Tuesday, September 18, 2018

NVCA Recognizes Importance of Life Science and Bio-Tech

Life sciences and bio-tech companies continue to have a major impact the venture capital landscape.

The National Venture Capital Association (NVCA) provides model legal forms for venture capital investors and entrepreneurs seeking venture capital. The NVCA model forms are the starting point for many venture capital transactions. In a nod to the growing important of the life sciences industry, the NVCA model forms have recently been updated to become more life-sciences friendly.

As the NVCA's press release from February noted: "For the first time, the documents now incorporate drafting options that are specific to the unique nature of life science transactions."

Examples of new life science focused terms and footnotes in the NVCA Model Legal Forms include the following additions to the NVCA's model Stock Purchase Agreement:
  • Noted that life sciences transactions often include "Milestone Closings" with tranched investments in which investors are expected to make additional contributions to the company (such as upon FDA approval).
  • Added potential penalty provisions applicable to investors who fail to fund Milestone Closings.  
  • Noted that the "Use of Proceeds" section may be more specific for life sciences companies and "may include 'discovery, research and pre-clinical development' of a particular therapeutic." 
  • Noted that for life science transactions, it is common to define "Company Intellectual Property" in greater detail with respect to patent rights, including “patent disclosures and all related continuation, continuation-in-part, divisional, reissue, reexamination, utility model, renewals, extensions, certificate of invention and design patents, patent applications, registrations and applications for registrations.”
  • Proposed more detailed representations and warranties regarding:
    • Intellectual property held or funded by the government or academic or medical institutions;
    • Compliance with HIPPA;
    • Pre-clinical development;
    • Clinical trials; and 
    • FDA approvals.

Thursday, September 6, 2018

Who the Heck Signs Our Stock Certificates?

One of the first things a new corporation must do is issue stock certificates to its founding stockholders (assuming the corporation has not elected to issue uncertificated shares, of course). But who should sign the stock certificates on behalf of the corporation?

To answer that question, the corporation should look first to its Bylaws. For example, I often use a form of Bylaws for Texas corporations which provide that the share certificates should be signed by "the President or a vice president and the Secretary or an assistant secretary."

But what do the underlying corporate statutes provide?

The answer is not as easy to find as you might expect. There is nothing in Title 2 (Corporations) of the Texas Business Organizations Code (TBOC) addressing the issue. Instead, one must look to Title 1 (General Provisions).  Specifically, Section 3.203 of the TBOC provides that a Texas corporation's stock certificates must be signed by "[t]he managerial official or officials of [the corporation] authorized by the [certificate of formation and bylaws]." Section 1.002(52) of the TBOC defines "managerial official" as an officer or a governing person. Section 1.002(37) defines "governing person" as a person serving as part of the "governing authority." Section 1.002(35)(A) defines the "governing authority" of a corporation as its board of directors. Accordingly, a Texas corporation's stock certificate may be signed by any of the corporation's officer(s) or director(s) as authorized in the corporation's certificate of formation and bylaws.  I have never seen a certificate of formation which addressed this issue, though it is a hypothetical possibility. So as a practical matter, that means the issue is governed by the Texas corporation's Bylaws. 

Section 158 of the Delaware General Corporation Law is much easier to navigate. It provides that certificates representing shares of stock in a Delaware corporation must be signed by "2 authorized officers of the corporation."

Saturday, June 30, 2018

360 West Magazine Top Attorney 2018

Thank you to 360 West magazine for including me in their list of Top Attorneys for 2018 and to the other attorneys in our region who voted for me. I was nominated in the category of Civil Law/Transactional. 360 West hosted a festive reception for the 2018 Top Attorneys at Autobahn Fort Worth last week. It was an honor to spend the evening with some truly exceptional attorneys. A complete list of the Top Attorneys is available here.

Wednesday, November 29, 2017

Fort Worth Magazine Top Attorneys 2017

Thank you to Fort Worth magazine for including me on their annual list of Top Attorneys for the 4th straight year!  I was among those honored in the Corporate Finance/Mergers and Acquisitions category.  Here I am making my way into the reception honoring 2017 Top Attorneys at the Fort Worth Club last night:



Wednesday, November 15, 2017

Blowing the Whistle on Confidentiality Agreements that Restrict Whistleblowers

Recent changes to federal whistleblower protection law have made it necessary to revisit the form of confidentiality agreements (sometimes called non-disclosure agreements or NDAs) used by companies to protect their trade secrets and other confidential information.


Whistleblowers are parties who become aware of illegal or unethical conduct within a company and seek to report such conduct to the proper governmental authorities. In the wake of the collapse of Enron, the Bernie Madoff Ponzi scheme, and other financial and accounting scandals, the government has sought to make it easier for company insiders to report illegal or unethical conduct within a company without fear of retribution from the company. As you might expect, there is often a tension between the company’s desire to protect legitimate trade secrets, often through the use of confidentiality agreements, and the law’s desire to protect and encourage whistleblowers.  


Defend Trade Secrets Act. One example of this recent trend is the federal Defend Trade Secrets Act (DTSA), which was adopted in 2016. Under the DTSA, an individual cannot be held criminally or civilly liable for “blowing the whistle” and confidentially reporting a suspected violation of law to the government or to an attorney. The DTSA also protects a whistleblower who confidentially discloses trade secrets to an attorney or to a court in connection with a lawsuit alleging that an employer retaliated against the whistleblower.


The DTSA requires that any company that enters into a confidentiality agreement with an employee, consultant or independent contractor must include a notice in the confidentiality agreement of the DTSA whistleblower protections described in the previous paragraph. If the company fails to provide the DTSA notice, the company cannot sue the employee, consultant or independent contractor under the DTSA for exemplary damages or for attorneys’ fees as otherwise permitted to be recovered under the DTSA for willful, malicious or bad faith theft of trade secrets.


SEC Rule 21F-17. The Dodd-Frank Wall Street Reform and Consumer Protection Act added a new Section 21F to the Securities and Exchange Act of 1934 (the Exchange Act) which, among other things, prohibits companies from retaliating against whistleblowers who have reported concerns about securities law violations to the Securities and Exchange Commission (SEC) or who have assisted the SEC in any investigation or judicial or administrative action. To further clarify a company’s obligations under Section 21F of the Exchange Act, the SEC adopted Rule 21F-17, which provides that “no person may take any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”


The SEC has taken administrative action against several companies that have entered into agreements with employees that contain confidentiality provisions that the SEC has alleged to violate SEC Rule 21F-17 by potentially “stifling” whistleblowers. The challenged agreements have included confidentiality agreements, severance agreements, and separation agreements, but any agreement that requires confidentiality obligations for the employee without providing an exception for whistleblowing reports to the SEC would arguably run afoul SEC Rule 21F-17.  In connection with an SEC cease and desist order, the SEC has indicated that including the following language in an agreement with a confidentiality provision would cause the agreement to comply with SEC Rule 21F-17:



“Nothing in this Confidentiality [Agreement] prohibits [the employee] from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation.  [The employee does] not need the prior authorization of the [the company] to make any such reports or disclosures and [the employee is] not required to notify the company that [the employee has] made such reports or disclosures.”     


Takeaways. Any company entering into a confidentiality agreement or other agreement with an employee, consultant or independent contractor that includes a confidentiality provision should consider including the DTSA notice described above to ensure that the company will enjoy the full benefit of the trade secret protection and remedies afforded by the DTSA. And companies (especially publicly traded companies) should consider including carve-outs for whistleblowers in their confidentiality agreements, such as the SEC-blessed disclosure described above, to ensure that those confidentiality agreements comply with SEC Rule 21F-17.  

Special thanks to CityBizList-Dallas for publishing this article here. 

Friday, September 8, 2017

What's in a Name (of a Texas company)?

"What's in a name? That which we call a rose
By any other name would smell as sweet."

- Spoken by Juliet in Romeo and Juliet (Act II, Scene II), by William Shakespeare

Sometimes, it seems the hardest part of forming a new company can be picking its name - as if all of the good names have already been taken! And historically, Texas law has done company organizers no favors by preventing companies from using names which are the same as, or "deceptively similar" to, names of existing companies doing business in Texas. At times, the Texas Secretary of State has taken a broad view of names which it considered deceptively similar - further narrowing the field of available names. But thanks to the 85th Texas legislature, picking a name for a Texas company is about to get a little easier.

House Bill 2856, which becomes effective June 1, 2018, will amend the Texas Business Organization Code (TBOC) to permit new filing entities (such as corporations, limited liability companies, limited partnership, etc.) and foreign entities registering to do business in Texas to use any name which is "distinguishable" from the names of all other companies formed, registered, or reserved for use in Texas.

In short, Texas companies will soon be able to have "deceptively similar" names, so long as the names are "distinguishable" from one another.

The change will make Texas law more uniform with the requirements established in other states, including the State of Delaware (see Section 102(a)(ii) of the Delaware General Corporation Law). It is hoped that this change will facilitate the formation of new business entities and expedite the registration of out-of-state business entities to transact business in Texas.

Perhaps all those newly formed or registered Texas companies will soon be humming a Jim Croce tune:

"Like the pine trees lining the winding road
I got a name, I got a name."

Then again, maybe not.

Regardless, I view this change as a positive one for Texas corporate law.

Monday, August 21, 2017

SmartVest Presentation: "Ins and Outs of Term Sheets"

Last week I had the honor of making a presentation as part of SmartVest, a Startup Investor Series sponsored by TECH Fort Worth. I presented "Ins and Outs of Term Sheets," discussing some of the common terms found in Series A investment term sheets. The presentation was a lot of fun to give, primarily because the accredited investors in attendance asked a lot of really great questions.

Thanks to TECH Fort Worth for including me in this valuable educational program for the startup investment community.