising and Promotion  6B.14
    • J.  Promoter Compensation  6B.15
  • IV.  REQUIREMENTS FOR INTERMEDIARIES  6B.16
    • A.  Conducting a Crowdfunding Offering
      • 1.  Single Intermediary; Financial Interests in Issuer  6B.17
      • 2.  Measures to Reduce Risk of Fraud  6B.18
      • 3.  Account Opening  6B.19
      • 4.  Educational Materials  6B.20
      • 5.  Issuer Information  6B.21
      • 6.  Investor Qualifications; Investor’s Acknowledgement of Risks  6B.22
      • 7.  Communication Channels  6B.23
      • 8.  Notice of Investment Commitment  6B.24
      • 9.  Maintenance and Transmission of Funds  6B.25
      • 10.  Confirmation of Transaction  6B.26
      • 11.  Completion of Offerings; Cancellations and Reconfirmations  6B.27
    • B.  Intermediary Registration and Other Requirements
      • 1.  Registration and Self-Regulatory Organization Membership  6B.28
      • 2.  Additional Requirements for Funding Portals  6B.29
      • 3.  Non-U.S. Funding Portals  6B.30
      • 4.  Exemptions From Broker-Dealer Registration and Safe Harbors  6B.31
      • 5.  Compliance Policies and Procedures  6B.32
      • 6.  Disqualification (“Bad Actor”) Provisions  6B.33
  • V.  FINRA’S FRAMEWORK APPLICABLE TO CROWDFUNDING PORTALS  6B.34
    • A.  General Standards; Application by Funding Portal  6B.35
    • B.  Funding Portal Conduct  6B.36
    • C.  Investigations and Sanctions  6B.37
  • VI.  KEY ISSUES FOR COMPANIES CONSIDERING A CROWDFUNDING OFFERING  6B.38
    • A.  New Capital Source  6B.39
    • B.  Disclosure Burdens  6B.40
    • C.  Large Stockholder Base  6B.41
    • D.  Limit on Offering Size  6B.42
    • E.  Limit on Individual Investment Amounts  6B.43
    • F.  Potential Challenges for Intermediaries  6B.44
  • VII.  CONCLUSION  6B.45

7

Investor Agreements

Linda M. DeMelis

  • I.  OVERVIEW
    • A.  Balancing Interests of Investors and Company  7.1
    • B.  Model Investor Documents  7.2
    • C.  Attorney Roles  7.3
  • II.  MEMORANDUM OF TERMS
    • A.  Introduction  7.4
    • B.  Negotiating Terms in Prevailing Economic Climate  7.5
    • C.  Specificity of Memorandum of Terms  7.6
    • D.  Memorandum of Terms: Series A Preferred Stock Financing
      • 1.  Form: Introduction  7.7
      • 2.  Form: Outline of Financing and Valuation  7.8
      • 3.  Form: Post-Financing Fully Diluted Capitalization  7.9
      • 4.  Form: Dividend Preference  7.10
      • 5.  Form: Liquidation Preference  7.11
      • 6.  Form: Redemption Rights  7.12
      • 7.  Form: Conversion Rights  7.13
      • 8.  Form: Antidilution Protection  7.14
      • 9.  Form: Voting Rights  7.15
      • 10.  Form: Board of Directors  7.16
      • 11.  Form: Protective Provisions  7.17
      • 12.  Form: Information Rights  7.18
      • 13.  Form: Registration Rights  7.19
      • 14.  Form: Transfer of Rights  7.20
      • 15.  Form: Right of Participation  7.21
      • 16.  Form: Right of First Refusal and Co-Sale  7.22
      • 17.  Form: Market Standoff  7.23
      • 18.  Form: Issuances to Employees  7.24
      • 19.  Form: Confidential Inventions and Assignment Agreement  7.25
      • 20.  Form: Auditors  7.26
      • 21.  Form: Directors’ and Officers’ Liability Insurance  7.27
      • 22.  Form: Key Person Life Insurance  7.28
      • 23.  Form: Confidentiality  7.29
      • 24.  Form: Nonsolicitation  7.30
      • 25.  Form: Expenses  7.30A
      • 26.  Form: Binding Nature; Governing Law  7.31
      • 27.  Form: Purchase Agreement  7.32
      • 28.  Form: Signatures  7.33
    • E.  Chart: Competing Interests of Investors and Company  7.34
  • III.  AMENDED AND RESTATED ARTICLES OF INCORPORATION
    • A.  Distinguishing Common and Preferred Stock  7.35
    • B.  Establishing Terms of Preferred Stock  7.36
    • C.  Form: Amended and Restated Articles of Incorporation
      • 1.  Form: Introduction; Name and Purpose of Corporation  7.37
      • 2.  Form: Authorized Capital  7.38
      • 3.  Form: Rights, Preferences, Privileges, and Restrictions of Capital Stock  7.39
      • 4.  Form: Dividend Preference  7.40
      • 5.  Form: Liquidation Preference  7.41
      • 6.  Form: Voting Rights  7.42
      • 7.  Form: Conversion Rights  7.43
      • 8.  Form: Redemption Rights  7.44
      • 9.  Form: Covenants  7.45
      • 10.  Form: Residual Rights  7.46
      • 11.  Form: Liability and Indemnification  7.47
      • 12.  Form: Miscellaneous Provisions; Signatures  7.48
    • D.  Chart: Competing Interests of Investors and Company  7.49
  • IV.  PREFERRED STOCK PURCHASE AGREEMENT
    • A.  Introduction  7.50
    • B.  Use of Model Form  7.51
    • C.  Form: Preferred Stock Purchase Agreement
      • 1.  Form: Introduction  7.52
      • 2.  Form: Recitals  7.53
      • 3.  Form: Purchase and Sale of Securities  7.54
      • 4.  Form: Definitions  7.55
      • 5.  Form: Representations and Warranties of Company  7.56
      • 6.  Form: Representations and Warranties of Investors  7.57
      • 7.  Form: Legends  7.58
      • 8.  Form: Conditions of Investors’ Obligations at Closing  7.59
      • 9.  Form: Conditions of the Company’s Obligations at Closing  7.60
      • 10.  Form: Miscellaneous Provisions; Signatures  7.61
    • D.  Chart: Competing Interests of Investors and Company  7.62
  • V.  INVESTOR RIGHTS AGREEMENT
    • A.  Introduction  7.63
    • B.  Form: Investor Rights Agreement
      • 1.  Form: Introduction  7.64
      • 2.  Form: Recitals  7.65
      • 3.  Form: Definitions  7.66
      • 4.  Form: Financial Statements and Reports  7.67
      • 5.  Form: Additional Information  7.68
      • 6.  Form: Inspection  7.69
      • 7.  Form: Investor Representation  7.70
      • 8.  Form: Right of Participation  7.71
      • 9.  Form: Other Covenants of the Company  7.72
      • 10.  Form: Termination of Covenants  7.73
      • 11.  Form: Demand Registration  7.74
      • 12.  Form: Piggyback Registration  7.75
      • 13.  Form: Expenses of Registration  7.76
      • 14.  Form: Termination of Registration Rights  7.77
      • 15.  Form: Registration Procedures and Obligations  7.78
      • 16.  Form: Information Furnished by Holder  7.79
      • 17.  Form: Indemnification  7.80
      • 18.  Form: Limitations on Registration Rights  7.81
      • 19.  Form: Transfer of Rights  7.82
      • 20.  Form: Market Standoff  7.83
      • 21.  Form: Opinion of Counsel  7.84
      • 22.  Form: Reports  7.85
      • 23.  Form: Termination  7.86
      • 24.  Form: Miscellaneous Provisions  7.87
      • 25.  Form: Signatures  7.88
  • VI.  RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
    • A.  Introduction  7.89
    • B.  Form: Right of First Refusal and Co-Sale Agreement
      • 1.  Form: Introduction  7.90
      • 2.  Form: Recitals  7.91
      • 3.  Form: Transfer of Shares by Founders  7.92
      • 4.  Form: Definitions  7.93
      • 5.  Form: Agreements Among the Company, Investors, and Founders  7.94
      • 6.  Form: Assignments and Transfers; No Third Party Beneficiaries  7.95
      • 7.  Form: Ownership  7.96
      • 8.  Form: Legend  7.97
      • 9.  Form: Escrow  7.98
      • 10.  Form: Change in Company’s Capital Structure  7.99
      • 11.  Form: Term  7.100
      • 12.  Form: Miscellaneous Provisions  7.101
      • 13.  Form: Signatures  7.102
      • 14.  Form: Consent of Spouse or Domestic Partner  7.103
  • VII.  VOTING AGREEMENT
    • A.  Introduction  7.104
    • B.  Form: Voting Agreement
      • 1.  Form: Introduction  7.105
      • 2.  Form: Recitals  7.106
      • 3.  Form: Shares Subject to Agreement  7.107
      • 4.  Form: Election of Directors and Related Matters; Certain Voting Rights  7.108
      • 5.  Form: Drag-Along Rights  7.109
      • 6.  Form: Legends  7.110
      • 7.  Form: Irrevocable Proxy  7.111
      • 8.  Form: Additional Parties to This Agreement  7.112
      • 9.  Form: Term  7.113
      • 10.  Form: Miscellaneous Provisions  7.114
      • 11.  Form: Signatures  7.115
  • VIII.  INDEMNIFICATION AGREEMENT
    • A.  Introduction  7.116
    • B.  Form: Indemnification Agreement
      • 1.  Form: Introduction  7.117
      • 2.  Form: Recitals  7.118
      • 3.  Form: Definitions  7.119
      • 4.  Form: Indemnity of Indemnitee  7.120
      • 5.  Form: Additional Indemnity  7.121
      • 6.  Form: Contribution in the Event of Joint Liability  7.122
      • 7.  Form: Advancement of Expenses  7.123
      • 8.  Form: Procedures and Presumptions for Determination of Entitlement to Indemnification  7.124
      • 9.  Form: Remedies of Indemnitee  7.125
      • 10.  Form: Nonexclusivity; Survival of Rights; Insurance; Subrogation  7.126
      • 11.  Form: Exception to Right of Indemnification  7.127
      • 12.  Form: Duration of Agreement  7.128
      • 13.  Form: Notice by Indemnitee  7.129
      • 14.  Form: Miscellaneous  7.130
      • 15.  Form: Signatures  7.131

8

Loan Financing

Susan R. Goldfarb

  • I.  SCOPE OF CHAPTER  8.1
  • II.  ROLE OF COUNSEL  8.2
  • III.  DECISION TO BORROW
    • A.  Advantages and Disadvantages  8.3
    • B.  Effect on Third Parties  8.4
  • IV.  TYPES OF LENDERS
    • A.  Commercial Banks  8.5
    • B.  Commercial Finance Lenders  8.6
    • C.  Insurance Companies  8.7
    • D.  Other Sources  8.8
  • V.  LOAN DOCUMENTATION
    • A.  Choosing a Bank  8.9
    • B.  Negotiation and Documentation  8.10
    • C.  Form: Loan Agreement  8.11
      • 1.  Form: Preamble  8.12
      • 2.  Form: Loan
        • a.  Form: Structure of Loan
          • (1)  Form: Term Loan (Promissory Note)  8.13
          • (2)  Form: Revolving Loan (Promissory Note)  8.14
          • (3)  Form: Revolving Loan (Borrowing Base and Loan Account)  8.15
        • b.  Form: Fluctuating Interest Rate  8.16
        • c.  Form: Fees  8.17
        • d.  Other Provisions
          • (1)  Prepayment Provisions  8.18
          • (2)  Material Adverse Change Provisions  8.18A
          • (3)  Post-Default Interest Provisions  8.18B
      • 3.  Form: Security
        • a.  Form: Security Agreement Required  8.19
        • b.  Form: Guaranty Required  8.20
        • c.  Subordination, Fraudulent Transfer Risk  8.20A
        • d.  Preference Risk; Deprizio Case  8.20B
        • e.  Deprizio Waivers  8.20C
        • f.  Partnership Guaranties  8.20D
        • g.  Waiver of Suretyship and Other Defenses  8.20E
      • 4.  Form: Conditions Precedent
        • a.  Form: Introductory Clause  8.21
        • b.  Form: Opinion of Counsel  8.22
        • c.  Form: Corporate Resolutions  8.23
        • d.  Form: Evidence of No Substantial Financial Change  8.24
        • e.  Form: Notes, Guaranty, and Security Agreement  8.25
        • f.  Form: Certificate of Incumbency  8.26
        • g.  Other Conditions  8.27
      • 5.  Form: Representations and Warranties  8.28
        • a.  Form: Introductory Clause  8.29
        • b.  Form: Existence and Qualification  8.30
        • c.  Form: Subsidiaries  8.31
        • d.  Form: Corporate and Other Authority  8.32
        • e.  Form: Corporate/Limited Liability Company Action  8.33
        • f.  Form: Incumbency of Officers  8.34
        • g.  Form: Agreement Valid and Binding  8.35
        • h.  Form: No Contrary Bylaw, Agreement, or Statute  8.36
        • i.  Form: Clear Title  8.37
        • j.  Form: Pending Litigation  8.38
        • k.  Form: No Event of Default  8.39
        • l.  Form: Accuracy of Financial Statements  8.40
        • m.  Form: Validity of Liens  8.41
        • n.  Form: ERISA  8.42
        • o.  Form: Anti-Terrorism Representation  8.42A
        • p.  Other Representations and Warranties  8.42B
      • 6.  Form: Affirmative Covenants
        • a.  Form: Introductory Clause  8.43
        • b.  Form: Use of Loan Proceeds  8.44
        • c.  Form: Financial Requirements
          • (1)  Form: Working Capital  8.45
          • (2)  Form: Tangible Net Worth  8.46
          • (3)  Form: Debt to Net Worth Ratio  8.47
        • d.  Form: Information to Lender
          • (1)  Form: Notices to Be Given  8.48
          • (2)  Form: Financial Information  8.49
        • e.  Form: Operation of Business
          • (1)  Form: Corporate/Limited Liability Company Existence, Business, and Properties  8.50
          • (2)  Form: Payment of Taxes and Other Liabilities  8.51
          • (3)  Form: Insurance  8.52
          • (4)  Form: Accounting Practices  8.53
        • f.  Form: Sales of Fixed Assets  8.54
        • g.  Form: Compensating Balances  8.55
        • h.  Form: Depository Relationship  8.55A
        • i.  Form: Patriot Act Compliance  8.55B
        • j.  Form: Further Assurances  8.55C
        • k.  Other Affirmative Covenants  8.56
      • 7.  Form: Negative Covenants
        • a.  Form: Introductory Clause  8.57
        • b.  Form: Payment of Dividends  8.58
        • c.  Form: Purchase of Shares  8.59
        • d.  Form: Liquidation or Dissolution  8.60
        • e.  Form: Mergers or Acquisitions  8.60A
        • f.  Form: Limitations on Indebtedness  8.61
        • g.  Form: Transactions Affecting Assets
          • (1)  Form: Limitations on Liens  8.62
          • (2)  Form: Sale of Assets  8.63
          • (3)  Form: Sales of Receivables  8.63A
          • (4)  Form: Capital Expenditures  8.64
      • 8.  Other Negative Covenants  8.65
      • 9.  Form: Events of Default
        • a.  Form: Introductory Clause  8.66
        • b.  Form: Nonpayment  8.67
        • c.  Form: No False Representation or Warranty  8.68
        • d.  Form: Judgments  8.69
        • e.  Form: Bankruptcy
          • (1)  Form: Voluntary Bankruptcy Proceedings  8.70
          • (2)  Form: Involuntary Bankruptcy Proceeding  8.71
        • f.  Form: Default Under Other Agreement  8.72
        • g.  Form: Cross-Default  8.73
        • h.  Form: ERISA  8.74
        • i.  Form: Guarantor’s Impairments  8.75
        • j.  Form: Guaranty  8.76
        • k.  Form: Change of Ownership  8.77
        • l.  Form: Material Adverse Change  8.78
        • m.  Form: Catch-All Default  8.79
      • 10.  Form: Remedies  8.80
      • 11.  Form: Miscellaneous Provisions
        • a.  Form: Addresses  8.81
        • b.  Form: Successors and Assigns  8.82
        • c.  Form: Delay and Waivers  8.83
        • d.  Form: Expenses  8.84
        • e.  Form: Counterparts  8.85
        • f.  Form: Venue, Jurisdiction, and Process  8.86
        • g.  Other Provisions  8.87
      • 12.  Form: Execution  8.88

9

Letters of Credit

George A. Hisert

Paul S. Turner

  • I.  INTRODUCTION  9.1
  • II.  ILLUSTRATIVE EXAMPLES
    • A.  Commercial Letters of Credit
      • 1.  Issuance of Credit Resolves Payment Impasse  9.2
      • 2.  Structure and Terminology of Commercial Letters of Credit  9.3
      • 3.  Effect and Functions of Commercial Letter of Credit  9.4
    • B.  Standby Letters of Credit
      • 1.  Many Uses of Standby Letters of Credit  9.5
      • 2.  Structure and Terminology of Standby Letters of Credit  9.6
  • III.  ISSUANCE OF LETTER OF CREDIT
    • A.  Application and Reimbursement Agreement  9.7
    • B.  Issuance, Advice of Credit, and Confirmation  9.8
    • C.  Duration of Letter of Credit  9.9
    • D.  Modification and Revocation of Letter of Credit  9.10
  • IV.  SOURCES OF LETTER-OF-CREDIT LAW
    • A.  Law Merchant  9.11
    • B.  Uniform Commercial Code  9.12
    • C.  International Chamber of Commerce  9.13
    • D.  Uniform Customs and Practice for Documentary Credits (UCP 600)  9.14
    • E.  International Standby Practices (ISP 98)  9.15
    • F.  Uniform Rules for Demand Guarantees (URDG 758)  9.15A
    • G.  United Nations Convention on Independent Guarantees and Standby Letters of Credit  9.15B
  • V.  FUNDAMENTAL PRINCIPLES OF LETTER-OF-CREDIT LAW  9.16
    • A.  Payment Against Documents
      • 1.  Issuer Deals Solely With Documents  9.17
      • 2.  Nondocumentary Conditions  9.18
    • B.  Independence Principle  9.19
    • C.  “Strict Compliance”  9.20
    • D.  Issuer’s Preclusion  9.21
  • VI.  FRAUD  9.22
  • VII.  STANDBY LETTERS OF CREDIT VERSUS GUARANTIES  9.23
  • VIII.  WRONGFUL DISHONOR
    • A.  Generally  9.24
    • B.  Examples  9.25
    • C.  Remedies for Wrongful Dishonor and Wrongful Honor  9.26
  • IX.  TRANSFERS; ASSIGNMENTS OF PROCEEDS
    • A.  Transfers  9.27
    • B.  Assignment of Proceeds  9.28
  • X.  CREDITWORTHINESS OF ISSUER  9.29
  • XI.  CONCLUSION
    • A.  Commercial Credits  9.30
    • B.  Standby Credits  9.31

10

Equipment Leasing

  • I.  INTRODUCTION  10.1
    • A.  Development and Availability of Equipment Leases  10.2
    • B.  Lease Categorization  10.3
    • C.  Benefits of Leasing
      • 1.  In General  10.4
      • 2.  Tax Considerations  10.5
      • 3.  Operational Considerations  10.6
      • 4.  Accounting Considerations  10.7
  • II.  ANALYZING AND PLANNING A LEASE TRANSACTION
    • A.  Determining Feasibility of Prospective Transaction
      • 1.  Review of Contracts and Agreements
        • a.  Existing Documents  10.8
        • b.  Special Permits  10.9
        • c.  Purchase Agreement  10.10
        • d.  Evaluation of Equipment  10.11
      • 2.  Financial Analysis  10.12
    • B.  Planning Lease Transaction  10.13
    • C.  Commercial Finance Lender License  10.13A
  • III.  TYPES OF LEASES
    • A.  Accounting Treatment of Lease  10.14
    • B.  True Lease for Tax Purposes  10.15
      • 1.  Court Decisions  10.16
      • 2.  Internal Revenue Service Rulings
        • a.  Characterization as True Lease  10.17
        • b.  Recharacterization as Conditional Sale  10.18
    • C.  True Leases Under the UCC  10.19
      • 1.  UCC Requirements for True Lease  10.20
      • 2.  Factors Used to Determine True Lease  10.21
      • 3.  Need for UCC-1 Financing Statement
        • a.  Possible Recharacterization as Loan or Security Interest  10.22
        • b.  Leveraged Leases  10.23
    • D.  Finance Lease Under the UCC  10.24
    • E.  Assignees  10.24A
    • F.  Leveraged Lease Transactions  10.25
    • G.  Sale and Leaseback Transactions  10.26
      • 1.  Form: UCC-1 Financing Statement  10.27
      • 2.  Form: UCC Financing Statement Addendum (Form UCC-1Ad)  10.27A
      • 3.  Form: UCC Financing Statement Additional Party (Form UCC-1AP)  10.27B
      • 4.  Form: Notice of Intended Sale and Leaseback  10.28
  • IV.  DOCUMENTING THE FINANCE LEASE
    • A.  Form: Commitment Letter  10.29
    • B.  Master Lease Agreement
      • 1.  Preparing Documentation  10.30
      • 2.  Form: Master Lease Agreement
        • a.  Form: Parties, Date, and Recitals  10.31
        • b.  Form: Lease  10.32
        • c.  Form: Term  10.33
        • d.  Form: Rent  10.34
        • e.  Form: Nature of Transaction  10.35
      • 3.  Form: Inspections and Reports
        • a.  Form: Lessee’s Inspection and Certification  10.36
        • b.  Form: Lessor’s Right to Inspection  10.37
        • c.  Form: Reports Concerning Equipment  10.38
        • d.  Form: Financial Reports  10.39
      • 4.  Form: Operating Matters
        • a.  Form: Licensing, Registration, and Taxes  10.40
        • b.  Form: Location, Use, and Maintenance  10.41
        • c.  Form: Insurance, Loss, and Damage  10.42
        • d.  Form: Disclaimer of Warranties  10.43
      • 5.  Form: Lessee’s Representations, Warranties, and Covenants  10.44
      • 6.  Form: Conditions Precedent to Lessor’s Obligations  10.45
      • 7.  Form: Termination
        • a.  Form: Surrender of Equipment  10.46
        • b.  Form: Holding Over  10.47
      • 8.  Form: Default and Remedies
        • a.  Form: Events of Default  10.48
        • b.  Form: Remedies  10.49
        • c.  Form: Cumulative Remedies  10.50
        • d.  Form: Costs and Attorney Fees  10.51
        • e.  Form: Present Value Rate  10.52
      • 9.  Form: Binding Agreement; Assignment
        • a.  Form: Restriction on Assignment by Lessee; Successors and Assigns  10.53
        • b.  Form: Assignment by Lessor  10.54
      • 10.  Form: Indemnity
        • a.  Form: General Provisions  10.55
        • b.  Form: Indemnity for Loss of Tax Benefits
          • (1)  Form: Assumptions  10.56
          • (2)  Form: Lessee’s Representations, Warranties, and Covenants  10.57
          • (3)  Form: Loss of Tax Benefits  10.58
          • (4)  Form: Amount of Indemnification  10.59
          • (5)  Form: Computations  10.60
          • (6)  Form: Right to Contest  10.61
      • 11.  Form: Attorney Fees and Costs  10.62
      • 12.  Form: Usury Savings Clause  10.63
      • 13.  Form: Security Deposits  10.64
      • 14.  Form: Governing Law; Venue  10.65
      • 15.  Form: Entire Agreement Between the Parties; No Modifications  10.66
      • 16.  Form: Signatures  10.67
    • C.  Form: Equipment Lease Schedule  10.68
    • D.  Form: Certificate of Acceptance  10.69

11

Business Insurance

Mary Craig Calkins

Kirk A. Pasich

  • I.  INTRODUCTION TO INSURANCE  11.1
  • II.  INSURANCE POLICIES AND PACKAGES  11.2
    • A.  First Party Versus Third Party Insurance  11.3
    • B.  Primary Level Policies  11.4
    • C.  Umbrella and Excess Policies  11.5
    • D.  Occurrence Versus Claims-Made Coverage  11.6
    • E.  Standard Form Versus “Manuscript” Policies  11.7
  • III.  ANATOMY OF AN INSURANCE POLICY  11.8
    • A.  Specific Coverage Parts  11.9
      • 1.  Declarations Page  11.10
      • 2.  Insuring Agreements  11.11
      • 3.  Definitions  11.12
      • 4.  Endorsements  11.13
      • 5.  Exclusions  11.14
      • 6.  Conditions  11.15
        • a.  Notice  11.16
          • (1)  Occurrence-Based Policies  11.17
          • (2)  Claims-Made Policies  11.18
        • b.  Cooperation Clause  11.19
        • c.  “Other Insurance” Provisions  11.20
        • d.  “Voluntary Payments” Provisions  11.21
        • e.  Other Conditions  11.22
    • B.  Certificates of Insurance Versus Binders  11.23
      • 1.  Certificates of Insurance  11.23A
      • 2.  Binders  11.23B
    • C.  Rescission or Cancellation of Policies  11.24
  • IV.  COMMON INSURANCE POLICIES  11.25
    • A.  General Liability Insurance  11.26
      • 1.  Pre-1986 CGL Policy Form  11.26A
      • 2.  Current CGL Policy Form  11.26B
      • 3.  Additional Insureds  11.26C
      • 4.  Economic Losses Not Covered  11.26D
      • 5.  Other Exclusions  11.26E
    • B.  Property Insurance  11.27
    • C.  Business Interruption Insurance  11.28
    • D.  Errors and Omissions or Professional Liability Insurance  11.29
    • E.  Directors and Officers Insurance  11.30
      • 1.  Scope of Coverage  11.30A
      • 2.  Claims-Made Coverage  11.30B
      • 3.  Definition of “Loss”  11.30C
      • 4.  Exclusions  11.30D
      • 5.  Reimbursement Obligation, No Duty to Defend  11.30E
      • 6.  Limitations on Settlement  11.30F
    • F.  Fiduciary Liability Policies  11.31
    • G.  Employment Practices Liability Insurance  11.32
    • H.  Environmental Impairment Liability Insurance  11.33
    • I.  Business Automobile Insurance  11.34
    • J.  Workers’ Compensation Insurance  11.35
    • K.  Fidelity Bond or Employee Dishonesty Insurance  11.36
    • L.  Title Insurance  11.37
    • M.  Miscellaneous Insurance Policies  11.38
  • V.  FUNDAMENTAL INSURANCE CONCEPTS  11.39
    • A.  Contract Interpretation  11.40
    • B.  Duty to Defend  11.41
    • C.  Duty to Indemnify  11.42
    • D.  Duty to Reimburse Defense Costs
      • 1.  Insurer’s Duty  11.43
      • 2.  Insured’s Duty  11.43A
    • E.  Duty to Investigate  11.44
    • F.  Bad Faith  11.45
    • G.  Motions for Stay  11.46
    • H.  Policy Limits and “Interrelated Acts”  11.47
    • I.  Deductibles and Self-Insured Retentions (SIRs)  11.48
    • J.  Self-Insurance  11.49
    • K.  Mandatory and Discretionary Insurance  11.50
    • L.  Admitted and Nonadmitted Insurers  11.51
    • M.  Reinsurance  11.52
  • VI.  CALIFORNIA INSURANCE GUARANTEE ASSOCIATION  11.53
  • VII.  PREMIUM FINANCING  11.54
  • VIII.  BROKERS AND AGENTS  11.55
    • A.  Liability of Agents and Brokers  11.55A
  • IX.  TERRORISM INSURANCE  11.56
  • X.  INTERNET AND E-COMMERCE  11.57
  • XI.  INTELLECTUAL PROPERTY INFRINGEMENT  11.58

12

Intellectual Property Protection

Jacob C. Reinbolt

Frederick K. Taylor

  • I.  OVERVIEW  12.1
    • A.  Initial Determinations
      • 1.  Practical Realities  12.2
      • 2.  Analyzing Cost Versus Benefits of Protection  12.3
      • 3.  Analyzing Best Form of Protection  12.4
    • B.  Patents
      • 1.  What Patents Cover  12.5
      • 2.  How Patent Protection Is Obtained
        • a.  Patent Application Required  12.6
        • b.  Definiteness  12.6A
        • c.  Patent Marking and Notice  12.6B
        • d.  Managing Employee Inventions  12.6C
      • 3.  Prerequisites for Patent Protection  12.7
        • a.  Eligibility  12.7A
        • b.  Novelty  12.7B
        • c.  Nonobviousness  12.7C
        • d.  Usefulness (Utility Patents)  12.7D
      • 4.  Duration of Patent Protection
        • a.  Utility and Design Patents  12.8
        • b.  Provisional Patent Applications  12.8A
        • c.  Maintenance Fees Required  12.8B
      • 5.  Patent Searches  12.9
      • 6.  Enforcement and Infringement
        • a.  Infringement Defined  12.10
        • b.  Doctrine of Equivalents  12.10A
        • c.  Design Patents  12.10B
      • 7.  Defenses Against Patent Infringement  12.11
      • 8.  Remedies for Infringement
        • a.  Injunctions  12.12
        • b.  Damages  12.12A
      • 9.  International Patent Protection  12.13
      • 10.  Provisional Rights  12.14
      • 11.  Assignment of Patent Licenses  12.14A
    • C.  Copyrights
      • 1.  What Copyrights Cover  12.15
        • a.  Idea/Expression Dichotomy  12.16
        • b.  Originality Requirement  12.17
        • c.  Fixation Requirement  12.18
        • d.  Useful/Functional Features  12.18A
      • 2.  Digital Millennium Copyright Act  12.18B
      • 3.  Music  12.18C
      • 4.  Exclusive Rights of Copyright Owner
        • a.  Principal Exclusive Rights  12.19
          • (1)  Reproduction Right  12.19A
          • (2)  Right to Prepare Derivative Works  12.19B
          • (3)  Distribution Right  12.19C
          • (4)  Performance Right  12.19D
        • b.  Exclusive Rights Can Be Separately Licensed  12.19E
        • c.  Third Party “Inducing Infringement” Liability  12.19F
      • 5.  Assignment of Copyrights and Copyright Licenses; Recapture of Copyrights  12.19G
      • 6.  Limitations on Exclusive Rights of Copyright Owners
        • a.  Fair Use  12.20
        • b.  First Sale Doctrine  12.20A
        • c.  State Contract Law  12.20B
        • d.  Implied Licenses  12.20C
      • 7.  Ownership of Copyright  12.21
        • a.  Joint Authorship  12.22
        • b.  Authorship and Community Property  12.23
        • c.  Works Made for Hire
          • (1)  Statutory Requirements for Classification  12.24
          • (2)  Employee Defined  12.25
        • d.  Authorship of Websites  12.26
      • 8.  Duration of Copyright Protection  12.27
      • 9.  Registration of Copyrights
        • a.  Benefits of Registration  12.28
        • b.  Disadvantages of Registration  12.29
        • c.  Mechanics of Registration  12.30
      • 10.  Copyright Notice  12.31
      • 11.  Remedies for Copyright Infringement  12.32
        • a.  Actual Damages and Defendant’s Profits  12.33
        • b.  Statutory Damages  12.34
        • c.  Actual Damages Determination  12.35
    • D.  Trademarks
      • 1.  Definitions
        • a.  Trademark  12.36
        • b.  Service Mark  12.37
        • c.  Trade Name  12.38
        • d.  Other Types of Marks  12.39
      • 2.  Sources of Trademark Protection
        • a.  Common Law  12.40
        • b.  State Law  12.41
        • c.  Federal Law  12.42
      • 3.  Trademark Rights and Protection
        • a.  Rights  12.43
        • b.  Likelihood of Confusion  12.44
        • c.  Protection Among Different Goods and Services  12.45
      • 4.  Trademark Searches  12.46
        • a.  Search Should Be Broad in Scope and Done Early  12.47
        • b.  Thoroughly Review Search Results  12.48
      • 5.  Verbal Components of Trademark
        • a.  Descriptive Terms  12.49
        • b.  Arbitrary and Fanciful Terms  12.50
        • c.  Suggestive Terms  12.51
        • d.  Generic Terms  12.52
        • e.  Secondary Meaning  12.53
        • f.  Geographic Terms  12.54
        • g.  Names as Trademarks  12.55
        • h.  Letters and Numbers  12.56
      • 6.  Nonverbal Components of Trademark
        • a.  Designs  12.57
        • b.  Colors  12.58
        • c.  Product Design and “Trade Dress”  12.59
      • 7.  Use of Trademark  12.60
        • a.  Actual Use in Commerce Required  12.61
        • b.  As an Adjective  12.62
        • c.  Trademark Versus Trade Name  12.63
        • d.  Assignments in Gross  12.63A
      • 8.  Trademark Notices
        • a.  Federally Registered Trademarks  12.64
        • b.  Common-Law and State Trademarks  12.65
      • 9.  Federal Registration
        • a.  Benefits of Registration  12.66
        • b.  Federal Versus State Registration  12.67
        • c.  Federal Application Procedure  12.68
        • d.  Federal Intent-to-Use Application  12.69
      • 10.  Terms of Trademark Rights  12.70
      • 11.  Infringement  12.71
        • a.  Strength of Trademark  12.72
        • b.  Similarities of Marks  12.73
        • c.  Actual Confusion  12.74
        • d.  Different Chains of Commerce  12.75
        • e.  Trademark Dilution  12.76
        • f.  Improper Use of Trademarks in Domain Names  12.77
          • (1)  Anticybersquatting Consumer Protection Act  12.78
          • (2)  ICANN Arbitration for Domain Names  12.79
          • (3)  ICANN gTLD Trademark Clearinghouse  12.79A
        • g.  Keyword Advertising  12.80
        • h.  The Territoriality Principle  12.80A
        • i.  Innocent User Defense  12.80B
      • 12.  Policing Trademarks  12.81
    • E.  Trade Secrets
      • 1.  The Defend Trade Secrets Act of 2016  12.82
      • 2.  California UTSA; Definition of Trade Secret  12.82A
      • 3.  Independent Economic Value Requirement  12.83
      • 4.  Not Generally Known Requirement  12.84
      • 5.  “Reasonable Efforts to Maintain Secrecy” Standard  12.85
      • 6.  Duration of Trade Secret Protection  12.86
      • 7.  Protective Steps Required
        • a.  Procedures to Avoid Unintentional Disclosure
          • (1)  Proprietary Information Agreements  12.87
          • (2)  Personnel Department Procedures  12.88
          • (3)  Document Identification  12.89
          • (4)  Form: Label for Trade Secret Material  12.90
          • (5)  Faxes  12.91
          • (6)  Visitors to Company Premises  12.92
          • (7)  Review of Information Disclosed to Customers in Product Materials, Speeches, and Scientific Literature  12.93
        • b.  Procedures to Avoid Intentional Disclosure  12.94
        • c.  Document Destruction  12.95
        • d.  Perils of Electronic Transmission of Information
          • (1)  Internet and Intranets  12.96
          • (2)  E-Mail  12.97
      • 8.  Employees Who Create Trade Secrets  12.98
      • 9.  California Labor Code Limitations on Assignment of Inventions  12.99
      • 10.  Protection Against Disclosure by Former Employees
        • a.  Agreement Not to Disclose Trade Secrets  12.100
        • b.  Noncompetition Clause for Clients With Multistate Operations  12.101
        • c.  Exit Interviews  12.102
        • d.  Follow-Up Letters to Former Employee and New Employer  12.103
      • 11.  Avoiding Sham Trade Secret Litigation  12.104
      • 12.  Trade Secret Status of Customer Lists  12.105
      • 13.  Protection Against Disclosure by Consultants, Vendors, Joint Venturers, and Licensees
        • a.  Negotiation Stage  12.106
        • b.  Definitive Agreement Stage  12.107
        • c.  Vendors  12.108
        • d.  Tracing Leaks  12.109
        • e.  Recovery of Loaned Information  12.110
        • f.  Effect of Other Laws on Trade Secrets  12.110A
      • 14.  Protection Against Disclosure by Federal Government
        • a.  Marking Confidential Documents Furnished to Federal Government  12.111
        • b.  Including Appropriate Federal Acquisition Regulations in Contracts With Federal Government  12.112
  • II.  CHECKLIST: PROCEDURES FOR PROTECTING CONFIDENTIAL AND TRADE SECRET INFORMATION  12.113
  • III.  FORMS
    • A.  Form: Proprietary Information and Inventions Agreement for Employees
      • 1.  Form: Introductory Clause  12.114
      • 2.  Form: Effective Date  12.115
      • 3.  Form: Confidential Information Defined  12.116
      • 4.  Form: Protection of Confidential Information  12.117
      • 5.  Form: Noncompetition During Employment  12.118
      • 6.  Form: Prior Knowledge and Inventions  12.119
      • 7.  Form: Prior Commitments  12.120
      • 8.  Form: Proprietary Information or Trade Secrets of Others  12.121
      • 9.  Form: Assignment of Employee Inventions
        • a.  Form: Disclosure  12.122
        • b.  Form: Assignment of Inventions  12.123
      • 10.  Form: Power of Attorney  12.124
      • 11.  Form: Termination of Employment
        • a.  Form: Delivery of Documents and Data  12.125
        • b.  Form: Obligations of Employee After Termination of Employment  12.126
      • 12.  Form: Injunctive Relief  12.127
      • 13.  Form: Attorney Fees  12.128
      • 14.  Form: Material Condition of Employment  12.129
      • 15.  Form: Amendment and Binding Effect  12.130
      • 16.  Form: Governing Law  12.131
      • 17.  Form: Entire Understanding  12.132
      • 18.  Form: Cumulative Remedies  12.133
      • 19.  Form: Severability  12.134
      • 20.  Form: Employment at Will  12.135
      • 21.  Form: Caution to Employee  12.136
      • 22.  Form: Signature Clause  12.137
      • 23.  Form: Employee Statement (Schedule A)  12.138
      • 24.  Form: Termination Certificate (Schedule B)  12.139
      • 25.  Form: Written Notification to Employee (Schedule C)  12.140
    • B.  Form: Copyright Assignment  12.141
    • C.  Form: Notice to Employees Regarding Information Security  12.142
    • D.  Form: Visitor Confidentiality Agreement  12.143
    • E.  Form: Termination Certificate  12.144
    • F.  Form: Letter to Former Employee  12.145
    • G.  Form: Letter to Former Employee’s New Employer  12.146
    • H.  Form: Nondisclosure Agreement for Negotiations With Consultants, Joint Venturers, or Licensees  12.147

13

Cybersecurity

  • I.  TYPES OF CYBERATTACKS  13.1
  • II.  LEGAL LANDSCAPE  13.2
    • A.  Federal Legislation
      • 1.  Computer Fraud and Abuse Act
        • a.  Overview  13.3
        • b.  As Applied to Spam  13.4
        • c.  As Applied to Conduct Exceeding Terms of Use  13.5
          • (1)  Violations of Terms of Use  13.5A
          • (2)  Sharing Single-User Password  13.5B
          • (3)  Access After Cease and Desist Letter  13.5C
        • d.  As Applied to Tracking Software  13.6
        • e.  As Applied to Improper Use of E-mail  13.7
        • f.  As Applied to Wireless Networks  13.7A
      • 2.  Electronic Communications Privacy Act
        • a.  Overview of Title I and Title II  13.8
        • b.  Title I, Wiretap Act  13.8A
          • (1)  As Applied to Cookies  13.9
          • (2)  As Applied to Tracking Software  13.10
          • (3)  As Applied to Unauthorized Wireless Access  13.10A
        • c.  Title II, Stored Communications Act  13.11
      • 3.  USA Patriot Act  13.12
      • 4.  Digital Millennium Copyright Act  13.13
      • 5.  Other Federal Statutes  13.14
      • 6.  Cybersecurity Guidance for Companies  13.14A
    • B.  State Legislation
      • 1.  Shine the Light Law (Civil Code §§1798.80–1798.84); Notice of Security Breach  13.15
      • 2.  Obligation to Maintain Security (CC §1798.81.5)  13.15A
      • 3.  Penal Code §502: Computer Crimes  13.16
      • 4.  Ransomware  13.16A
      • 5.  Wireless Devices  13.16B
    • C.  Trespass to Chattels  13.17
      • 1.  eBay Inc. v Bidder’s Edge, Inc.  13.18
      • 2.  Register.com, Inc. v Verio  13.19
      • 3.  Intel Corp. v Hamidi  13.20
      • 4.  Ticketmaster Corp. v Tickets.com, Inc.  13.21
      • 5.  Thrifty-Tel, Inc. v Bezenek  13.21A
  • III.  HOW TO RESPOND TO AN ATTACK
    • A.  General Considerations  13.22
    • B.  Checklist: Responding to a Cyberattack  13.23

14

Licenses, Permits, and Registrations

Lynne A. Carmichael

  • I.  OVERVIEW
    • A.  Identifying Required Licenses, Permits, and Registrations
      • 1.  Gathering Information About the Business  14.1
      • 2.  Disclosing Client’s Personal and Potentially Confidential Information  14.2
      • 3.  Permits for Businesses Not Planning Physical Development  14.3
      • 4.  Permits for Businesses Planning Physical Development  14.4
      • 5.  Permits for Businesses Planning Manufacturing and Land Use Development  14.5
      • 6.  Permits for Acquisition of Existing Businesses or Assets  14.6
      • 7.  Sources for Information on Required Permits and Licenses  14.7
    • B.  Obtaining Necessary Licenses, Permits, and Registrations
      • 1.  Basic Licenses, Permits, and Registrations  14.8
        • a.  Federal Tax Registration  14.9
        • b.  Local Business Tax Licenses and Permits  14.10
        • c.  Employment Development Department Registration  14.11
        • d.  Seller’s Permit  14.12
        • e.  Fictitious Business Name Statement  14.13
        • f.  Qualification as Foreign Entity  14.14
      • 2.  Zoning and Special or Conditional Use Permits  14.15
      • 3.  Permits for Renovation, Manufacturing, and Development
        • a.  Renovation  14.16
        • b.  Manufacturing Facilities  14.17
        • c.  Land Use Development and Environmental Clearances  14.18
  • II.  CHECKLISTS  14.19
    • A.  Checklist: General Licenses, Permits, and Registrations for Business Start-Up and Operations  14.20
    • B.  Checklist: Licenses, Permits, and Registrations Required for Manufacturing Facilities  14.21
    • C.  Checklist: Construction and Development Permit Requirements  14.22
    • D.  Chart: Licenses, Permits, and Registrations Needed for Specific Businesses, and Where to Obtain Them  14.23

15

Tax and Accounting Elections

Brian M. Katusian

Lawrence S. Branton

  • I.  OVERVIEW
    • A.  Elections Affect Tax Liability and Documentation  15.1
    • B.  Delegating Responsibility for Elections  15.2
    • C.  Election of Accounting Method  15.3
      • 1.  Cash Method  15.4
      • 2.  Accrual Method  15.5
      • 3.  Limited Use of Cash Method  15.6
      • 4.  Businesses With Inventories  15.6A
      • 5.  Other Accounting Methods  15.7
      • 6.  Adoption and Change of Accounting Method  15.8
    • D.  Election of Accounting Period  15.9
    • E.  Other Elections Applicable to All Businesses  15.10
      • 1.  Depreciation  15.11
      • 2.  Bonus Depreciation  15.12
      • 3.  Expensing of Certain Depreciable Assets  15.13
      • 4.  Research and Experimental Costs  15.14
      • 5.  Work Opportunity Tax Credit  15.15
      • 6.  Business Start-Up Expenses  15.16
      • 7.  Capitalization  15.17
      • 8.  IRC §83 Election
        • a.  When IRC §83 Applies  15.18
        • b.  When IRC §83 Election Is Beneficial  15.19
        • c.  30-Day Period to Make IRC §83 Election  15.20
      • 9.  Miscellaneous Elections  15.21
    • F.  Elections Applicable to Partnerships and LLCs
      • 1.  Classification Under Check-the-Box Regulations  15.22
      • 2.  Exclusion From Partnership Tax Treatment  15.23
      • 3.  Organization and Syndication Fees  15.24
      • 4.  Partnership Elections Made by Partners  15.25
      • 5.  IRC §754 Election  15.26
      • 6.  Election Out of Partnership Audit and Adjustment Rules (IRC §6221(b))  15.27
    • G.  Elections Applicable to All Corporations
      • 1.  Organizational Expenditures  15.28
      • 2.  IRC §338(g) Election  15.29
      • 3.  IRC §338(h)(10) Election  15.30
      • 4.  Non-Recently-Purchased Stock  15.31
      • 5.  Water’s Edge Election  15.32
    • H.  S Corporation Election  15.33
      • 1.  Corporations Eligible for S Election  15.34
      • 2.  Filing IRS Form 2553  15.35
      • 3.  Shareholder Consent  15.36
      • 4.  S Corporations for Federal Purposes Must Be S Corporations for California Purposes  15.37
      • 5.  Qualified Subchapter S Trust Election  15.38
      • 6.  Electing Small Business Trusts  15.39
      • 7.  Election to Terminate S Corporation’s Tax Year if Shareholder’s Interest in S Corporation Terminates  15.40
    • I.  Corporation Consolidated Return Election  15.41
  • II.  FORMS
    • A.  Form: IRC §83(b) Election  15.42
    • B.  Form: Election by Small Business Corporation (IRS Form 2553)  15.43

16

Tax Compliance

Lawrence S. Branton

Brian M. Katusian

  • I.  OVERVIEW  16.1
    • A.  Importance of Tax Compliance  16.2
    • B.  Role of Attorney and Accountant  16.3
    • C.  Notifying Taxing Authorities  16.4
      • 1.  Notifying IRS  16.5
      • 2.  Notifying California Employment Development Department  16.6
      • 3.  Notifying California Franchise Tax Board  16.7
      • 4.  Notifying California Department of Tax and Fee Administration  16.8
      • 5.  Notifying Local Taxing Authorities  16.9
    • D.  Establishing Recordkeeping Procedures
      • 1.  Organizing Information  16.10
      • 2.  Single- and Double-Entry Bookkeeping Methods  16.11
      • 3.  How Long Records Are Kept  16.12
      • 4.  Collecting Employee/Payee Information  16.13
        • a.  Employees  16.14
        • b.  Other Payees  16.15
      • 5.  Electronic Storage of Data, Electronic Filing  16.16
    • E.  Types of Taxes  16.17
      • 1.  Income Taxes and Estimated Tax Payments
        • a.  Sole Proprietorships  16.18
        • b.  C Corporations
          • (1)  C Corporations: Federal Filings  16.19
          • (2)  C Corporations: California Filings  16.19A
        • c.  S Corporations
          • (1)  S Corporations: Federal Filings  16.20
          • (2)  S Corporations: California Filings  16.20A
        • d.  Partnerships  16.21
        • e.  Limited Liability Companies  16.22
      • 2.  Withholding and Employment Taxes
        • a.  Who Withholds and Pays Employment Taxes?
          • (1)  Federal Withholding  16.23
          • (2)  California Withholding  16.23A
        • b.  Calculation of Withholding and Employment Taxes
          • (1)  Federal Calculation of Withholding  16.24
          • (2)  California Calculation of Withholding  16.24A
        • c.  Deposits of Federal Employment Taxes  16.25
          • (1)  Monthly Deposits  16.26
          • (2)  Semiweekly Deposits  16.27
          • (3)  One-Day Rule  16.28
          • (4)  Reporting Deposits  16.29
        • d.  Deposits of California Employment Taxes  16.30
        • e.  Penalties for Failure to Withhold, Deposit, or Pay Taxes  16.31
      • 3.  California Sales and Use Tax
        • a.  Sales Tax Coverage and Exemptions
          • (1)  Retailers Pay Sales Tax  16.32
          • (2)  Tax Measured by Gross Receipts  16.33
          • (3)  Tax on Tangible Personal Property  16.34
          • (4)  Use Tax on Consumption or Storage of Property  16.35
          • (5)  Tangible Personal Property Not Subject to Sales Tax  16.36
          • (6)  Resale Exemption  16.37
          • (7)  Occasional Sale Exemption  16.38
        • b.  Sales Tax on Transfers of Property to Start-Up; Mergers  16.39
        • c.  Sales and Use Tax Returns and Payment
          • (1)  Due Dates of Returns and Payments  16.40
          • (2)  California Department of Tax and Fee Administration Tax Returns  16.41
          • (3)  Prepayment of Sales and Use Tax  16.42
        • d.  Penalties  16.43
      • 4.  Property Taxes
        • a.  Property Tax Coverage and Exemptions  16.44
          • (1)  Real Property  16.45
          • (2)  Personal Property  16.46
        • b.  Assessment of Tax  16.47
        • c.  Filing Property Statements  16.48
        • d.  Payment of Tax  16.49
        • e.  Purchase and Change in Ownership  16.50
          • (1)  Transfers of Property Between Legal Entities  16.51
          • (2)  Transfers of Ownership Interests in Legal Entities  16.52
        • f.  Protesting or Adjusting Assessed Values [Deleted]  16.53
      • 5.  Documentary Transfer Tax
        • a.  Assessment of Transfer Tax  16.54
        • b.  Tax Rate  16.55
      • 6.  Local Business Taxes  16.56
      • 7.  Excise and Miscellaneous Taxes
        • a.  Which Businesses Pay Excise and Miscellaneous Taxes
          • (1)  Federal Excise Taxes  16.57
          • (2)  California Miscellaneous Taxes  16.57A
        • b.  Federal Excise Tax Compliance  16.58
    • F.  Information Returns and Reporting Obligations
      • 1.  Activities and Payments That Must Be Reported; Required Forms  16.59
        • a.  Wages  16.60
        • b.  Individual Retirement Information  16.61
        • c.  Dividends  16.62
        • d.  Interest  16.63
        • e.  Service Fees, Commissions, Rentals, and Royalties  16.64
        • f.  Retirement Plan Distributions  16.65
        • g.  Real Estate Transactions  16.66
        • h.  Brokers and Barter Exchanges  16.67
        • i.  Restaurants, Tips  16.68
        • j.  Cash Transactions  16.69
        • k.  Report of Foreign Bank and Financial Accounts (FBAR)  16.69A
        • l.  Other Transactions  16.70
      • 2.  Failure to File Information Returns  16.71
  • II.  TABLES AND LISTS
    • A.  Taxes Imposed on Different Forms of Business Entities  16.72
    • B.  Tax Forms Commonly Used by Business Entities  16.73
      • 1.  Sole Proprietorship Income Tax Forms  16.74
      • 2.  Corporation Income Tax Forms  16.75
      • 3.  Partnership and LLC Income Reporting Forms  16.76
      • 4.  Business Activities Reporting Forms  16.77
      • 5.  Employment Tax Forms  16.78
      • 6.  California Sales and Use Tax Forms  16.79
      • 7.  Excise Tax Forms  16.80
      • 8.  Miscellaneous Tax Forms  16.81
    • C.  IRS Tax Compliance Publications
      • 1.  General Guides  16.82
      • 2.  Guides for Specific Transactions or Businesses  16.83
  • III.  FORMS
    • A.  Form: Business Property Statement (BOE Form 571-L)  16.84
    • B.  Form: Separate Ownership of Real Property and Improvements  16.85
    • C.  Form: State, Local, and District Sales and Use Tax Return (BOE Form BOE-401-A2)  16.86
  • IV.  COMBINED FEDERAL/CALIFORNIA TAX CALENDAR
    • A.  Introduction
      • 1.  Standard Filings for Calendar-Year Taxpayers  16.87
      • 2.  Filings and Payment Obligations Without Fixed Due Dates
        • a.  Filings Triggered by Event  16.88
        • b.  Recurring Monthly/Semiweekly Employment Tax Deposit Obligations  16.89
        • c.  Formation and Qualification Fees and Taxes  16.90
    • B.  Tax Calendar
      • 1.  January  16.91
      • 2.  February  16.92
      • 3.  March  16.93
      • 4.  April  16.94
      • 5.  May  16.95
      • 6.  June  16.96
      • 7.  July  16.97
      • 8.  August  16.98
      • 9.  September  16.99
      • 10.  October  16.100
      • 11.  November  16.101
      • 12.  December  16.102

17

The Decision to Make a Public Offering

Peter M. Menard

  • I.  INTRODUCTION
    • A.  Scope of Chapter  17.1
    • B.  Statutes and Regulatory Materials  17.2
  • II.  OTHER FINANCING METHODS TO CONSIDER  17.3
  • III.  FEASIBILITY
    • A.  Company’s Characteristics and Business  17.4
    • B.  Internal Problems and Considerations  17.5
    • C.  External Factors  17.6
  • IV.  TAX CONSIDERATIONS  17.7
  • V.  ADVANTAGES OF PUBLIC OWNERSHIP  17.8
    • A.  Limitations on Liquidity
      • 1.  Lock-Up Periods  17.9
      • 2.  Exemptions From Registration for Resales of Securities  17.10
  • VI.  DISADVANTAGES OF PUBLIC OWNERSHIP  17.11
    • A.  Dilution  17.12
    • B.  Other Shareholder Rights Issues  17.12A
    • C.  Market Risks  17.13
    • D.  Disclosure and Reporting
      • 1.  Offering Materials  17.14
      • 2.  Periodic Reporting  17.15
      • 3.  Shareholders’ Meetings  17.16
      • 4.  Insider Reporting  17.17
    • E.  Offering Expenses
      • 1.  Direct Expenses
        • a.  In General  17.18
        • b.  Underwriting Expenses  17.19
        • c.  Accounting Fees  17.20
        • d.  Attorney Fees  17.21
        • e.  Printing Fees  17.22
        • f.  Insurance  17.23
      • 2.  Continuing Expenses  17.24
    • F.  Changes in Goals and Operations
      • 1.  Management Goals  17.25
      • 2.  Public Responsibility  17.26
    • G.  Potential Liabilities  17.27
      • 1.  Initial Offering  17.28
      • 2.  Continuing Liability  17.29
        • a.  Disclosure Obligations
          • (1)  Rule 10b–5  17.30
          • (2)  Insider Trading  17.30A
          • (3)  Regulation FD  17.30B
          • (4)  Safe Harbor for Forward-Looking Statements  17.30C
        • b.  Periodic Reports  17.31
        • c.  Short-Swing Profits  17.32
        • d.  Significant Enforcement Legislation  17.33
        • e.  Payments and Recordkeeping  17.34

18

Preparing for a Public Offering

Peter M. Menard

  • I.  INTRODUCTION
    • A.  Importance of Early Planning  18.1
    • B.  FINRA  18.1A
  • II.  UNDERWRITING
    • A.  Decision to Use Underwriter
      • 1.  Underwriter’s Role  18.2
        • a.  Firm-Commitment Underwriting  18.3
        • b.  Best-Efforts Underwriting  18.4
      • 2.  Direct Public Offerings  18.5
    • B.  Selecting the Underwriter  18.6
      • 1.  Types of Underwriters  18.7
      • 2.  Screening Procedure  18.8
    • C.  Negotiating With Prospective Underwriters  18.9
    • D.  Underwriting Compensation and Arrangements  18.10
      • 1.  General Limitations  18.11
      • 2.  Elements of Compensation  18.12
        • a.  Discount or Commission  18.13
        • b.  Expense Allowance  18.14
        • c.  Stock, Options, and Warrants  18.15
          • (1)  Amount and Terms  18.16
          • (2)  Registration Rights  18.17
        • d.  Preferential Rights  18.18
        • e.  Overallotment (“Green Shoe”) Option  18.19
        • f.  Right to Nominate Director  18.20
        • g.  Indemnification  18.21
    • E.  Underwriting Documentation  18.22
      • 1.  Letter of Intent
        • a.  Purpose  18.23
        • b.  Form: Letter of Intent  18.24
      • 2.  Underwriting Agreement  18.25
      • 3.  Agreement Among Underwriters and Selling Group  18.26
  • III.  PREPARATION FOR OFFERING  18.27
    • A.  Fundamental Changes
      • 1.  Corporate Structure
        • a.  Domicile and Reincorporation  18.28
        • b.  Reorganization  18.29
        • c.  Recapitalization
          • (1)  Authorized Capitalization and Outstanding Shares  18.30
          • (2)  Additional Class of Stock  18.31
      • 2.  Corporate Name  18.32
      • 3.  Employee Benefit Plans  18.33
    • B.  Corporate Examination  18.34
      • 1.  Legal Opinions  18.34A
      • 2.  Procedure
        • a.  Articles of Incorporation  18.35
        • b.  Bylaws  18.36
        • c.  Minute Books  18.37
        • d.  Other Documents  18.38
        • e.  Table: Primary Sources of Information  18.39
      • 3.  Matters to Consider
        • a.  Valid Incorporation, Good Standing, and Qualification  18.40
        • b.  Corporate Control Devices  18.41
        • c.  Board of Directors
          • (1)  Membership  18.42
          • (2)  Committees  18.43
        • d.  Officers  18.44
        • e.  Indemnification  18.45
        • f.  Shareholders’ Meetings  18.46
        • g.  Securities
          • (1)  Signatures and Transfer Arrangements  18.47
          • (2)  Outstanding Shares  18.48
          • (3)  Authorization  18.49
            • (a)  Valid Issuance  18.50
            • (b)  Full Payment  18.51
            • (c)  Assessability  18.52
            • (d)  Compliance With Securities Laws  18.53
            • (e)  Release of Restrictions  18.54
        • h.  Conflicts of Interest  18.55
        • i.  Registration Rights  18.55A
        • j.  Material Contracts and Agreements  18.56
  • IV.  STRUCTURE OF OFFERING
    • A.  Type of Security  18.57
      • 1.  Stock  18.58
      • 2.  Debentures  18.59
      • 3.  Warrants  18.60
      • 4.  Units  18.61
    • B.  Size and Nature of Offering  18.62
    • C.  Pricing
      • 1.  Methods and Procedure  18.63
      • 2.  Regulatory Limitations  18.64

19

Accessing the Public Markets

Peter M. Menard

  • I.  INTRODUCTION
    • A.  Background  19.1
    • B.  Scope of Chapter  19.2
  • II.  REGISTERED OFFERINGS  19.3
  • III.  REGULATION A OFFERINGS  19.4
    • A.  Comparison With Other Methods  19.5
      • 1.  Simplicity  19.6
      • 2.  Processing Time  19.7
      • 3.  Liabilities  19.8
      • 4.  Costs  19.9
    • B.  Availability of Exemption  19.10
      • 1.  Size of Offering/Integration  19.11
      • 2.  Issuers and Securities  19.12
    • C.  Disqualifying Provisions  19.13
    • D.  Federal Procedure and Related Activities
      • 1.  Preliminary Matters  19.14
      • 2.  Preparing Documents: Offering Statement  19.15
        • a.  Part I—Notification  19.16
        • b.  Part II—Offering Circular  19.17
        • c.  Part F/S—Financial Statements  19.18
        • d.  Part III—Exhibits  19.19
      • 3.  Filing  19.20
      • 4.  FINRA Review  19.21
      • 5.  SEC Processing  19.22
      • 6.  Amendments  19.23
      • 7.  Acceleration  19.24
      • 8.  Offering
        • a.  Commencement  19.25
        • b.  Solicitations of Interest, Advertising  19.26
        • c.  Organizing Underwriting Syndicate and Selling Group  19.27
        • d.  Distribution of Offering Circulars  19.28
        • e.  Suspended or Abandoned Offerings  19.29
        • f.  Offering Circular Supplements  19.30
      • 9.  Postoffering Procedure
        • a.  Closing and Sales  19.31
        • b.  Reporting  19.32
      • 10.  Suspension of Exemption  19.33
    • E.  California Qualification
      • 1.  When Required  19.34
      • 2.  Method of Qualification  19.35
      • 3.  Preparing and Filing Application  19.36
      • 4.  Processing  19.37
      • 5.  Preeffective Offers  19.38
      • 6.  Effectiveness  19.39
      • 7.  Posteffective Matters
        • a.  Advertising  19.40
        • b.  Secondary Trading  19.41
        • c.  Semiannual Reporting  19.42
    • F.  Other States  19.43
  • IV.  INTRASTATE OFFERINGS  19.44
    • A.  Comparison With Other Methods  19.45
    • B.  Availability of Exemptions  19.46
      • 1.  Effect of Amended Rule 147  19.47
      • 2.  Effect of Rule 147A  19.47A
      • 3.  Transactions  19.48
      • 4.  Integration
        • a.  Statutory Exemption  19.49
        • b.  Amended Rule 147 and Rule 147A  19.50
      • 5.  Issuer Residence
        • a.  Statutory Exemption  19.51
        • b.  Amended Rule 147  19.52
        • c.  Rule 147A  19.52A
      • 6.  Issuer “Doing Business” in State
        • a.  Statutory Exemption  19.53
        • b.  Amended Rule 147 and Rule 147A  19.54
      • 7.  Offerees and Purchasers
        • a.  Statutory Exemption  19.55
        • b.  Amended Rule 147 and Rule 147A  19.56
      • 8.  Reoffers and Resales
        • a.  Statutory Exemption  19.57
        • b.  Amended Rule 147 and Rule 147A  19.58
      • 9.  Precautionary Measures
        • a.  Statutory Exemption  19.59
        • b.  Amended Rule 147 and Rule 147A  19.60
    • C.  Effect of Noncompliance  19.61
    • D.  Offering  19.62
    • E.  California Qualification  19.63
  • V.  RULE 504 OFFERINGS
    • A.  Background  19.64
    • B.  Comparison With Other Methods  19.65
    • C.  Availability of Exemption
      • 1.  Size of Offering  19.66
      • 2.  Issuer  19.67
      • 3.  Disqualifying Provisions  19.68
      • 4.  Effect of Noncompliance  19.69
    • D.  Integration  19.70
    • E.  Resales  19.71
    • F.  Offering  19.72
    • G.  Notice Filing  19.73
    • H.  California Qualification  19.74
    • I.  Other States  19.75
  • VI.  OFFSHORE OFFERINGS
    • A.  Background  19.76
    • B.  Regulation S  19.77
      • 1.  Availability  19.78
        • a.  Issuers  19.79
        • b.  General Conditions  19.80
      • 2.  Issuer Safe Harbor  19.81
        • a.  Category 1  19.82
        • b.  Category 2  19.83
        • c.  Category 3  19.84
      • 3.  Resale Safe Harbor  19.85
      • 4.  Resale Limitations  19.86
      • 5.  Integration  19.87
    • C.  Offering  19.88
    • D.  California Qualification  19.89
    • E.  Other States  19.90
  • VII.  PUBLIC SHELLS AND BLANK CHECK COMPANIES
    • A.  Background  19.91
    • B.  Public Shells  19.92
    • C.  Blank Check Companies; SPACs  19.93
    • D.  Spin-offs and Other Variations  19.94

20

Registering a Public Offering

Peter M. Menard

  • I.  REGISTERED OFFERINGS  20.1
  • II.  FEDERAL REGISTRATION PROCEDURE AND RELATED ACTIVITIES
    • A.  General Considerations  20.2
    • B.  Responsibility and Timing
      • 1.  Function of Counsel  20.3
      • 2.  Scheduling
        • a.  Preliminary Meeting  20.4
        • b.  Form: Sample Time and Responsibility Schedule  20.5
    • C.  Preparing Registration Statement
      • 1.  Selection of Form  20.6
      • 2.  Part I: Prospectus
        • a.  Responsibility for Drafting  20.7
        • b.  Basic Format  20.8
        • c.  Nonfinancial Disclosures  20.9
        • d.  Financial Statements
          • (1)  Periods Covered  20.10
          • (2)  Age of Financial Statements
            • (a)  As of Filing Date  20.11
            • (b)  As of Anticipated Effective Date  20.12
          • (3)  Form and Content  20.13
      • 3.  Part II: Additional Information  20.14
    • D.  Due Diligence Investigation  20.15
    • E.  Prefiling Conferences With SEC Staff  20.16
    • F.  Prefiling Activities  20.17
    • G.  Filing  20.18
    • H.  Shelf Registration  20.19
    • I.  Processing Registration Statement  20.20
    • J.  Waiting Period Activities  20.21
      • 1.  Offering Activities; Information on Company Websites  20.22
      • 2.  Distribution of Preliminary Prospectus in Paper or Electronic Form  20.23
      • 3.  Syndication
        • a.  Generally  20.24
        • b.  Internet Road Shows  20.25
      • 4.  Market Activities  20.26
      • 5.  FINRA Review  20.27
      • 6.  Blue Sky Clearance  20.28
    • K.  Response to SEC Comments  20.29
    • L.  Amendments
      • 1.  Types of Amendments
        • a.  Delaying Amendments  20.30
        • b.  Substantive Amendments  20.31
        • c.  Pricing Amendments  20.32
      • 2.  Procedure  20.33
    • M.  Abandonment and Withdrawal  20.34
    • N.  Effectiveness  20.35
    • O.  Posteffective Activities
      • 1.  The Offering
        • a.  Underwriting Arrangements  20.36
        • b.  Commencement of Offering  20.37
        • c.  Distribution and Market Activities  20.38
        • d.  Offering Materials  20.39
        • e.  Closing Procedure  20.40
        • f.  Form: Sample Closing Memorandum  20.41
      • 2.  Posteffective Filings  20.42
      • 3.  Posteffective Amendments and Supplements  20.43
    • P.  Public Trading  20.44
  • III.  CALIFORNIA REQUIREMENTS
    • A.  Need for Qualification  20.45
    • B.  Securities Exempt From Qualification  20.46
    • C.  Qualification by Coordination
      • 1.  When Permitted  20.47
      • 2.  Application  20.48
      • 3.  Filing  20.49
      • 4.  Shelf Registration  20.50
      • 5.  Pre-effective Procedure
        • a.  Processing Application  20.51
        • b.  Imposition of Conditions  20.52
        • c.  Amendments  20.53
        • d.  Offering Price, Discount, and Commission Statement  20.54
        • e.  Offers and Advertising  20.55
      • 6.  Withdrawal or Abandonment  20.56
      • 7.  Effectiveness  20.57
      • 8.  Posteffective Procedure
        • a.  Notification and Filing Requirements  20.58
        • b.  Period of Qualification  20.59
        • c.  Advertising  20.60
        • d.  Semiannual Reports  20.61
        • e.  Secondary Trading  20.62
  • IV.  REQUIREMENTS OF OTHER STATES
    • A.  Preliminary Considerations  20.63
    • B.  Blue Sky Survey  20.64
    • C.  State Regulation
      • 1.  Form of Regulation  20.65
      • 2.  Procedures  20.66

21

Securities Law Citations

CEB Staff

  • I.  SECURITIES LAW CITATIONS  21.1

 

FINANCING AND PROTECTING CALIFORNIA BUSINESSES

(1st Edition)

February 2018

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH02

Chapter 2

The Business Plan

02-020

§2.20

Checklist: Essential Contents of Executive Summary

02-021

§2.21

Checklist: Management and Organization

02-022

§2.22

Checklist: Principals and Key Members of Management Team

02-023

§2.23

Checklist: Product or Service

02-024

§2.24

Checklist: The Market and Marketing

02-025

§2.25

Checklist: Specific Areas to Address About the Competition

02-026

§2.26

Checklist: Financial Information

02-027

§2.27

Checklist: Presenting Business Plan to Investors

02-028

§2.28

Confidentiality Agreement

02-029

§2.29

Disclosure Agreement re Confidential Information

CH03

Chapter 3

Agreements Among Founders

03-027

§3.27

Transfer and Assignment of Intellectual Property

03-029

§§3.29-3.67

Preamble

 

§3.30

Recitals

 

§3.31

Definitions

 

§3.32

Permitted Transfers

 

§3.33

Transfers Under Shareholder Agreement

 

§3.34

Involuntary Transfers

 

§3.35

Events Triggering Purchase

 

§3.36

Repurchase

 

§3.37

Corporation to Insure Specified Shareholders

 

§3.38

Optional Purchase of Life Insurance by Shareholders

 

§3.39

Determination of Fair Market Value

 

§3.40

Payment Terms

 

§3.42

“Shotgun” Buyout Provisions

 

§3.43

Legend on Shares

 

§3.44

After-Acquired Shares

 

§3.45

Will or Trust Provisions

 

§3.46

Separation or Divorce Affecting Shareholders Who Are Married or Have a Domestic Partner

 

§3.47

Notice of Transfer or Prohibition on Ineligible Transfer

 

§3.48

Right of First Refusal

 

§3.49

Transfer Not Permitted Is Void

 

§3.50

Limitations on Corporation

 

§3.51

Shareholder Vote

 

§3.52

Distributions While S Corporation

 

§3.53

Accounting Closing

 

§3.54

Voting Agreement

 

§3.55

Optional Order of Purchase for C Corporation

 

§3.56

Optional Personal Guaranty

 

§3.57

Covenant Not to Compete

 

§3.58

Deferred Compensation in Event of Disability (Optional)

 

§3.59

Termination

 

§3.60

Conflicts of Interest

 

§3.61

Nonrepresentation

 

§3.63

Notice to Successor

 

§3.64

Binding on Successors

 

§3.65

Signatures

 

§3.67

Calculation of Fair Market Value

CH05

Chapter 5

Forms of Securities

05-003

§5.3

Basic Stock Certificate

05-005

§5.5

Restrictions by Issuer

05-007

§5.7

Promotional Shares

05-008

§5.8

Other Restricted Shares

05-010

§5.10

Private Offerings

05-011

§5.11

Intrastate Offerings

05-015

§5.15

Statement of Preferences

05-016

§5.16

Shares Subject to Redemption

05-017

§5.17

Convertible Shares

05-022

§5.22

Basic Provisions

05-024

§5.24

Prepayment Without Premium

05-025

§5.25

Prepayment With Premium

05-026

§5.26

Reference to Underlying Agreement

05-028

§5.28

Subordination

05-036

§§5.36-5.44

Face of Debenture

 

§5.38

Reference to Indenture

 

§5.39

Subordination

 

§5.40

Conversion

 

§5.41

Redemption

 

§5.42

Default

 

§5.43

Modifications

 

§5.44

Conversion Notice

05-048

§§5.48-5.85

Basic Common Stock Purchase Warrant

 

§5.49

Definitions

 

§5.50

Registration Rights

 

§5.51

Exercise, Transfer, and Exchange Restrictions

 

§5.52

Exercise

 

§5.53

Delivery of Stock Certificate

 

§5.55

Stock Splits and Combinations

 

§5.56

Reclassifications, Exchanges, and Substitutions

 

§5.59

Earlier Sale at Higher Price Not Recognized

 

§5.60

Earlier Sale at Higher Price Recognized

 

§5.61

Consideration for Stock

 

§5.62

Consideration for Stock Dividends

 

§5.63

Convertible Securities, Options, and Rights

 

§5.64

Record Date

 

§5.65

Exempt Issuances

 

§5.66

Sale Below Market Price

 

§5.67

Reorganizations, Mergers, Consolidations, or Sale of Assets

 

§5.69

Prior Notice

 

§5.70

No Dilution or Impairment

 

§5.71

Notice of Adjustments

 

§5.72

No Change in Warrant

 

§5.73

Reservation of Stock

 

§5.74

Listing on Stock Exchange

 

§5.75

Replacement

 

§5.76

Exchange and Transfer

 

§5.77

Warrant Agent

 

§5.78

No Rights as Shareholder

 

§5.79

Negotiability

 

§5.80

Modification

 

§5.81

Governing Law

 

§5.82

Expiration

 

§5.83

Date and Signatures

 

§5.84

Subscription

 

§5.85

Assignment

CH05A

Chapter 5A

Issuing Common Shares to Founders and Investors

05A-016

§5A.16

Board Resolutions Authorizing Common Share Issuance to Specific Persons

05A-017

§5A.17

Board Resolutions Authorizing Private Offering of Common Shares

05A-017A

§5A.17A

Board Resolutions Approving Private Placement Memorandum and Employment of Brokers

05A-018

§5A.18

Certificate of Investment Intent

05A-019

§§5A.19-5A.25

Introductory Language and Recitals

 

§5A.20

Purchase and Sale of Securities

 

§5A.21

Purchase Price and Closing

 

§5A.22

Company’s Representations and Warranties

 

§5A.23

Purchaser’s Representations and Warranties

 

§5A.24

General Provisions

 

§5A.25

Signatures

05A-026

§5A.26

Investor Questionnaire

05A-027

§5A.27

Officers and Directors Questionnaire

05A-028

§§5A.28-5A.37

Subscription

 

§5A.29

Investment Conditions

 

§5A.30

Issuer’s Representations and Warranties [and Covenants]

 

§5A.31

Purchaser Representations and Warranties

 

§5A.32

Indemnification

 

§5A.33

Choice of Law

 

§5A.34

Subscription for Shares

 

§5A.35

Title to Shares

 

§5A.36

Securities Legends

 

§5A.37

Completion and Acceptance of Subscription

05A-038

§5A.38

Restrictive Legend (Federal)

05A-039

§5A.39

Investment Representation Letter

05A-040

§5A.40

Memorandum to Client Regarding Procedures for Private Offering

05A-042

§5A.42

Bad Actor Questionnaire (Individuals)

05A-043

§5A.43

Bad Actor Questionnaire (Entities)

CH06A

Chapter 6A

Drafting a Private Placement Memorandum Under Regulation D

06A-006

§6A.6

Sample Engagement Letter Clauses

06A-009

§6A.9

Step 5: Legal Review

06A-015

§6A.15

Rule 502(b) Checklist

06A-018

§6A.18

Notice to Investors

06A-022

§6A.22

Forward-Looking Statements

06A-024

§6A.24

Offering Price; Capitalization; Dilution

06A-037

§6A.37

SEC Position re Indemnification

06A-040

§6A.40

Financial Statements; Financial Forecasts

06A-043

§6A.43

Sample Confidential Private Placement Memorandum

CH07

Chapter 7

Investor Agreements

07-007

§§7.7-7.33

Introduction

 

§7.8

Outline of Financing and Valuation

 

§7.9

Post-Financing Fully Diluted Capitalization

 

§7.10

Dividend Preference

 

§7.11

Liquidation Preference

 

§7.12

Redemption Rights

 

§7.13

Conversion Rights

 

§7.14

Antidilution Protection

 

§7.15

Voting Rights

 

§7.16

Board of Directors

 

§7.17

Protective Provisions

 

§7.18

Information Rights

 

§7.19

Registration Rights

 

§7.20

Transfer of Rights

 

§7.21

Right of Participation

 

§7.22

Right of First Refusal and Co-Sale

 

§7.23

Market Standoff

 

§7.24

Issuances to Employees

 

§7.25

Confidential Inventions and Assignment Agreement

 

§7.26

Auditors

 

§7.27

Directors’ and Officers’ Liability Insurance

 

§7.28

Key Person Life Insurance

 

§7.29

Confidentiality

 

§7.30

Nonsolicitation

 

§7.30A

Expenses

 

§7.31

Binding Nature; Governing Law

 

§7.32

Purchase Agreement

 

§7.33

Signatures

07-034

§7.34

Chart: Competing Interests of Investors and Company

07-037

§§7.37-7.48

Introduction; Name and Purpose of Corporation

 

§7.38

Authorized Capital

 

§7.39

Rights, Preferences, Privileges, and Restrictions of Capital Stock

 

§7.40

Dividend Preference

 

§7.41

Liquidation Preference

 

§7.42

Voting Rights

 

§7.43

Conversion Rights

 

§7.44

Redemption Rights

 

§7.45

Covenants

 

§7.46

Residual Rights

 

§7.47

Liability and Indemnification

 

§7.48

Miscellaneous Provisions; Signatures

07-049

§7.49

Chart: Competing Interests of Investors and Company

07-052

§§7.52-7.61

Introduction

 

§7.53

Recitals

 

§7.54

Purchase and Sale of Securities

 

§7.55

Definitions

 

§7.56

Representations and Warranties of Company

 

§7.57

Representations and Warranties of Investors

 

§7.58

Legends

 

§7.59

Conditions of Investors’ Obligations at Closing

 

§7.60

Conditions of the Company’s Obligations at Closing

 

§7.61

Miscellaneous Provisions; Signatures

07-062

§7.62

Chart: Competing Interests of Investors and Company

07-064

§§7.64-7.88

Introduction

 

§7.65

Recitals

 

§7.66

Definitions

 

§7.67

Financial Statements and Reports

 

§7.68

Additional Information

 

§7.69

Inspection

 

§7.70

Investor Representation

 

§7.71

Right of Participation

 

§7.72

Other Covenants of the Company

 

§7.73

Termination of Covenants

 

§7.74

Demand Registration

 

§7.75

Piggyback Registration

 

§7.76

Expenses of Registration

 

§7.77

Termination of Registration Rights

 

§7.78

Registration Procedures and Obligations

 

§7.79

Information Furnished by Holder

 

§7.80

Indemnification

 

§7.81

Limitations on Registration Rights

 

§7.82

Transfer of Rights

 

§7.83

Market Standoff

 

§7.84

Opinion of Counsel

 

§7.85

Reports

 

§7.86

Termination

 

§7.87

Miscellaneous Provisions

 

§7.88

Signatures

07-090

§§7.90-7.103

Introduction

 

§7.91

Recitals

 

§7.92

Transfer of Shares by Founders

 

§7.93

Definitions

 

§7.94

Agreements Among the Company, Investors, and Founders

 

§7.95

Assignments and Transfers; No Third Party Beneficiaries

 

§7.96

Ownership

 

§7.97

Legend

 

§7.98

Escrow

 

§7.99

Change in Company’s Capital Structure

 

§7.100

Term

 

§7.101

Miscellaneous Provisions

 

§7.102

Signatures

 

§7.103

Consent of Spouse or Domestic Partner

07-105

§§7.105-7.115

Introduction

 

§7.106

Recitals

 

§7.107

Shares Subject to Agreement

 

§7.108

Election of Directors and Related Matters; Certain Voting Rights

 

§7.109

Drag-Along Rights

 

§7.110

Legends

 

§7.111

Irrevocable Proxy

 

§7.112

Additional Parties to This Agreement

 

§7.113

Term

 

§7.114

Miscellaneous Provisions

 

§7.115

Signatures

07-117

§§7.117-7.131

Introduction

 

§7.118

Recitals

 

§7.119

Definitions

 

§7.120

Indemnity of Indemnitee

 

§7.121

Additional Indemnity

 

§7.122

Contribution in the Event of Joint Liability

 

§7.123

Advancement of Expenses

 

§7.124

Procedures and Presumptions for Determination of Entitlement to Indemnification

 

§7.125

Remedies of Indemnitee

 

§7.126

Nonexclusivity; Survival of Rights; Insurance; Subrogation

 

§7.127

Exception to Right of Indemnification

 

§7.128

Duration of Agreement

 

§7.129

Notice by Indemnitee

 

§7.130

Miscellaneous

 

§7.131

Signatures

CH08

Chapter 8

Loan Financing

08-012

§§8.12-8.88

Preamble

 

§8.13

Term Loan (Promissory Note)

 

§8.14

Revolving Loan (Promissory Note)

 

§8.15

Revolving Loan (Borrowing Base and Loan Account)

 

§8.16

Fluctuating Interest Rate

 

§8.17

Fees

 

§8.19

Security Agreement Required

 

§8.20

Guaranty Required

 

§8.20C

Deprizio Waivers

 

§8.21

Introductory Clause

 

§8.22

Opinion of Counsel

 

§8.23

Corporate Resolutions

 

§8.24

Evidence of No Substantial Financial Change

 

§8.25

Notes, Guaranty, and Security Agreement

 

§8.26

Certificate of Incumbency

 

§8.28

Representations and Warranties

 

§8.29

Introductory Clause

 

§8.30

Existence and Qualification

 

§8.31

Subsidiaries

 

§8.32

Corporate and Other Authority

 

§8.33

Corporate/Limited Liability Company Action

 

§8.34

Incumbency of Officers

 

§8.35

Agreement Valid and Binding

 

§8.36

No Contrary Bylaw, Agreement, or Statute

 

§8.37

Clear Title

 

§8.38

Pending Litigation

 

§8.39

No Event of Default

 

§8.40

Accuracy of Financial Statements

 

§8.41

Validity of Liens

 

§8.42

ERISA

 

§8.42A

Anti-Terrorism Representation

 

§8.43

Introductory Clause

 

§8.44

Use of Loan Proceeds

 

§8.45

Working Capital

 

§8.46

Tangible Net Worth

 

§8.47

Debt to Net Worth Ratio

 

§8.48

Notices to Be Given

 

§8.49

Financial Information

 

§8.50

Corporate/Limited Liability Company Existence, Business, and Properties

 

§8.51

Payment of Taxes and Other Liabilities

 

§8.52

Insurance

 

§8.53

Accounting Practices

 

§8.54

Sales of Fixed Assets

 

§8.55

Compensating Balances

 

§8.55A

Depository Relationship

 

§8.55B

Patriot Act Compliance

 

§8.55C

Further Assurances

 

§8.57

Introductory Clause

 

§8.58

Payment of Dividends

 

§8.59

Purchase of Shares

 

§8.60

Liquidation or Dissolution

 

§8.60A

Mergers or Acquisitions

 

§8.61

Limitations on Indebtedness

 

§8.62

Limitations on Liens

 

§8.63

Sale of Assets

 

§8.63A

Sales of Receivables

 

§8.64

Capital Expenditures

 

§8.66

Introductory Clause

 

§8.67

Nonpayment

 

§8.68

No False Representation or Warranty

 

§8.69

Judgments

 

§8.70

Voluntary Bankruptcy Proceedings

 

§8.71

Involuntary Bankruptcy Proceeding

 

§8.72

Default Under Other Agreement

 

§8.73

Cross-Default

 

§8.74

ERISA

 

§8.75

Guarantor’s Impairments

 

§8.76

Guaranty

 

§8.77

Change of Ownership

 

§8.78

Material Adverse Change

 

§8.79

Catch-All Default

 

§8.80

Remedies

 

§8.81

Addresses

 

§8.82

Successors and Assigns

 

§8.83

Delay and Waivers

 

§8.84

Expenses

 

§8.85

Counterparts

 

§8.86

Venue, Jurisdiction, and Process

 

§8.88

Execution

CH09

Chapter 9

Letters of Credit

09-005

§9.5

Many Uses of Standby Letters of Credit

CH10

Chapter 10

Equipment Leasing

10-028

§10.28

Notice of Intended Sale and Leaseback

10-029

§10.29

Commitment Letter

10-031

§§10.31-10.67

Parties, Date, and Recitals

 

§10.32

Lease

 

§10.33

Term

 

§10.34

Rent

 

§10.35

Nature of Transaction

 

§10.36

Lessee’s Inspection and Certification

 

§10.37

Lessor’s Right to Inspection

 

§10.38

Reports Concerning Equipment

 

§10.39

Financial Reports

 

§10.40

Licensing, Registration, and Taxes

 

§10.41

Location, Use, and Maintenance

 

§10.42

Insurance, Loss, and Damage

 

§10.43

Disclaimer of Warranties

 

§10.44

Lessee’s Representations, Warranties, and Covenants

 

§10.45

Conditions Precedent to Lessor’s Obligations

 

§10.46

Surrender of Equipment

 

§10.47

Holding Over

 

§10.48

Events of Default

 

§10.49

Remedies

 

§10.50

Cumulative Remedies

 

§10.51

Costs and Attorney Fees

 

§10.52

Present Value Rate

 

§10.53

Restriction on Assignment by Lessee; Successors and Assigns

 

§10.54

Assignment by Lessor

 

§10.55

General Provisions

 

§10.56

Assumptions

 

§10.57

Lessee’s Representations, Warranties, and Covenants

 

§10.58

Loss of Tax Benefits

 

§10.59

Amount of Indemnification

 

§10.60

Computations

 

§10.61

Right to Contest

 

§10.62

Attorney Fees and Costs

 

§10.63

Usury Savings Clause

 

§10.64

Security Deposits

 

§10.65

Governing Law; Venue

 

§10.66

Entire Agreement Between the Parties; No Modifications

 

§10.67

Signatures

10-068

§10.68

Equipment Lease Schedule

10-069

§10.69

Certificate of Acceptance

CH12

Chapter 12

Intellectual Property Protection

12-090

§12.90

Label for Trade Secret Material

12-113

§12.113

Checklist: Procedures for Protecting Confidential and Trade Secret Information

12-114

§§12.114-12.140

Introductory Clause

 

§12.115

Effective Date

 

§12.116

Confidential Information Defined

 

§12.117

Protection of Confidential Information

 

§12.118

Noncompetition During Employment

 

§12.119

Prior Knowledge and Inventions

 

§12.120

Prior Commitments

 

§12.121

Proprietary Information or Trade Secrets of Others

 

§12.122

Disclosure

 

§12.123

Assignment of Inventions

 

§12.124

Power of Attorney

 

§12.125

Delivery of Documents and Data

 

§12.126

Obligations of Employee After Termination of Employment

 

§12.127

Injunctive Relief

 

§12.128

Attorney Fees

 

§12.129

Material Condition of Employment

 

§12.130

Amendment and Binding Effect

 

§12.131

Governing Law

 

§12.132

Entire Understanding

 

§12.133

Cumulative Remedies

 

§12.134

Severability

 

§12.135

Employment at Will

 

§12.136

Caution to Employee

 

§12.137

Signature Clause

 

§12.138

Employee Statement (Schedule A)

 

§12.139

Termination Certificate (Schedule B)

 

§12.140

Written Notification to Employee (Schedule C)

12-141

§12.141

Copyright Assignment

12-142

§12.142

Notice to Employees Regarding Information Security

12-143

§12.143

Visitor Confidentiality Agreement

12-144

§12.144

Termination Certificate

12-145

§12.145

Letter to Former Employee

12-146

§12.146

Letter to Former Employee’s New Employer

12-147

§12.147

Nondisclosure Agreement for Negotiations With Consultants, Joint Venturers, or Licensees

CH13

Chapter 13

Cybersecurity

13-023

§13.23

Checklist: Responding to a Cyberattack

CH14

Chapter 14

Licenses, Permits, and Registrations

14-020

§14.20

Checklist: General Licenses, Permits, and Registrations for Business Start-Up and Operations

14-021

§14.21

Checklist: Licenses, Permits, and Registrations Required for Manufacturing Facilities

14-022

§14.22

Checklist: Construction and Development Permit Requirements

14-023

§14.23

Chart: Licenses, Permits, and Registrations Needed for Specific Businesses, and Where to Obtain Them

CH15

Chapter 15

Tax and Accounting Elections

15-042

§15.42

IRC §83(b) Election

CH16

Chapter 16

Tax Compliance

16-085

§16.85

Separate Ownership of Real Property and Improvements

CH18

Chapter 18

Preparing for a Public Offering

18-024

§18.24

Letter of Intent

CH20

Chapter 20

Registering a Public Offering

20-005

§20.5

Sample Time and Responsibility Schedule

20-041

§20.41

Sample Closing Memorandum

 

Selected Developments

February 2018 Update

The California Capital Access Program (CalCAP) (see Health & S C §§44559–44559.12; 4 Cal Code Regs §§8070–8078.21), which is run by the California Pollution Control Financing Authority, is a form of loan portfolio insurance that covers up to 100 percent of the risk of banks and other financial institutions that make loans to California’s small businesses. See generally http://www.treasurer.ca.gov/cpcfa/calcap/. Special parts of the CalCAP program are intended to assist small businesses with financing the costs to alter or retrofit existing facilities to comply with the requirements of the federal Americans with Disabilities Act of 1990 (ADA) (42 USC §§12101–12213) (see 4 Cal Code Regs §§8070.8–8070.14) and to assist California small businesses and residential property owners with financing the costs for seismic retrofits (see 4 Cal Code Regs §§8078.15–8078.21). See §1.18.

Written business plans are developed and prepared by both startup and existing businesses for various purposes. See §§2.2–2.4. Chapter 2 details the recommended contents of business plans. In view of the urgent need for businesses of today to maintain active cybersecurity programs, business plans should address cybersecurity (the technological measures that the company has in place to protect sensitive customer information as well as the company’s own trade secrets) and disclose whether the company has cyber-risk insurance coverage. See §2.15.

In McGill v Citibank, N.A. (2017) 2 C5th 945, the California Supreme Court held that a provision in a predispute arbitration agreement that waived the right to seek public injunctive relief (i.e., injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public) in any forum is contrary to California public policy and therefore unenforceable. Citing 9 USC §2, the court also held that the Federal Arbitration Act does not preempt this rule of California law or require enforcement of the waiver provision. The public injunctive remedies sought to be waived in McGill were those available to private plaintiffs under California’s unfair competition and false advertising laws, as well as the Consumers Legal Remedies Act (CC §§1750–1784). See §3.10A.

In People v Black (2017) 8 CA5th 889, the court held that promissory notes that the defendant offered for investment in a real estate development were not securities within the meaning of the Corporate Securities Law of 1968 because the investment was a one-to-one transaction, there was no indication that the notes could have been traded publicly, the agreement bound the defendant’s separate property for purposes of enforcing payment, and the terms of the agreement provided for repayment regardless of whether the deal succeeded. See §5.20.

The board of directors should consider whether the founders or certain key management personnel should sign a restricted stock purchase agreement providing for certain restrictions on transfer, ownership vesting of the shares held by such persons, and the corporation’s (or it designee’s) right to purchase such founder’s or person’s shares on cessation of employment by the corporation. See Business Buy-Sell Agreements §§3.48–3.73 (Cal CEB) for an example of such an agreement, which includes a provision for optional purchase on termination of employment. See §5A.13.

A sample form of Board Resolutions Approving Private Placement Memorandum and Employment of Brokers has been added to Chapter 5A. See §5A.17A.

Chapter 5A includes forms of “bad actor” questionnaires. See §§5A.42–5A.43. Shareholders that will own 20 percent or more of a corporation’s shares should complete one of the two forms of “bad actor” questionnaire, as applicable, to ensure the corporation’s present and future ability to rely on Rule 506 under Regulation D (17 CFR §230.506). See §5A.26.

Effective January 20, 2017, Rule 504 (17 CFR §230.504) was amended to disqualify certain “bad actors” from participation in Rule 504 offerings. Specifically, Rule 504(b)(3) provides that the Rule 504 exemption is not available for the securities of any issuer if that issuer would be subject to disqualification under Rule 506(d) (17 CFR §230.506(d)) on or after January 20, 2017. Disclosure of “bad actor” events that occurred before January 20, 2017, is required in accordance with Rule 506(e) (17 CFR §230.506(e)). See SEC Release No. 33–10238 (Oct. 26, 2016). See §6.17.

In connection with new Rule 506(c) (17 CFR §230.506(c)), the SEC has revised Form D to add separate boxes for issuers to check to indicate whether they are using general solicitation and general advertising in a Rule 506 offering under Rule 506(c), or whether they are conducting the offering without general solicitation and general advertising in compliance with Rule 506(b). See §6.19B.

Additional comparative discussion of Rule 147 (17 CFR §230.147) and Rule 147A (17 CFR §230.147A) has been added to Chapter 6. Rule 147A is not subject to the statutory limitations of §3(a)(11) of the Securities Act and does not constitute a safe harbor under §3(a)(11). Nevertheless, Rule 147A is similar to Rule 147, with two principal distinctions:

  • Under Rule 147, offers and sales may be made only to persons resident within the same state or territory in which the issuer is resident and doing business. Rule 147A has no restriction on offers, requiring only that the issuer be resident and doing business within the state or territory in which all sales are made. Because Rule 147A does not restrict offers, in general the issuer or any person acting on its behalf may use any form of general solicitation and general advertising in connection with the offering, including unrestricted websites and other forms of mass media.

  • Under Rule 147, an issuer that is a corporation, limited partnership, limited liability company, trust, or other form of business organization that is organized under state or territorial law may make offers and sales only in the jurisdiction in which such entity is organized. In contrast, Rule 147A is available to entities that are organized in a jurisdiction other than the jurisdiction in which the securities are sold. So, for example, an issuer incorporated in Delaware could conduct a Rule 147A offering in California.

See §6.23.

The Fixing America’s Surface Transportation Act (FAST Act) (Pub L 114–94, 129 Stat 1312) made several changes to the federal securities laws, including the addition of a new exemption from registration for private resales of securities. The FAST Act added §4(a)(7) to the Securities Act (15 USC §77d(a)(7)), which is essentially a safe harbor for the §4(1½) exemption. To qualify for the §4(a)(7) exemption, a transaction must meet the following requirements:

  • The seller may not be the issuer or a subsidiary of the issuer of the securities being sold under the exemption;

  • Each purchaser must be an accredited investor (as that term is defined in Rule 501(a) of Regulation D; see §6.6);

  • Neither the seller nor any person acting on its behalf may engage in any general solicitation or general advertising;

  • If the issuer of the securities being sold under the exemption is not subject to the periodic reporting requirements of the Securities Exchange Act, subject to certain limited exceptions, the seller must provide certain specified information to each prospective purchaser about the issuer and the securities being offered (including financial statements of the issuer);

  • Neither the seller, nor any person being paid a commission or other remuneration for participating in the sale, is subject to an event that would disqualify an issuer or other covered person as a “bad actor” under Rule 506(d)(1) of Regulation D (see §6.19) or is subject to statutory disqualification under Section 3(a)(39) of the Securities Exchange Act;

  • The issuer must be engaged in business and may not be in the organizational stage, in bankruptcy or receivership, or be a blank check, blind pool, or shell company that has no specific business plan or purpose, or have indicated that its primary purpose is to engage in a merger or business combination with, or the acquisition of, an unidentified person;

  • The securities being sold may not constitute all or part of an unsold allotment to, or a subscription or participation by, a broker or dealer as an underwriter of the securities or a redistribution; and

  • The class of securities being sold must have been authorized and outstanding for at least 90 days.

See §6.30.

Securities sold under the §4(a)(7) exemption are “restricted securities” within the meaning of Rule 144 and may not be further transferred unless registered, except pursuant to an applicable exemption from registration. Securities sold under the §4(a)(7) exemption are also “covered securities” under §18 of the Securities Exchange Act and are therefore exempt from certain registration and qualification requirements under state securities laws. See §6.30.

In City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v Align Tech., Inc. (9th Cir 2017) 856 F3d 605, the Ninth Circuit noted that “the three standards for pleading falsity of opinion statements articulated in Omnicare, Inc. v Laborers Dist. Council Constr. Indus. Pension Fund (2015) ___ US ___, 135 S Ct 1318, … apply to Section 10(b) and Rule 10b-5 claims” (856 F3d at 609), and also noted that “to the extent that the Ninth Circuit’s prior standard permitted plaintiffs to plead falsity by alleging that ‘there is no reasonable basis for the belief’ under a material misrepresentation theory of liability, the prior standard was ‘clearly irreconcilable’ with Omnicare, and was therefore overruled” (856 F3d at 616). See §6A.2.

Item 402(1) of Regulation S-K allows an issuer that is a “smaller reporting company” to provide the scaled down executive compensation disclosures set forth in Items 402(m)–(r) of Regulation S-K. A “smaller reporting company” is defined in Rule 405 under the Securities Act (17 CFR 230.405), Rule 12b-2 of the Exchange Act (17 CFR 240.12b–2), and Item 10(f)(1) of Regulation S-K (17 CFR 229.10(f)(1)) to mean an issuer that had (1) a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter; (2) in the case of an initial registration statement, a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement; or (3) a public float of zero and annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available. 17 CFR §229.10(f)(1). The SEC recently proposed amendments that would increase the financial thresholds in the smaller reporting company definition. Under the proposed amendments, the $75 million public float threshold would be increased to $250 million and the $50 million revenue threshold would be increased to $100 million. See Amendments to Smaller Reporting Company Definition, SEC Release No. 33–10107 (June 27, 2016), 81 Fed Reg 43130. See §6A.30.

The dollar limits on capital that may be raised under Regulation Crowdfunding (17 CFR §§227.100–227.503) and the dollar limits on investors in offerings under Regulation Crowdfunding have been raised incrementally. See §§6B.2, 6B.42–6B.43.

In Beechum v Navient Solutions, Inc. (CD Cal, Sept. 20, 2016, No. EDCV 15-8239-JGB-KKx) 2016 US Dist Lexis 129782, the federal district court declined to look beyond the face of the transaction and consider whether a nonexempt lender that purchased loans from an exempt lender (a bank) was the “real” lender for purposes of the usury laws. The Beechum court cited WRI Opportunity Loans II LLC v Cooper (2007) 154 CA4th 525 for the proposition that a court “must look solely to the face of a transaction to determine whether an exemption applies.” 2016 US Dist Lexis 129782 at *28. Because the lender was a bank exempt from the usury limitations under Cal Const art XV, the loans made by the bank were exempt from California’s usury prohibition as a matter of law. 2016 US Dist Lexis 129782 at *29. See §8.16.

Most promissory notes and loan agreements provide that a borrower is required to pay a higher rate of interest following an event of default. The Ninth Circuit Court of Appeals has ruled that such provisions are enforceable in the context of a bankruptcy reorganization even if the default has been cured. In Pacifica L 51 LLC v New Invs., Inc. (In re New Invs., Inc.) (9th Cir 2016) 840 F3d 1137, the court overruled its prior decision in Great W. Bank & Trust v Entz-White Lumber & Supply, Inc. (In re Entz-White Lumber & Supply, Inc.) (9th Cir 1988) 850 F2d 1338. Because New Investments’ reorganization plan proposed to cure a default under the promissory note (the underlying agreement), the plan was governed by Bankr C §1123(d). The court found that the underlying agreement provided for higher post-default interest and that applicable nonbankruptcy law (Washington state law) allowed for a higher interest rate on default when provided for in the underlying agreement. Therefore, New Investments was required to pay interest at the higher post-default interest rate specified in the underlying agreement in connection with its cure of the default. The court did not specify whether the default rate applied for the remainder of the loan or only until cure was achieved. See §8.18B.

In Nautilus, Inc. v Yang (2017) 11 CA5th 33, the court analyzed the “good faith” defense, which allows a transferee to avoid liability for a fraudulent or voidable transfer if it can establish that it acted in good faith. The court held that the good faith defense is not available if the transferee (1) had fraudulent intent, (2) colluded with a person who was engaged in the fraudulent conveyance, (3) actively participated in the fraudulent conveyance, or (4) had actual knowledge of facts showing its knowledge of the transferor’s fraudulent intent. The court emphasized that the mortgage lender to the transferee was not subject to inquiry notice of facts that would have given it knowledge of the fraudulent intent. The court also held that the transferee has the burden of proof in establishing its good faith. See §8.20A.

In G&W Warren’s, Inc. v Dabney (2017) 11 CA5th 565, the court of appeal, citing CC §2856(b), held that when a guarantor has agreed in its guaranty agreement that its obligations will secure amounts owing by a borrower following modifications to payment amounts or payment terms in the borrower agreements that are consented to by the borrower, “no particular words or references to statutory provisions are required to effect a guarantor’s waiver of defenses.” 11 CA5th at 583. The fact that the waiver provision in the guaranty agreement did not include the words “waive” or “waiver” was irrelevant. The court found that the guarantor had consented to modifications of the payment terms and therefore expressly waived the exoneration defense. The court also noted that a guarantor will not be held liable beyond the express terms of his contract. See §8.20E.

In Tidwell Enters., Inc. v Financial Pac. Ins. Co. (2016) 6 CA5th 100, the court of appeal confirmed the existing broad standards governing an insurer’s duty to defend. It held that an insurer “‘bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy,’” that a “‘third party plaintiff cannot be the arbiter of coverage,’” that “‘[a]ny doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured’s favor,’” and that an insurer “‘need not defend if the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.’” 6 CA5th at 106 (citations omitted). See §11.41.

In Advent, Inc. v National Union Fire Ins. Co. of Pittsburgh, Pa. (2016) 6 CA5th 443, an insurer that had funded a settlement sought contribution from an insurer that refused to participate. The court held that “‘where [the non-participating coinsurer’s] duty to defend is undisputed, and where by law the settlements are presumptively reasonable[,] the burden of proof is on [the nonparticipating coinsurer] to establish that there was no coverage (and not on the [settling coinsurer] to prove the opposite).’” 6 CA5th at 455. See §11.42.

Patent exhaustion limits the extent to which a patent holder can control an individual patented product after authorized sale. Patent exhaustion extends to sales that occur outside of the United States. Moreover, the domestic sale of a patented product exhausts all patent rights regardless of any post-sale restrictions that the patent holder may try to impose on the product through a license agreement. As long as the sale is authorized, the patent rights are exhausted on that product. Impression Prods., Inc. v Lexmark Int’l, Inc. (2017) ___ US ___, 137 S Ct 1523. See §12.11.

In a design patent, the patent owner is entitled to either lost profits or $250 for infringement if the design patent is applied to an article of manufacture. 35 USC §289. However, the relevant “article” of manufacture for arriving at a damages award need not be an end product, but may be only a component of the end product. Samsung Electronics Co. v Apple, Inc. (2016) ___ US ___, 137 S Ct 429. See §12.12A.

If an item has a useful function, then copyright protection, if any exists at all, is available only for the features that can exist separately from the useful item. With regard to useful items such as clothing, expressive elements of an item can be protected if two conditions are met: (1) it can be perceived as a two- or three-dimensional work of art, separate from the useful article, and (2) it still qualifies as protectable expression when “imagined separately from the useful article” into which it is incorporated. Star Athletica, L.L.C. v Varsity Brands, Inc. (2017) ___ US ___, 137 S Ct 1002, 1016. See §12.18A.

Title 15 USC §1052(a) contains a provision that a trademark cannot be registered if it disparages persons, institutions, beliefs, or national symbols. However, the United States Supreme Court has ruled that that provision is unconstitutional as a violation of the First Amendment. Matal v Tam (2017) ___ US ___, 137 S Ct 1744 (USPTO’s refusal to register mark “THE SLANTS” for an Asian American rock band violated First Amendment). The Supreme Court’s ruling calls into question the continued viability of a ban against registration of “immoral” or “scandalous” trademarks, although that ban was not at issue in that case. See §12.36.

Federal trademark rights arise when goods are sold or services are provided in interstate commerce, although an intent-to-use application can give rise to a date of constructive use that predates actual use. 15 USC §1057(c). The definition of “interstate commerce” is broad and includes “all commerce which may lawfully be regulated by Congress.” 15 USC §1127. The amount of use in interstate commerce can be minimal. Even the sale of a few items across state lines will qualify as “use in commerce.” Christian Faith Fellowship Church v Adidas AG (Fed Cir 2016) 841 F3d 986. See §12.61.

The Computer Fraud and Abuse Act (CFAA) (18 USC §1030) has been applied to address “password sharing.” In U.S. v Nosal (9th Cir 2016) 844 F3d 1024, the court found a violation of the CFAA’s prohibition on unauthorized access when an ex-employee with revoked privileges asked a current employee for login information to gain entry to the former employer’s database. See §13.3.

There have been conflicting court decisions on the question of whether violations of the terms of use of a website or computer system constitutes “exceed[ing] authorized access” under 18 USC §1030(a)(4). In U.S. v Nosal (9th Cir 2012) 676 F3d 854, the Ninth Circuit held that the answer to this question is “no.” See also Facebook, Inc. v Power Ventures, Inc. (9th Cir 2016) 844 F3d 1058, 1067; U.S. v Christensen (9th Cir 2015) 801 F3d 970. See §13.5A.

In Facebook, Inc. v Power Ventures, Inc., supra, Power Ventures accessed Facebook users’ data and initiated form e-mails and other electronic messages promoting its website. Initially, Power Ventures had implied permission from Facebook, but Facebook sent Power Ventures a cease and desist letter and blocked its IP address; nevertheless, Power Ventures continued its promotional campaign. The Ninth Circuit held that Power Ventures did not violate the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) because the transmitted messages were not materially misleading; however, Power Ventures did violate the Computer Fraud and Abuse Act (CFAA) and Pen C §502 (see §13.16) after it received Facebook’s cease and desist letter and continued to access Facebook’s computers without permission. See §13.5C.

Businesses in the technology and manufacturing industries should be aware of the Cybersecurity Information Sharing Act (CISA) (6 USC §§149, 151, 1501–1510, 1521–1525, 1531–1533), intended (among other things) to improve cybersecurity in the United States through enhanced sharing of information about cybersecurity threats. The law allows the sharing of Internet traffic information with the U.S. government and creates a system for federal agencies to receive threat information from private companies. It also provides safe harbors from liability for private entities that share cybersecurity information in accordance with the CISA. See §13.14.

Effective January 1, 2017, Pen C §523 was amended to make the use of ransomware a form of criminal extortion and therefore a felony punishable by up to 4 years in prison. See §13.16A.

On October 25, 2016, the Federal Trade Commission (FTC) released a helpful guide on data breach response, titled Data Breach Response, A Guide for Business, available at https://www.ftc.gov/system/files/documents/plain-language/pdf-0154_data-breach-response-guide-for-business.pdf. The guide sets forth a series of steps that a company is advised to take for a quick and appropriate response when the company suspects a data breach has occurred. See §13.22.

Chapter 15 has been revised to reflect the changes in federal income tax law made by the Tax Cuts and Jobs Act (Pub L 115–97, 131 Stat 2054). See §§15.1, 15.4–15.6A, 15.12–15.13, 15.26.

Practitioners should be aware that as a result of final regulations issued on December 13, 2016, domestic disregarded entities that are wholly owned by a foreign person are required to comply with reporting and recordkeeping obligations under IRC §6038A. See Treas Reg §301.7701–2(c)(2)(vi). Such reporting and recordkeeping obligations include obtaining an employer identification number (EIN) in order to file IRS Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, the requirement to file IRS Form 5472, and the requirement to maintain adequate books and records with respect to IRS Form 5472. See §15.22.

In Swart Enters., Inc. v Franchise Tax Bd. (2017) 7 CA5th 497, the court held that passively holding a minority LLC membership interest, with no right of control over the business affairs of the LLC, does not constitute “doing business” in California. Following that decision, the Franchise Tax Board issued FTB Notice 2017-01 indicating that it will not appeal the decision to the California Supreme Court and will follow the decision in situations with the same facts. Therefore, corporate taxpayers who previously filed and paid California corporate franchise tax based on holding a passive, minority LLC interest should consider filing a claim for a refund with the FTB. See §15.22.

Before July 1, 2017, the California State Board of Equalization (BOE) administered the California sales and use tax. Effective July 1, 2017, as a result of AB 102 (The Taxpayer Transparency and Fairness Act of 2017), the BOE was restructured to perform only duties assigned to it by the state Constitution, while all remaining duties, including administration of California sales and use tax, are or will be transferred to the newly established California Department of Tax and Fee Administration (CDTFA). As of October 2017, a seller’s permit may be obtained online at https://www.boe.ca.gov/info/reg.htm. (Although the CDTFA will be performing most tasks formerly performed by the BOE after July 1, 2017, certain activities will continue to be accomplished on the BOE website until they are fully migrated to the CDTFA website.) See §16.8.

Employers must pay a federal unemployment tax (FUTA) of 6.2 percent (through June 30, 2011) on the first $7000 in wages paid to each employee, but are allowed a credit against this tax based on an employer’s state unemployment insurance tax liability. IRC §3301. Practitioners should note that California employers did not receive the maximum credit permitted (5.4 percent) in 2016 due to outstanding federal Unemployment Insurance loans California owes to the federal government. Rather, the 5.4 percent FUTA credit was reduced by 1.8 percent to 3.6 percent, resulting in an increase in FUTA taxes for California employers (up to $126 more per employee). Practitioners should be advised that a decreased FUTA credit is also likely to occur for 2017, resulting in a similar increase in FUTA taxes for California employers. See the EDD website at http://www.edd.ca.gov/Payroll_Taxes/Federal_Unemployment_Tax_Act_Tax_Increases_2016.htm. See §16.24.

In August 2017, S&P Dow Jones Indices LLC announced that companies with multiple share class structures are no longer eligible for inclusion in the S&P Composite 1500 and its component indices (including the S&P 500, S&P MidCap 400, and S&P SmallCap 600). As a result, index funds, exchange-traded funds, and pension funds that invest passively following these indices will not invest in such companies. This limitation applies to multiple classes of listed or unlisted outstanding common equity, regardless of whether any class has limited or no voting rights. Existing index constituents (such as Alphabet and Facebook) are grandfathered in. See https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/561162_spdjimulti-classsharesandvotingrulesannouncement7.31.17.pdf?force_download=true. FTSE Russell has also adopted rules requiring constituents of its indices to have greater than 5 percent of the company’s voting rights (aggregated across all of its equity securities, including those not listed or trading) in the hands of unrestricted (free-float) shareholders. Existing FTSE Russell constituents have until September 2022 to change their capital structures. See http://www.ftse.com/products/downloads/FTSE_Russell_Voting_Rights_Consultation_Next_Steps.pdf. Companies considering a multi-class structure could establish one that could be unwound as the company approaches inclusion in the S&P indices. See §17.12A.

An issuer conducting a concurrent exempt offering for which general solicitation is permitted across state lines (e.g., a Regulation Crowdfunding offering) would be unlikely to comply with the in-state offer restriction in Rule 147(b). An issuer relying on Rule 147A, which permits multi-state offers, may conduct a concurrent exempt offering for which general solicitation is permitted, so long as the issuer complies with the legend and disclosure requirements of Rule 147A(f), as well as any additional restrictions on general solicitation imposed by the other exemption on which the issuer concurrently relies. See SEC Release Nos. 33–10238, 34–79161 (Oct. 26, 2016) at 53. See §19.50.

In June 2017, the SEC announced that a company that is not an emerging growth company can submit a draft registration statement for nonpublic review in an IPO, as well as for most offerings made within 1 year of the IPO. This allows companies to delay the public disclosure of competitive information, and to avoid public disclosure altogether if they do not proceed with the offering. The issuer is required to confirm in a cover letter accompanying the nonpublic draft submission that it will publicly file its registration statement and nonpublic draft submission at least 15 days before any road show or, in the absence of a road show, at least 15 days before the requested effective date of the registration statement. The nonpublic review applies only to the initial submission; an issuer responding to staff comments on the draft registration statement should do so with a public filing, not with a revised draft registration statement. The issuer should file the draft registration statement it had previously submitted for nonpublic review at the time it publicly files its registration statement. See https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded. See §20.25.

About the Authors

STEVEN T. ANAPOELL received his LL.M (Taxation) from Georgetown University Law Center, his J.D. from the University of California, Hastings College of the Law, and his B.S. in Business Administration from the University of California, Berkeley. He is a Managing Partner and the General Counsel of BridgeForth Holdings LLC, a private equity firm, where he focuses on structuring and providing alternative financing solutions to companies seeking capital. Prior to forming BridgeForth, Mr. Anapoell was a founding shareholder of the Orange County office of Greenberg Traurig, P.C., where he focused his practice on forming private equity, distressed debt, real estate, venture capital, and special strategy funds, mergers and acquisitions, private securities offerings, debt and equity investments and financings, and structuring and negotiating complex corporate transactions. Mr. Anapoell has been selected numerous times by Los Angeles Magazine as one of Southern California’s “Super Lawyers” in the areas of Securities & Corporate Finance, Business/Corporate, and Tax. He also holds a rating of preeminent in his field by Martindale-Hubbell. Mr. Anapoell is the former chair of the Limited Partnerships and Limited Liability Companies Committee, State Bar of California Business Law Section and is currently a member of CEB’s Business and Intellectual Property Law Advisory Committee. He is the author of Chapter 6A (Drafting a Private Placement Memorandum Under Regulation D). Mr. Anapoell gratefully acknowledges the review and comment provided by Christopher Chen, a corporate securities associate with Greenberg Traurig, P.C.

LAWRENCE S. BRANTON received his J.D. from the University of California, Hastings College of Law in 1970 and his B.S. from Indiana University in 1967. He is president of Branton & Wilson, APC, in San Diego, and specializes in taxation. Mr. Branton is a Certified Specialist in Taxation Law through the State Bar of California Board of Legal Specialization. He was named one of the “Best Attorneys” in San Diego in The Best Lawyers in America. Mr. Branton has published numerous articles on tax law. He is a former instructor at the University of San Diego School of Law and a former chair of the Taxation Section of the San Diego County Bar Association. Mr. Branton is the author of Chapter 16 (Tax Compliance).

NEAL H. BROCKMEYER received his J.D. degree from the University of California, Berkeley, School of Law in 1963 and his A.B. degree from Stanford University in 1960. He is of counsel to Locke Lord Bissell & Liddell LLP, Los Angeles, and practices in the areas of corporate and securities law. He has served as chair of the Corporations Committee, State Bar Business Law Section, and as chair of the Business and Corporations Law Section Executive Committee, Los Angeles County Bar Association, and as a member of the Committee on Federal Regulation of Securities of the American Bar Association’s Business Law Section. Mr. Brockmeyer is the author of Chapters 1 (Seeking Capital: Sources and Strategy), 4 (Structuring a Financing Transaction), 5 (Forms of Securities), 17 (The Decision to Make a Public Offering), 18 (Preparing for a Public Offering), 19 (Accessing the Public Markets), and 20 (Registering a Public Offering).

MARY CRAIG CALKINS received her J.D. degree from Loyola University School of Law, Los Angeles, cum laude, in 1981, and her B.A. from the University of California, Los Angeles, in 1972. She is a partner in the Insurance Recovery Group at the Los Angeles office of Howrey LLP, where she advises and represents corporations, partnerships, directors, officers and individuals seeking coverage under various forms of insurance policies. In February 2005, Ms. Calkins was selected by Los Angeles magazine as one of Southern California’s “Super Lawyers” in the area of insurance coverage. She is currently appointed to the Task Force on Attorney Relations for the Insurance Coverage Litigation Committee of the Section of Litigation, American Bar Association, and has been honored as Outstanding Committee Chair for 2003–2004 and 2004–2005. Ms. Calkins is the author of Chapter 11 (Business Insurance).

LYNNE A. CARMICHAEL received her J.D. in 1978 from the University of California, Berkeley, School of Law, and her B.A. in 1965 from Occidental College, Los Angeles. Ms. Carmichael is a partner with the firm of Hinman & Carmichael LLP, San Francisco, which specializes in the law relating to alcoholic beverage production and sales. She is a member of the International Wine Lawyers Association, Women for Wine Sense, and the San Francisco Professional Food Society. Ms. Carmichael is the author of Chapter 14 (Licenses, Permits, and Registrations).

LINDA M. DeMELIS received her J.D. in 1994 from the University of California, Hastings College of the Law, where she was a member of Order of the Coif, and her B.A. in 1975 from Radcliffe College (Harvard University). She is Associate Editor of TheCorporateCounsel.net, an educational service that provides practical guidance on legal issues involving corporate and securities regulation and corporate governance practices, as well as many other areas impacting today’s corporate practitioner. In 2003, she participated in the Model Documents project for preferred stock financings sponsored by the National Venture Capital Association. Ms. DeMelis is the author of Chapter 7 (Investor Agreements).

SUSAN R. GOLDFARB received her J.D. from Georgia State University College of Law in 2000, cum laude; her M.A. in Law and Diplomacy from the Fletcher School of Law and Diplomacy at Tufts University in 1996; and her B.A. from the University of California, Berkeley, cum laude, in 1984. She is a corporate associate with Proskauer Rose LLP in Los Angeles, and practices in the areas of corporate finance, corporate, and securities law. She is a member of the Financial Lawyers Conference in Los Angeles and the American Bar Association’s Business Law Section. Ms. Goldfarb is the author of Chapter 8 (Loan Financing).

CHRISTOPHER J. HUSA received his J.D. degree from Cornell Law School in 1983 and his B.A. degree from the University of Southern California in 1979. He is of counsel with Locke Lord Bissell & Liddell LLP in Los Angeles and practices in the areas of corporate and securities law. Mr. Husa has served as a member of the State Bar of California, Business Law Section’s Education Committee and as a member of the Executive Committee of the Business and Corporations Law Section of the Los Angeles County Bar Association, and is a former managing editor of the State Bar of California Business Law Section’s Business Law News. Mr. Husa is the author of Chapter 6 (Private Placements).

DAVID L. KELIGIAN received his J.D. and M.B.A. degrees in 1980 from the University of Southern California and his B.S. degree in accounting in 1977 from the University of Southern California. He practices tax law with The Busch Firm in Irvine, where his practice focuses on tax and business planning for entrepreneurs. He is also a CPA. His articles have appeared in numerous publications, including the Journal of Taxation and The Practical Tax Lawyer, and he has served as a CEB panelist, consultant, and author on business and tax topics. Mr. Keligian is a frequent speaker for programs on corporate and partnership tax law sponsored by the Tax Sections of the State Bar of California and the Los Angeles County Bar Association. Mr. Keligian is the author of Chapters 3 (Agreements Among Founders) and 15 (Tax and Accounting Elections).

DAVID M. LYNN is a partner with Morrison & Foerster LLP, where he is the co-chair of the firm’s Corporate Finance practice. Before joining the firm, he served as Chief Counsel of the Division of Corporation Finance at the U.S. Securities and Exchange Commission. Mr. Lynn is a highly respected securities advisory counsel who provides guidance to clients ranging from Fortune 500 to newly public companies on securities law compliance, as well as counseling on corporate governance, executive compensation, and disclosure best practices. As Chief Counsel of the Securities and Exchange Commission’s Division of Corporation Finance, Mr. Lynn led the rulemaking team that drafted sweeping revisions to the SEC’s executive compensation and related party disclosure rules. He is currently the co-editor of TheCorporateCounsel.net, CompensationStandards.com, and The Corporate Counsel. He received his undergraduate and MSF degrees from the Loyola College in Maryland and his J.D. from the University of Maryland School of Law. Mr. Lynn is the co-author of Chapter 6B (Equity Crowdfunding).

CLARA RUYAN MARTIN received her J.D. degree from the University of Michigan Law School in 1989 and her B.A. degree from the University of California, Berkeley in 1985. She is a founding partner of the Los Angeles law firm, Cadence Law Group LLP. She specializes in structuring, drafting, negotiation, and implementation of corporate and technology transactions. Her corporate work includes mergers and acquisitions, joint ventures, corporate finance, and venture representation. Her technology practice is broad, ranging from software licensing and development to strategic alliances and e-commerce. Ms. Martin currently serves on the Cyberlaw Committee of the Business Law Section of the State Bar of California and is a frequent lecturer on topics such as software licensing agreements, Internet-related agreements, complex joint ventures, venture finance, and mergers and acquisitions. Ms. Martin is co-author of Chapter 13 (Cybersecurity).

DAVID B. OSHINSKY received his J.D. degree from Columbia Law School in 1996, where he was a member of the Columbia Law Review, and his B.A. degree from Yale University in 1991. He is a founding partner of the Los Angeles law firm, Cadence Law Group LLP. Mr. Oshinsky works with many start-up and early stage companies, for which he provides counsel regarding their early operational, financing, and intellectual property requirements. He regularly assists clients with venture capital financing, technology transactions, and mergers, acquisitions, and related corporate transactions. In particular, his practice involves the structuring, drafting, and negotiating of technology licenses, website policies and agreements, software development agreements, and strategic alliances. Mr. Oshinsky has written and lectured on a broad range of technology topics, including website development agreements, strategic alliances, intellectual property issues in mergers and acquisitions, and Internet law in California. Mr. Oshinsky is co-author of Chapter 13 (Cybersecurity).

JOHN M. RAFFERTY is a partner with Morrison & Foerster LLP, where his practice focuses on a broad range of corporate and securities law matters. Mr. Rafferty’s practice includes public and private mergers, tender offers, going private transactions, and strategic and financial investments. Additionally, Mr. Rafferty counsels boards of directors of public companies on corporate governance issues and fiduciary duty matters. He also advises emerging growth companies backed by venture capital and private equity firms on all corporate, transactional, and financing matters. Notable transactions handled by Mr. Rafferty include RE/MAX’s initial public offering for $220 million and Restoration Hardware’s initial public offering at $124 million. Mr. Rafferty received his undergraduate degree from the Arizona State University and his law degree from the New York University School of Law. Mr. Rafferty is the co-author of Chapter 6B (Equity Crowdfunding).

JACOB C. REINBOLT received his J.D. from the University of Michigan Law School in 1984, and his B.S. in Business (Finance and Economics), magna cum laude, from Miami University (Ohio) in 1981. He is a partner with the San Diego–based firm of Procopio, Cory, Hargreaves & Savitch LLP, and the leader of the firm’s intellectual property team. Mr. Reinbolt was selected as one of the top four intellectual property law attorneys in San Diego by San Diego Magazine and is special legal counsel to the City of San Diego for intellectual property, Internet, and e-government matters. His practice is focused on computer law, intellectual property, Internet law, licensing, mergers and acquisitions, and corporate law. Mr. Reinbolt is the author of Chapters 2 (The Business Plan) and 12 (Intellectual Property Protection).

PAUL S. TURNER received his J.D. from Harvard Law School and his B.A. from the University of California, Los Angeles. He consults on letter of credit and banking and commercial legal matters in Los Angeles. He is a retired Assistant General Counsel of Occidental Petroleum Corporation. Mr. Turner’s books include Standby and Commercial Letters of Credit (Aspen Law and Business) (co-author) and the Law of Payment Systems and EFT (Aspen Law and Business). He writes frequently on banking and commercial legal issues and is a regular contributor to Documentary Credits Insight (ICC Paris). Mr. Turner is the author of Chapter 9 (Letters of Credit).

RUSSELL J. WOOD received his J.D. from Case Western Reserve School of Law in 1994 and a bachelors of philosophy from Miami University (Ohio) in 1988. He is a partner in the Corporate Group at the San Francisco office of Winston & Strawn LLP, representing public and private corporations and investors in corporate, securities, and venture capital transactions. Mr. Wood served as an appointed co-chair of the Corporations Committee of the State Bar of California and has been a member of that committee since 2001. He previously served on the American Bar Association’s Subcommittee on Securities Law Opinions and served as liaison to the American Bar Association’s Presidential Task Force on Attorney-Client Privilege. Mr. Wood is the author of Chapter 5A (Issuing Common Shares to Founders and Investors). He wishes to acknowledge the efforts of Catherine Pollina and Josephine Chan of Winston & Strawn LLP, who also contributed to Chapter 5A.

About the 2018 Update Authors

STEVEN T. ANAPOELL received his LL.M. (Taxation) from Georgetown University Law Center, his J.D. from the University of California, Hastings College of the Law, and his B.S. in Business Administration from the University of California, Berkeley. He is a Managing Partner and the General Counsel of Bridgeforth Holdings LLC, a private equity firm, where he focuses on structuring and providing alternative financing solutions to companies seeking capital. Before forming Bridgeforth, Mr. Anapoell was a founding shareholder of the Orange County office of Greenberg Traurig, P.C., where he focused his practice on forming private equity, distressed debt, real estate, venture capital, and special strategy funds, mergers and acquisitions, private securities offerings, debt and equity investments and financings, and structuring and negotiating complex corporate transactions. Mr. Anapoell has been selected numerous times by Los Angeles Magazine as one of Southern California’s “Super Lawyers” in the areas of Securities & Corporate Finance, Business/Corporate, and Tax. He also holds a rating of preeminent in his field by Martindale-Hubbell. Mr. Anapoell is the former chair of the Limited Partnerships and Limited Liability Companies Committee, State Bar of California Business Law Section. He is the author and 2018 update author of Chapter 6A (Drafting a Private Placement Memorandum Under Regulation D) and the 2018 update author of Chapter 5A (Issuing Common Shares to Founders and Investors).

LAWRENCE S. BRANTON received his J.D. from the University of California, Hastings College of the Law in 1970 and his B.S. from Indiana University in 1967. He is of counsel with Seltzer Caplan McMahon Vitek, a law corporation in San Diego, and specializes in taxation. Mr. Branton is a Certified Specialist in Taxation Law through the State Bar of California Board of Legal Specialization. He was named one of the “Best Attorneys” in San Diego in The Best Lawyers in America. Mr. Branton has published numerous articles on tax law. He is a former instructor at the University of San Diego School of Law and a former chair of the Taxation Section of the San Diego County Bar Association. Mr. Branton is the author and 2018 co-author of Chapter 16 (Tax Compliance) and the 2018 update co-author of Chapter 15 (Tax and Accounting Elections).

SUSAN R. GOLDFARB received her J.D. from Georgia State University College of Law in 2000, cum laude; her M.A. in Law and Diplomacy from the Fletcher School of Law and Diplomacy at Tufts University in 1996; and her B.A. from the University of California, Berkeley, cum laude, in 1984. She is a corporate associate with Proskauer Rose LLP in Los Angeles, and practices in the areas of corporate finance, corporate, and securities law. She is a member of the Financial Lawyers Conference in Los Angeles and the American Bar Association’s Business Law Section. Ms. Goldfarb is the author and 2018 update author of Chapter 8 (Loan Financing).

CHRISTOPHER J. HUSA received his J.D. from Cornell Law School in 1983 and his B.A. from the University of Southern California in 1979. He is of counsel with Locke Lord LLP in Los Angeles and practices in the areas of corporate and securities law. Mr. Husa has served as a member of the State Bar of California, Business Law Section’s Education Committee and as a member of the Executive Committee of the Business and Corporations Law Section of the Los Angeles County Bar Association, and is a former managing editor of the State Bar of California Business Law Section’s Business Law News. Mr. Husa is the author and 2018 update author of Chapter 6 (Private Placements).

BRIAN M. KATUSIAN received his LL.M. (Taxation) and J.D. from the University of San Diego School of Law in 2007 and his B.S. in Management Science from the University of California, San Diego, in 2004. He is a California Certified Legal Specialist in Taxation Law and a shareholder of the law firm Seltzer Caplan McMahon Vitek, in San Diego, where he practices in the areas of tax law, tax-exempt organizations, business law, and employee benefits. At the University of San Diego School of Law, Mr. Katusian was a student attorney at the University’s Low Income Taxpayer Clinic, a Graduate Law Merit Scholar, and a member of the Irving R. Kaufman Securities Law Moot Court Team. Mr. Katusian is the 2018 update co-author of Chapters 15 (Tax and Accounting Elections) and 16 (Tax Compliance).

PETER M. MENARD received his J.D. from the University of Michigan Law School in 1979, his M.S. in Mathematics from the University of Michigan in 1976, and his B.S. from Santa Clara University in 1974. He is a partner of Sheppard Mullin Richter & Hampton LLP in Los Angeles, where he practices in the areas of corporate and securities law. He has been a Lecturer on securities regulation at the University of Southern California Gould School of Law, editor-in-chief of the Business Law News, published by the Business Law Section of the State Bar of California, and co-chair of the Corporations Committee of the Business Law Section of the State Bar of California. Mr. Menard is the 2018 update author of Chapters 17 (The Decision to Make a Public Offering), 18 (Preparing for a Public Offering), 19 (Accessing the Public Markets), and 20 (Registering a Public Offering).

KIRK A. PASICH received his J.D. from Loyola Law School, Los Angeles, in 1980 and his B.A. from the University of California, Los Angeles, in 1977. He is the managing partner of Pasich LLP in Los Angeles. Mr. Pasich conducts an active trial, arbitration, and appellate practice. He has negotiated many large insurance recoveries for his clients and has served as lead trial counsel in many jury trials. In addition, he has handled substantial commercial litigation matters and has served as an arbitrator and as an expert witness on insurance and ethical issues. He has been named by Chambers USA as one of the top 12 policyholder lawyers in the United States and by Best Lawyers as the 2018 Los Angeles Litigation—Insurance Lawyer of the Year. Mr. Pasich is the 2018 update author of Chapter 11 (Business Insurance).

FREDERICK K. TAYLOR received his J.D. from Golden Gate University School of Law in 1991 and his B.A., with honors, from the University at Buffalo in 1988. He is a partner in the San Diego-based firm of Procopio, Cory, Hargreaves & Savitch LLP. Mr. Taylor has a Martindale-Hubbell AV Preeminent Rating and was selected as a 2014 and a 2015 Top Lawyer by San Diego Magazine. His practice is focused on litigation in the areas of intellectual property, financial institutions, complex commercial litigation, and Native American issues. He has served as counsel in over 20 jury trials and five bench trials and is experienced in arbitrations, mediations, and appellate matters. He has lectured on a variety of intellectual property topics and has served as an adjunct professor at the Thomas Jefferson School of Law. Mr. Taylor is the 2018 update author of Chapter 12 (Intellectual Property Protection).

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