If Your Startup Needs Seed Capital, Use Y Combinator’s Safe and this Simple Safe Spreadsheet for High Velocity Fundraising

Y Combinator’s Simple agreement for future equity (Safe) was created as an alternative to convertible debt and seed equity financing for startup companies. The Safe is a manifestation of Paul Graham’s concept of high resolution fundraising, which contends that startup financing is more efficient if companies can close different investments (sometimes at varying price and other terms) on a rolling basis with different investors. The Safe embodies this concept, while seeking to provide reasonable contractual protections for investors.

In the words of Carolynn Levy, the YC partner and former Wilson Sonsini lawyer who created the Safe, “[t]he Safe is just a convertible note with the ‘event of default,’ interest, and maturity date provisions stripped out. It is a convertible security with a creative acronym.”

Since the Safe’s release in December 2013, the startup community has engaged in a lively debate over the instrument’s benefits and drawbacks, including comments by lawyers herehere and here; venture capitalists herehere and here; and a Wall Street Journal article here. The Cooley law firm has created a Safe financing documents generator and Practical Law has developed its own form of Safe.

The main argument against the Safe from investors is that it lacks the maturity date, interest rate and certain other investor protections associated with convertible notes or seed equity. While this is true as to the standard form Safe, for some issuers and investors, the benefits of the Safe outweigh the marginally greater investor protections and complexities of convertible notes and seed equity. These Safe benefits include the following:

  • The Safe is a simple, short document of only 5 pages in length. Compare this to the often more complex convertible note (plus note purchase agreement) or seed equity financing, the latter which generally requires drafting and negotiation of an amended certificate of incorporation, investors’ rights agreement, stock purchase agreement, etc.
  • Similar to a convertible note, the Safe can be tailored to include a valuation cap, a discount or both (or neither), allowing it to be easily customized for the investor. Customizations may also include additional protections for major investors, such as rights of first offer (ROFO)observer rightsinformation rights and other rights.
  • The Safe is not debt, so a standard Safe has no interest payable and no maturity date, eliminating the need re-negotiate a convertible note at maturity.
  • The preferred stock issued to a Safe investor upon conversion has a liquidation preference equal to the amount the investor paid for the Safe, so the company is not unjustly burdened (and the investor is not unjustly enriched) with liquidation overhang.
  • The form Safe was first released in December 2013, allowing the market adequate time to familiarize itself with the Safe, expediting market acceptance.

The above benefits of the Safe mean that the closing of a Safe investment can sometimes be accomplished very quickly. This translates into faster access to capital markets for startups and lower legal fees, which is not only high resolution fundraising, but high velocity fundraising.

In an effort to make Safe fundraising even more efficient for startups and investors, I have created a Simple Safe Spreadsheet, which hypothesizes various economic results for companies and investors using the Safe. The results include the preferred shares issuable to an investor upon the occurrence of an “Equity Financing” (e.g., Series A) at a given pre-money valuation and offering amount and the cash payable to an investor upon the occurrence of a “Liquidity Event” (e.g., sale of the company) for a given purchase price. The capitalized terms in the spreadsheet are the same as the defined capitalized terms in the Safe to facilitate cross-referencing and analysis. The spreadsheet’s results should be identical to the results given in Safe Primer examples if the Primer’s assumptions are used in the spreadsheet (allowing for slight variation due to rounding).

Originally published at Exhibit 10.com. Copyright © 2016, John Dorsey PLLC. All rights reserved.

Nine Signs Your Proposed Business Deal Might Not Pass The Smell Test

One of the benefits of being a corporate lawyer is the opportunity to participate in a variety of interesting deals.  In these, you encounter a motley crew of characters.  You witness a range of negotiating styles and tactics, and learn which are effective and which are not. You see some ventures succeed and many others fail.

In the great theatre of the deal, there are rare moments in which something may not feel right to the lawyer or the client about a proposed business transaction or partner.  The thing amiss may only be verifiable by circumstantial evidence.  To paraphrase the Delaware Chancery Court, it may be that the circumstances surrounding the person or transaction stink bad enough that they simply do not pass the “smell test“.

Questions may arise following diligence on the target (which should minimally include Google and litigation searches), from a person’s conduct in negotiation or from other third party sources.  There will not typically be any proverbial smoking gun, so your judgment and careful diligence will be your guiding light.

In my years as a deal lawyer, the appearance of any of these nine elements (not in any order of priority) has been a fairly reliable harbinger of difficulty, dishonesty or even fraud in proposed business deals.  If any of these elements arise in your dealings, you should consider diving deeper into diligence to determine if there is genuine cause for concern or possibly re-negotiate or abandon the deal altogether.

  1. The demanding long-winded negotiator of trivial things.  Excessive demands for non-substantive or patently unreasonable changes to the initial non-binding deal document, such as the term sheet or letter of intent, may foreshadow protracted and possibly agonizing negotiation of the definitive agreements and a challenging ongoing business relationship.  If the demands are coupled with the party’s long-winded or repetitive arguments why he is right and you are wrong (or other ridiculous anectdotes), they may suggest personality issues.  In my experience, character defects are not easily remedied and often worsen with time. The unreasonable negotiator should distinguished from the tough savvy negotiator, who requests substantive deal points but is often reasonable and a good business partner after the deal is papered.
  2. The deal requires urgent participation and won’t be available after “X” occurs.  This is the classic illusion of scarcity tactic.  If your prospective business partner claims that if you fail to act now, (i) a large investment from Mrs. “Y” will soon be received and the price of the investment will increase or (ii) the deal will not be available for “Z” reason, the claim may be a red herring and should be carefully scrutinized.  Fictional future money is sometimes characterized as coming from abroad or from some well-known person with whom the partner purports to have a close relationship.
  3. The secrets that cannot be revealed.  If the target’s founder or your prospective partner is unwilling to reveal certain fundamental aspects of the business or how it expects to make money, the company may not have a business plan.  You have a right to know the company’s business model and growth strategy, with the understanding that the model will likely evolve over time. In one startup deal I reviewed for a client, the founder made repeated excuses why he could not provide information about critical company inventions and provisional patent applications.  Later diligence revealed that the company had no inventions and its business plan was impracticable. After spending the other investors’ money, the founder abandoned the company and the U.S.  This is akin to Bernie Madoff’s “black box” investment strategy that was “so good” that it could not be understood or replicated by any reputable investor.
  4. The anonymous “big money” partner.  Any person who must remain anonymous is often a red flag, particularly if this mystery man is a primary financing source.  A client once instructed me to prepare the draft documents for a “big investment by a Chinese investor who needs to remain anonymous.”  A third party had informed the client that the Chinese wanted this, that, and the other, and I prepared several draft iterations at the client’s request.  The Chinese investment never materialized and the client wasted money on legal fees. Some celebrities and others have genuine reasons to protect their privacy, but if you are doing a deal with someone (including a celebrity), you have a right to know their identity and to size them up.  Always insist upon lifting the veil of anyone who says they must remain anonymous.
  5. The shell company spider web.  Domestic and offshore entities are often formed to execute lawful business strategies, including liability and tax mitigation, particularly for companies with substantial non-U.S. source income.  But as the Panama Papers confirmed, offshore shells with limited assets may also be created for tax evasion and other corrupt purposes.  Before doing any deal with a company that owns or operates affiliates, especially offshore shell entities, you should fully understand the organization chart and confirm that each entity exists for lawful and legitimate purposes.
  6. The paperless office.  It is fine if your partner keeps a clean desk and operates in the cloud, but a lack of paperwork memorializing a business’s structure, assets and operations is almost invariably a red flag.  You should have access to reasonable diligence paperwork and you should be able to freely ask questions and to have them answered.
  7. No skin in the game.  If the deal does not require your business partner to put money or something else of value into the deal, your interests may be de-aligned from the beginning.  In the startup context, this could be the situation where a founder’s shares are fully vested from day one and he has no invested capital or other hook to prevent him from walking away when the going gets tough or he receives a better offer.  In a joint venture, it could be the ability of a party to enrich himself at the expense of the venture.  De-alignment can usually be remedied by careful drafting of the legal incentives in the deal documents.
  8. The promise of abnormally high or guaranteed returns. This trick is as old as prostitution: returns above market rates or guaranteed returns on invested capital are often signs of a Ponzi scheme, where the prompter lures you to invest to pay his prior investors rather than to make bona fide investments with you money. You should always determine the source of returns and whether that source is capable of generating the projected payout.  Most financial projections are exactly that, and vary dramatically from actual results.  There is no such thing as a guaranteed return.
  9. It sounds too good to be true.  This is a corollary of abnormally high returns.  As the adage goes, if what you are to receive in exchange for your participation sounds too good to be true, then it probably is.  In most of these cases, you should run away from these deal absent a reasonable and verifiable justification for its sweetness.

 

Coming to America: What is the best legal structure for selling your products in the USA?

As an international lawyer, my clients based outside the U.S. often ask how they should structure sales of their products in the U.S. market.  Actually, they usually say, “we have decided to form a U.S. subsidiary [or to sign this proposed agreement, or to…], how much would you charge to help us?”  And then I ask some questions and the client and I work together to implement a strategy that meets the client’s goals, which may be different than the client’s original plan.

If you wish to sell your products in the U.S., you have several good options, including selling directly, appointing a sales representative or distributor or forming a U.S. subsidiary. Each approach has certain benefits and drawbacks. You should work with a lawyer to help you determine the best structure for your business.

Depending on your product, you may be subject to labeling requirements and other regulations under U.S. federal and state law, which are not discussed here.

  1. Direct Sales. You can sell your products directly to U.S. customers via the internet or telephone. The chief benefit of direct sales that it is simple and generally has the lowest cost (e.g., the cost of setting up a website, payment processing and shipping and import duties). The direct sales method may be used only if you do not plan to open a U.S. office. You should not open a U.S. office (e.g., a branch office) using your non-U.S. company because there is a material risk that the office will result in a permanent establishment, which could subject your non-U.S. company to U.S. federal tax. The main drawback of direct sales is that you will need to do all product marketing and promotion on your own and may encounter challenges in achieving market acceptance without a local presence. You will also need to determine how to efficiently ship your products to the U.S. and determine any if import restrictions, duties or other charges will be levied.  If you engage in direct sales to U.S. customers, you should prepare terms of conditions of sale, including warranty terms, for issuance to your U.S. customers.
  2. Sales Representative. You can appoint a U.S. sales representative. A sales representative is an independent contractor that does not take title to your products, but earns a commission on product sales that the representative generates for your company. The main benefits of appointing a sales representative are: (a) you do not need a U.S. office, (b) it does not, by itself, create a permanent establishment, (c) you can rely on the representative’s market knowledge and expertise to expand your U.S. sales, (d) it is relatively inexpensive to implement and (e) you can often appoint multiple U.S. sales representatives (as long as your arrangements are non-exclusive) and combine this approach with direct sales from your home office. The main drawbacks of using a sales representative are that: (i) you do not limit your company’s liability to customers because you maintain direct contact with customers for sale, warranty and other issues; (ii) a sales representative may not be able to offer as high of a level of marketing and sales support for the products as a distributor (described below); and (iii) you may have a disagreement with your representative (so you should have good termination rights). If you appoint a sales representative, you need a sales representative agreement to memorialize these rights and all the other customary rights and obligations.
  3. Distributor. You can appoint a U.S. distributor.  A distributor will generally buy your products for its own account, take title to those products and resell them to its customers. The distributor will make money on the spread between the price it pays you for the products and the price at which it sells the products. The main benefits of this distribution method are that: (a) it does not require a U.S. office or place of business, (b) it does not, by itself, create a permanent establishment, (c) it limits your company’s liability to U.S. customers because you have no direct contact with customers (assuming the distributor is charged with managing warranty and other ongoing issues), (d) it is relatively inexpensive to implement, and (e) you can rely on the distributor’s market knowledge and expertise to expand your U.S. sales and manage regulatory and customer issues. The main drawbacks of using a distributor are (i) you will probably lose some margin on sales because of the spread retained by the distributor, which may also result in higher prices for your products, possibly making them less competitive; and (ii) you may have a disagreement with your distributor (so you should have termination rights). If you appoint a distributor, you need a distribution agreement to memorialize these rights and all the other customary rights and obligations.
  4. Subsidiary. You can form a U.S. subsidiary and directly distribute and sell your products in the U.S.. The subsidiary may be wholly-owned by your home company or can be owned by additional or different people or entities. If your home company is a corporation and it will be the sole owner (parent) of the U.S. subsidiary, the U.S. subsidiary should usually be structured as a U.S. corporation or limited liability company (LLC) that files a Form 8832 U.S. federal tax election with the Internal Revenue Service to be taxed as a corporation.  Generally speaking, a U.S. corporation or LLC that elects to be taxed as a corporation is subject to U.S. federal income tax on its net income at the rate of 34% and withholding tax on dividends of the lower 30% and the rate in the tax treaty between the U.S. and the owner’s home country, which can range from 0%-10%.  For example, if the sole stockholder of the U.S. subsidiary is a Mexican corporation, dividends would be subject to a 5% withholding tax, if the stockholder owns at least 10% of the U.S. subsidiary’s voting stock, or 10%, in all other cases (See Article 10, U.S.-Mexico Tax Treaty). Net income of the U.S. entity may be reduced if the U.S. entity pays the parent company for bona fide services provided to the subsidiary pursuant to a services agreement.  The U.S. subsidiary will also be subject to tax at the state level depending on the state in which it is organized and in which it conducts business.  You will need to hire a U.S. Certified Public Accountant (CPA) to prepare and file the subsidiary’s federal and state tax returns.  If the subsidiary has employees, it must withhold and pay U.S. federal taxes on the amount of salaries paid.  There may also be state-specific payroll taxes and unemployment insurance payable, depending on the state in which the subsidiary’s employees are located.  The principal benefits of distributing products through a U.S. subsidiary are: (c) you retain control over the manner and method of product sale distribution, (b) you develop a U.S. brand and market presence, (c) depending on your home country, your directors, officers, select employees and major shareholders may be eligible for U.S. Visas such as the E-1/2 and L-1, (d) you do not need to pay a third party sales representative or distributor and (e) the formation of a subsidiary does not, by itself, create a permanent establishment of the non-U.S. parent company.  The main disadvantage is that this is most expensive structure to implement in terms of legal fees and startup and ongoing business expenses.

 

Is Your Event Sponsorship Agreement Missing Any Of These Essential Terms?

Sponsorship dollars and ticket sales are the economic engines of music festivals and other special events.  The organizer will customarily prepare a form of sponsorship agreement for use with sponsors, although certain sophisticated sponsors (e.g., Red Bull) may prefer their own form of agreement.  If an anchor sponsor wishes to use its own form, then the organizer should use it to expedite closing the deal.  Attorney time should be spent on the more critical negotiation points rather than arguing over trivialities of whose form is selected.

A well-drafted sponsorship agreement will usually have at least the following elements:

  • Category Exclusivity: The event organizer will usually divide sponsorships into several categories or levels, each with greater sponsor benefits and activation opportunities.  For example, in the beverage category, the festival may have an “official beer”,”official energy drink”, “official bottled water”, “official rum”, etc.  Sponsorship categories range from “official digital media partner” to “official vehicle” to “official [insert category or sub-category]”. The sponsor will seek the widest possible exclusive coverage in the category (e.g., “official beverage”). High level sponsors will try to prevent other sponsors from receiving equivalent benefits and to exclude competitors (which should be identified in the agreement) from the same opportunity.  The organizer will seek to narrow the sponsor’s coverage to a sub-category or sub-sub-category within the category (e.g., “official energy drink”, “official cola” or “official diet cola”) to maximize the number sponsorships.  The organizer should strive for a balanced collection of sponsors to mitigate dilution of sponsorship value and excessive sub-categorization.  The contract should clearly define the sponsor’s exclusivity rights by identifying similar sponsorship categories that are not within the exclusivity.  If, for example, the sponsor is to be the “official energy drink”, then “energy drink” should be defined and the agreement should also include a list of what is not an energy drink, such as coffee, tea and other naturally caffeinated beverages.
  • Benefits: The agreement will include a list of all benefits to be received by the sponsor.  As in this agreement for sponsorship of Professional Bull Riding, the list is often included as an exhibit because it is long and detailed, including signage, on-site activation opportunities (including social media and fan zones) and print and web media exposure.  The organizer should clearly describe the materials and equipment the sponsor is permitted to bring to the event in order to exercise its benefits, and require that the sponsor be solely responsible for any act or omission arising from the use of that equipment by the sponsor or its agents.
  • Sponsorship Fee:  The sponsorship fee may include cash and in-kind benefits to the organizer, such as catering services (often tied to activation opportunities) and media exposure.  The organizer should require the payment of interest for past due sponsorship fees and other termination rights for sponsor breach, such as suspension of benefits.  Delivery times and dates should be specified for in-kind deliverables to accommodate the event schedule.
  • Renewal: The sponsor will often seek a renewal option to continue the arrangement for future editions of the event. The organizer may be willing to accept the renewal option if the fees are sufficient or may grant the option subject to the parties’ agreement on fees, which is similar to a right of first negotiation (described below).
  • Right of First Refusal or Negotiation:  The sponsor will usually request a right of first refusal (ROFR) that prohibits the organizer from entering into a sponsorship deal with another sponsor for the event’s next edition unless it first offers the opportunity to the original sponsor. The organizer should try to eliminate the ROFR in most cases because it will discourage future sponsors from dealing with the organizer given the possibility they will lose the deal to a competitor.  The organizer may instead wish to agree to a right of first negotiation (ROFN) that obligates it to negotiate sponsorship for the subsequent event with the original sponsor for a given period of time.  If no deal is reached during the ROFN period, the organizer is free to pursue other sponsors.
  • Trademark Licenses: The sponsor will grant the organizer a license in the sponsor’s marks as is necessary to provide the sponsorship benefits.  Trademark license grants are usually subject to each party’s usage guidelines, which may be attached to the agreement or incorporated by reference (but watch for terms that conflict with the agreement).  The organizer will grant the sponsor a license to use the organizer’s marks to promote the event and on any merchandise and media that the sponsor is allowed to create as part of the sponsorship benefits.  The trademark licenses may be coupled with restrictions on display of the marks in connection with images of underage drinking, illegal drug use or other conduct or competing brands that could tarnish the marks.
  • Insurance: The sponsor will require the organizer to maintain sufficient insurance with the sponsor named as additional insured to cover the event and its risks, including commercial general liability, worker’s compensation and professional liability policies.  The organizer should require that the sponsor provide reciprocal insurance, particularly if the sponsor is performing on-site activation or engaged in media promotion.
  • Confidentiality:  The organizer may wish to include a confidentiality provision if the sponsor will have access to business plans, artist lineups, revenues or any other confidential information. The sponsor may have similar confidentiality concerns, and this provision is often reciprocal.
  • Force Majeure:  The organizer should include an expansive force majeure clause to cover situations where it is unable to perform due to events outside of its control so that the inability to perform is not a breach of contract. For example, inclement weather has stymied many events and the organizer should seek to mitigate the risk that the sponsor claims a loss of benefits after a windstorm.  The sponsor should try to narrow the list of force majeure events to specific circumstances. The sponsor may require a refund of a pro rated amount of its sponsorship fee representing the loss of sponsorship benefits due to force majeure.  Depending on the event, it may be reasonable for the organizer to disallow a refund as long as the force majeure is temporary and the event can be hosted within a reasonable time (e.g., one year) because there is unlikely to be a material diminution in sponsorship benefits.
  • Refund Upon Breach, Cancellation or Postponement:  The sponsor may require a refund of all or part of the sponsorship fee if the organizer breaches the agreement or cancels or postpones the event for any reason, including force majeure.  As noted above in Force Majeure, the organizer should argue against providing a refund if the event can be held within a reasonable time after the force majeure and any other cancellation or postponement on the ground that there is not material diminution in sponsorship benefits.  The organizer should always require a notice and cure period for any alleged breach.
  • Indemnity:  The sponsor will generally request a broad indemnity, which may include (i) any claim arising out of the event and its promotion, (ii) negligence or willful misconduct of the organizer, (iii) breach by the organizer of its obligations and (iv) copyright or other infringement of any third party intellectual property rights.  The organizer should seek to make indemnity reciprocal (this is usually accepted by the sponsor) and to limit its indemnity obligation.  Taking the example above, this limitation can be accomplished by, among other techniques, excluding or narrowing the indemnification obligation in clause (i), which makes sense particularly if the sponsor will promote the event or the sponsor’s representatives and employees or agents will be on-site at the event, and limiting (ii) to gross negligence; and adding “material” before “breach” in (iii).
  • Representations and Warranties: The sponsor and the organizer should each provide representations and warranties as to its organization, ability to perform its obligations, compliance with laws (including alcohol and cannabis laws), and procurement of permits and licenses, among others.  The organizer may require additional reps and warranties from the sponsor, such as a warranty that the sponsor will comply with written policies and safety and security measures of the event (see Sponsor’s Manual below).
  • Special Provisions:  The sponsorship agreement may contain unique additional provisions depending on the nature of the event and the sponsor type, including:
    • Sponsor’s Manual: The organizer may create a “sponsor’s manual” setting forth general requirements applicable to all sponsors, loading and unloading schedules, on-site activation requirements and other practical information.  The manual is often incorporated by reference into the sponsorship agreement.
    • Right to Capture Footage:  The sponsor and/or the organizer may seek the right to capture footage at the event to be used for promotional purposes.  If the sponsor will film, it should obtain the right to post a crowd release at event access points and the right to film the event, including a license to use the footage in all media worldwide in perpetuity. The organizer will often wish to film the event and should obtain the right to capture footage of the sponsor and its employees and agents (the organizer will generally post its own crowd release at the venue).  The organizer should include restrictions in the sponsor’s right to film, such as a prohibition on filming performing artists and a requirement that the sponsor obtain all clearances for the exhibition of its footage.

Is your event sponsorship agreement missing any of these essential terms?

Don’t Pay Commissions on Sales to People You Already Know in Your Commission Sales Agreements

Commission-based sales contracts require the payment of a commission to a sales representative when a sale is made.  These contracts are commonly used in the sale of goods and services and real estate.

If you are the seller (i.e., commission payor), you should should try not to pay a commission on sales made to third parties with which you have an existing relationship.  The rationale is that the sales representative earns the commission only on those sales to customers that the representative introduced to the seller by the representative’s efforts.  The representative will generally agree to the carve-out as long as it is limited to the seller’s bona-fide pre-existing relationships, such as those customers to which the seller already sells on a regular basis.  If the representative is savvy, it will ask that an itemized list of excluded persons be set forth in the contract.

A simple carve-out to a commission sales obligation could be drafted as follows:

Unless [SELLER] otherwise agrees in writing, [SELLER] will not pay a commission on any [purchase orders from] [sale[s] made to] [NAMES OF EXISTING RELATIONSHIPS].

Do You Need to Terminate a Business Agreement? If So, You Might Need a Termination Agreement

Commercial contracts generally terminate when the term expires or when both parties have fully performed their obligations.  In these situations, no additional agreement is necessary to memorialize the termination.

In certain cases, however, the parties may wish to terminate the agreement before the ordinary termination date.  This may occur if the deal is unfavorable to both parties or one party fails to perform both parties seek a clean break.  In these instances, the parties should sign a simple termination agreement that includes:

  • the termination date;
  • any special conditions of termination (e.g., surviving obligations); and
  • a release of claims.

Save this termination agreement in your files to close the chapter on the deal and make a note of any surviving obligations and action items.

Ask These Six Questions Before Amending a Business Contract

Business contracts must often be modified to reflect changes to the parties’ agreement.  Below I discuss the main questions you should ask when drafting and negotiating contract amendments.

  1. What approvals are required to amend?  Commercial contracts generally contain an amendment and modification provision that governs changes to the terms. Contracts typically require that amendments be made in writing signed by the parties.
  2. How much text must be amended?  If the volume of text to be amended is substantial and it would be confusing to read a stand-alone amendment alongside the contract, then consider amending and restating the entire agreement.  Choose the most efficient path.
  3. Does the contract need to be modified to reflect business reality or corrected?  Contracting parties often operate differently in practice than as stated in the contract.  An amendment may be an opportunity to clarify contractual provisions that do not reflect reality.  In addition, if there are any errors or typos, the amendment can correct them.
  4. Does the client wish to change any aspect of the deal?  If the opposing party requested the amendment, the client may wish to request changes to contractual provisions unfavorable to the client in exchange for agreeing to the amendment.  This should be done diplomatically if possible in order to maintain good relations between the parties, but sometimes a little friction is unavoidable.
  5. Are there any traps?  Often an opposing party will request what appears at first blush to be simple change and present it as such.  On further analysis, however, the proposed change may result in potential increased liability risk to the client.  Re-read the entire contract together with the proposed amendment to find the traps.  For example, if the proposal is to amend a distribution agreement to allow the appointment of sub-distributors, the appropriate amendments may include:
    • grant of right to appoint the sub-distributor, subject to supplier approval of sub-distributor agreements;
    • requirement that each sub-distributor agreement contain acknowledgment by the sub-distributor of: (i) subordination of sub-distributor agreements to master agreement; (ii) familiarity with master agreement terms and conditions;
    • acknowledgment by distributor of its liability for sub-distributor’s performance of obligations;
    • reporting requirements for sub-distributor sales;
    • additional indemnity by distributor for sub-distributor claims, acts and omissions; and
    • additional termination rights for sub-distributor acts or omissions.
  6. What boilerplate should be included?  Governing law, successors and assigns, counterparts and costs and expenses is generally sufficient boilerplate for a simple amendment.  An amended and restated agreement should include all boilerplate in the original agreement.