Sometimes, Cash Not Best Payment

Boston Herald , January 20, 1997, page 26

 

By Robin Lawson

 

Blackstone Marketing’s R.L. Pitcher of Boxboro calls himself a “turnaround specialist” who helps companies get onto a profitable track.  Because of the nature of his clients, it’s not unusual for him to accept alternative payment other than cash – in particular, stock or options to purchase stock.  Is that a wise route for other office-at-home businesses?

“I’ve made out well,” says Pitcher.  “There was only one instance when I couldn’t make it work.  But there is no magic formula to determining the right opportunity.  You must be in a position where you’re able to walk away from a client without making any money.  You’re rolling the dice and betting against yourself.”

In any case, he adds, the project should be exciting and interesting.  At the very least, you should be getting free training in a product or technology with which you have had very little experience.  Robert Adelson, a partner with the Boston law firm Lawson & Weitzen**, says experience may be reason alone to consider taking stock or options as payment.  “Evaluate the true currency of your compensation.  Your payment may be more than stock.  Perhaps your client is developing a technology which could lead you to other assignments.  Or there’s an opportunity to make worthwhile contracts with the company’s board of directors or advisers.”

Agreeing to be paid in stock is a strategic investment decision, says Adelson, who specializes in employment and consulting agreements.  Not every client will succeed.  “You should start the relationship feeling confident in the firm and your ability to make a contribution.  And make sure you have a solid commitment that places a real value on your services.  If not, you will undermine your standing with the firm and the overall value of your work experience.”

What type of stock should you accept?  As a consultant, you’re most likely to be offered common stock.  Adelson offers a rule of thumb:  if the stock has a high value, take options.  If it has a low value, take the stock now.  This has largely to do with tax implications:

A few things to watch for:

  • Make sure your contract protects against dilution – issuance of a large number of shares which deflates the value of the stock
  • Include cash-out protection.  If the company is acquired and there’s a change in control, you should be able to cash out your shares along with the people who hired you.
  • Incorporate some milestones into your contract which spell out when your shares can be vested.  Your objective may be tied to profits, for example, or to an initial public offering.

Valuing the stock, Adelson says, is never a clear science.  He says you should consider the company’s status, market share, products, capital and management savvy.  You should also consider where you rank within the company, and the expectations others have of your contribution.  The higher your rank, the higher the expectations, the more stock you should receive.  With a startup, you should receive more stock the earlier you get involved.  “Consider yourself, in effect, new capital coming in.  Don’t’ be bashful about asking for a significant amount.  Remember, your contribution will make everyone’s stock more valuable.”

© 1997 Boston Herald

Stock for Pay:  Follow-up Questions…

 

  • As an entrepreneur – How do you recruit top talent, using your company stock?

  • As a consultant or an employee – Is stock a good deal?

  • What terms do I include when I am being paid in stock for options?

For answers to these and other questions, contact information for the attorney mentioned in the above article is as follows:

Robert A. Adelson, Esq.

Engel & Schultz, LLP

265 Franklin Street, Suite 1801

Boston, MA 02110

Telephone: 617-951-9980

E-mail: radelson@engelschultz.com

** Since 2004, Robert Adelson has been a partner at the Boston law firm, Engel & Schultz LLP

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Determining Which Tool Offers the Best (Intellectual Property) Protection

Copyrights and trade secrets can be important assets that can add value to your business. They are also an important protection for work of your creation.

Boston Business Journal , June 5-11, 2009, page 38

By Robert A. Adelson

Copyrights and trade secrets can be important assets that can add value to your business.

They are also an important protection for work of your creation or customer information, know-how and other business information developed over time or in current use and proprietary to you.

If properly used they can give you an edge over your competition in business and serve as a low cost, practical barrier to entry.

The best protection for inventions is utility patents, which offer a 20-year monopoly from date of grant. Even those who do not copy or independently develop are barred from use unless they license from the patent holder.

However, to gain patent protection, the invention must be a “useful process, machine, manufacture or composition of matter” or improvement of the same. It cannot be obvious and must be an advance over prior art, with the application filed within a year of first publication, public use or offer for sale. It must be fully disclosed and can take several years and generally $7,000 to $12,000 in filing and legal fees, and after vetting by the U.S. Patent and Trademark Office, it may prove be too narrow to protect against infringement.

Thus, if the invention is not intended for mass marketing, or if disclosure, time delays or costs or patent requirements raise concerns, then, copyright or trade secret protection may offer cheaper and more practical intellectual property protection.

Copyright filings:

Copyright is the exclusive right to copy and control publication of original expressive work fixed by the author in a written work, sketch, computer code, audio or video recording, architectural work or other tangible medium. Thus, copyright protects the expression but not the idea itself and bars against copying but not independent development.

Federal filing within three months of publication or prior to infringement is needed to gain statutory damages and attorney fees in later infringement actions to defend works. A deposit of materials is needed, but filing costs and expected attorney fees are a fraction of patent costs — generally, less than $1,000, even with compilation and serial filings, and sometimes even less than $500, with registration secured in months not years. Yet, duration is longer than patents — author’s or joint author’s life plus 70 years, or 35 years from author’s transfer, or 95 years from publication in case of “work for hire.”

Copyright protection for computer source and object code is also possible, where disclosure in the form of Copyright Office deposit blots out most of the source code.

Trade secrets:

A trade secret may consist of any formula, pattern, device or compilation of information used in one’s business that gives the owner an opportunity to obtain advantage over competitors who do not know or use it.

Thus, while trade secrets have the broadest scope in information covered, with novelty or even expression not required, they are the hardest to safeguard because they must be kept confidential and vigilance is needed.

State law and court decisions that uphold trade secrets look to these elements:

• Extent to which information is known outside business and within business.
• Extent of measures taken to guard the secrecy of information.
• Value of information to owner and its competitors.
• Amount of money or effort expended in developing information.
• Ease or difficulty to properly acquire or duplicate information by others.

Trade secret protection involves confidential information agreements with employees, contractors and sometimes distributors and clients as well — those with access to the information and further programs internally to demonstrate care and protection afforded information. Attorney fees for such work may be $1,000 or more, still far less than patent costs. Duration is as long as secret is maintained. Some continuing trade secrets have existed for centuries.

Robert A. Adelson is a corporate, tax and intellectual property attorney and partner at Boston law firm Engel & Schultz LLP.

© 2009 Robert A. Adelson


The above “Insider View” article – “Determining which tool offers the best protection” appeared in the Boston Business Journal, Issue June 5-11, 2009, page 38 in the BBJ’s  Intellectual Property Law focus section:

  • If you have any questions or comments on this article
  • If you or your company would like help to protect written materials you have developed in your business, or artistic, music, video or literary works
  • If you or your company would like help to protect confidential information from use in competition with your business
  • Or if you have other questions or issues involving or copyrights, trade secrets, trademarks or a service marks or other intellectual property

The author can be reached as follows:

Robert A. Adelson, Esq.
Engel & Schultz, LLP
265 Franklin Street, Suite 1801
Boston, MA 02110
Telephone: 617-951-9980 ext 205
E-mail: radelson@engelschultz.com

Massachusetts Data Privacy Laws And Regulations Including Written Information Security Program

Massachusetts data privacy laws require notice of security breaches, personal information disposal standards, and an owner written information security program.

Data Privacy Conference sponsored by New England Data Services,  Technical Support International, Exclusive Concepts

September 23, 2009

 

By Robert A. Adelson, Esq.

 

Massachusetts Data Privacy Laws

1. Data Security Problem in Massachusetts

  • 2007 Attack on TJX affected millions of customers
  • Since Nov. 2007, 450 breaches reported to state officials affecting 700,000 Mass. Residents (Boston Business Journal, March 2009)
  • 2. Mass. Gen. Laws chapter 93H §2 (2007)

  • State Office of Consumer Affairs and Business Regulation to adopt regulations for persons who own or license PI (see below)
  • MA state executive offices, Legislature, Judiciary, AG, Treasurer, Auditor to also adopt rules to safeguard PI
  • Objectives: security of customer information, protection against anticipated threats, unauthorized access or use of PI
  • Regulations take into account

(1) person or agency’s size

(2) scope,  type of business,

(3) amount of resources available to person or agency,

(4) amount of stored data,

(5) need for security and confidentiality of both consumer and employee information to insure security and protect against threats, unauthorized access

3. Mass. Gen. Laws chapter 93H §3 (2007)

  • Duty to report security breaches, unauthorized use of PI
  • Persons / agencies that maintain or store PI must report to owner and cooperate providing information on incident
  • Owner or licensor of PI must report to AG, Director OCABR, and affected resident
  • Notice to resident to include right to obtain police report & information on obtaining security freeze

4. Mass. Gen. Laws chapter 93I (2008)

  • Minimum standards set to dispose of records containing PI
  • Paper documents shredded, burned or destroyed; electronic erased with no possibility of reconstruction of paper or electronic records
  • Third parties who dispose must prevent unauthorized access

and unauthorized use

5. Mass. Gen. Laws chapters 93H and I – Enforcement

  • AG can bring action for violation
  • Added civil fines in 93I

Law Coverage: Personal Information

1. Personal Information (“PI”), as defined in the law

  • Mass. Resident’s name in combination with one of:
  • Soc. Security no., Driver’s lic., financial acct, credit or debit card
  • 2. Examples of those covered by the law

  • Employers with SS# of employees
  • Accountants and service providers with SS# of clients
  • Retailers with credit card information of customers

Actions required by March 1, 2010

1. Adopt a comprehensive written information security program (WISP)

2. Ensure the WISP protects personal information in both paper and electronic forms

3. Secure paper records, shredding those not retained

4. Actions for computers contain personal information

  • Provide that access is restricted
  • Provide protocols for secure user authentication
  • 5. Actions for laptops and other portable devices

  • Encryption of records on portable devices
  • Encryption of records transmitted
  • 6. Adopt standards to evaluate WISP
  • 7. Adopt standards to train personnel
  • 8. Adopt standards to discipline personnel for violations of WISP
  • 9. Bar access to information by any terminated employee

Written Information Security Program

1. Designation of employee(s) to maintain the security program

2. Identification and assessment of internal and

external risks to security

3. Development of security policies for employees with records outside office

4. Imposition of disciplinary measures for violations of WISP

5. Prevention of terminated employees access to records

6. Oversee third party service providers by steps to select and retainer providers capable of maintaining security measures to protect PI consistent with regulations

7. Restrictions on physical access to records and  storage in locked facilities, areas, containers

8. Monitoring to ensure operation of the program

9. Review of security measures at least annually and sooner if changes arise

10. Documentation of response to any security breaches

Additional Obligations for Personal Information on computers and laptops

1. Secure user authentication protocols

Control user IDs and passwords

  • Restricting access to active users only
  • Block access after number unsuccessful attempts

2. Secure access control measures

  • Restricting access to those with a need to know
  • Assign unique IDs and passwords to maintain integrity

3. Encryption of all transmitted records  containing PI

4. Reasonable Monitoring of system for unauthorized use

5. Encryption of all PI stored on laptops or portable devices

Actions required by March 1, 2012

1. Requiring third party service providers by contract to implement and maintain appropriate security measures for PI

2. Contracts with third parties entered by Mar. 1, 2010

ABOUT THE SPEAKER AND PRESENTATION

These materials were prepared by Robert A. Adelson, Esq., Partner at Engel & Schultz, LLP, 265 Franklin Street, Suite 1801, Boston, MA 02110, (617) 951-9980.        Fax (617) 951-0048. E-mail:radelson@engelschultz.com Website:  www.engelshultz.com Mr. Adelson is a graduate of Boston University, Phi Beta Kappa and Northwestern University Law School in Chicago where he was a member of  Law Review.  He also has an LL.M. degree in Taxation from New York University and is a member of the Massachusetts, New York and US Tax Court Bars.

Robert Adelson began his legal career in 1977 as an associate at major New York City law firms, first Dewey Ballantine and later Weil Gotshal & Manges, before returning home to Massachusetts in 1985, where he has been a partner at several Boston firms before joining his present firm as senior business law partner in 2004.  Mr. Adelson is specialized in corporate, taxation, finance, employment, intellectual property, commercial and technology contracting law.  In those areas, he frequently represents startup and smaller companies in software, c-commerce, and other technology-based fields.  He also represents executives or consultants in employment and severance negotiations, stock, options and stockholder arrangements, incorporation and liability protection, intellectual property protection, and in vendor, client and subcontractor contracting arrangements.

Mr. Adelson’s law firm, Engel & Schultz, LLP, is a small but broad service law firm of 6 attorneys in Boston.  The firm complements Mr. Adelson’s work in business and tax law with seasoned attorneys in litigation, real estate, family and probate matters.

Mr. Adelson is a frequent speaker at business forums and author of numerous published articles including articles on employment termination and employment negotiations. For articles, see http://www.engelschultz.com/index.php/category/publications/ For further information on Mr. Adelson’s background, see http://www.engelschultz.com/index.php/attorneys/partners/robert-adelson/

The speaker thanks Chris Souza, for the opportunity to speak and present to this conference arranged by New England Data Services, along with Technical Support International and Exclusive Concepts on the subject of “Massachusetts Data Privacy Laws and Regulations” at Dedham Country and Polo Club, Dedham, Massachusetts, on September 23, 2009.

The purpose of these materials are to offer outlines on the subject matter of the presentation to aid companies, consultants and professionals trying to comply with Massachusetts privacy laws and regulations.. Thus, it is hoped these materials will be informative to those in attendance.  These materials are not legal advice and not intended as any substitute for professional advice or counsel in a particular case.

Get on Board: The Sarbanes-Oxley Act’s impact is felt throughout corporate America – even if you’re private

Though Sarbanes-Oxley applies to public companies, exit planning of private companies should include independent boards and auditors and corporate transparency.

Darwin Magazine , April 2003

By Robert A. Adelson

Are you the founder, CEO or COO of a growing early stage company?  Are you thinking down the road toward exit strategy?  Is your goal an acquisition or IPO?

If so, beware.  New corporate governance rules have changed the culture for emerging companies.

Currently, the new rules, collectively known as the Sarbanes-Oxley Act, are biding on public companies only.  These rules, however, represent “best practices” that can impact your private company as you position for future exit strategy and compete for capital, talent and commercial opportunities in difficult times.

Most important, these rules will influence your need for building a strong board of directors.

The Sarbanes-Oxley Act

Over the past year, numerous corporate scandals have exploded on the marketplace stunning investors and the general public alike.  Enron, Worldcom, Qwest Communications and Global Crossing were just a few of the corporations to come under SEC investigation during 2002.

Such an unprecedented number of corporate follies sparked a public cry for corporate reform legislation that was answered by the enactment of the Sarbanes-Oxley Act on July 30, 2002.  Addressing the need for a more accurate admission of public company’s financial records, Sarbanes-Oxley tightens regulation through five main areas of corporate governance:  disclosure, board of directors, auditors, ethics and compensation.

Taken one by one, they are:

  • Disclosure: Company management is now required to evaluate and report on the effectiveness of its “internal control structure and procedures” concerning financial disclosure.  While the new rules increase disclosure and decrease filing time for former 10-K, they also enhance the difficulty and costs of private companies to get audits completed in a timely fashion and sent to investors.
  • Board of Directors: NASDAQ and NYSE have proposed rules to the SEC requiring the board of directors to have at least a majority of “independent” directors.  Under the new rules of the Sarbanes-Oxley Act, independent is narrowly defined as being truly autonomous from the business.
  • Auditors: All auditing members must be completely independent and not entangled within the business.  A higher standard is set for financial expertise, with a director who will act as the “audit committee financial expert.”  Sarbanes-Oxley requires that the lead audit partner and lead review partner rotate every 5 years, even if the company was private for the firs 4 ½ years.
  • Ethics: The new rules require audit firm independence.  An audit firm will not be considered independent if the company’s CEO, CFO, CAO or controller was a former employee of an audit firm that worked on the company’s audit during the past year, even if the company was private during the previous year.
  • Compensation: Sarbanes-Oxley prohibits public companies from extending credit in the form of personal loans to executive officer and directors.  However, loans made before July 30, 2002, are grandfathered.

Impact on Private Companies

The Sarbanes-Oxley Act applies to public companies.  However, private companies with exit strategies need to plan for events that would “trigger” application of this law.  The private company will become subject to Sarbanes-Oxley when it files a registration statement or when it is acquired by a public company.

Thus, in due diligence leading up to an acquisition or IPO, a private company may need to show Sarbanes-Oxley “readiness.”  If it cannot, such a failure may affect price or even imperil the deal.

Building a board of independent directors, retaining independent auditors, initiating methods to assure corporate transparency and rooting out fraud are procedures that take time to implement.  However, early adoption of these “best practices” will well position the early-stage and emerging business for exit strategies.  Just as important, these practices will make the company attractive to venture capitalists, angel investors, strategic partners and top executive talent that the company seeks to recruit.

Building a Strong Board

A strong board with independent directors is the key element to corporate governance compliance.

To guide your emerging company toward compliance with the new corporate governance rules, remember that the independent board members you seek should be independent of the CEO and management.  As a group, the board members should enhance the value of your company with comprehensive industry knowledge and a wide network of contacts.  Additionally, they should have extensive skills in management, marketing, finance and operations.  Most important though, the members you seek should have sufficient time and interest in serving and aiding the company.

In order to recruit and fully tap into the strengths and visions such a board can bring to management and to the company overall, consider the following:

  • Incentive Pay: Provide cash for meetings and special assignments that recognize the commitment involved.  Also consider deferred stock or options designed for long term support of company.
  • Meeting Preparation: Meeting packages should be prepared and distributed in advance, as well as full and timely disclosure of information.
  • Central Role & Recognition: Schedule regular board meetings with carefully kept board minutes.  Consult between meetings, keep the board well-informed of developing events and demonstrate consideration of board advice.
  • Independent Actions: There should be a meeting of independent directors and hiring of an independent chairman or board leader.

Asset of Good Governance

For some companies, the new laws arising from the recent scandals will be a costly nuisance.  Furthermore, companies simply going through the motions may find the process to still be costly and not achieve the true independence needed to unveil potential frauds.

Yet, emerging companies that embrace these new laws are able to use them as a means to strengthen the board by developing independence form management and governance procedures.  It will be discovered then that the board and the procedures that materialize from the process can themselves become assets for growth.

An emerging private company is best advised to adapt to change and make change work for the company.  Striving for a goal of ready adaptation early will produce gains in the best interests of the company.

© 2003 Robert A. Adelson

______________________________________________________________

Robert A. Adelson, Esq. is a partner at Engel & Schultz LLP in Boston, Mass.

He specializes in startup and early stage corporations, trademark and trade

identification and executive employment negotiation.  He can be reached at

radelson@engelschultz.com or at (617) 951-9980 ext 205.

Covenants Not to Compete: Protecting the Legitimate Business Interest of the Employer in an Employment Relationship

Through closely scrutinized, Massachusetts courts enforce non-Compete covenants to protect legitimate interests of employer if not too burdensome on employee.

By Robert A. Adelson, Esq.

General Rule:

During employment, officers, directors and senior employees owe a fiduciary duty  to protect the interest of the company they serve.  All employees must maintain secrets material to a  business,  and no employee may steal customers or assets while still employed by a  company.  After employment ends, an employee is generally free to compete. Although post-employment competition restraints are “scrutinized  carefully”, courts in Massachusetts (as in many other states) uphold such agreements to the extent they protect legitimate interest of  the employer, do not impose an unreasonable burden on the employee, and are not injurious  to the public.  Courts may also act to limit duration or scope of agreements if unreasonable.

1.         What is an Employee Non-compete?

Non-compete in the Galaxy of Employee Restrictive Covenants

1.1       NDAs /Confidentiality

• Non-Disclosure / Non-Use

• Trade Secrets

• Proprietary Information

1.2       Assignment of Inventions

• “Work for Hire”

• Assignment of IP Rights

• Cooperation

1.3       Non-Solicitations

• Customers / Suppliers

• Prospects

• Co-workers

1.4       Employment restrictions

• Not to work for competitor

• Not to do competing work

• Defining Competing work/ companies

2.         How Restrictive is it?

Coverage and Scope of Employee Non-compete Agreements

2.1       Duration – during / after employment

2.2       Field of coverage – employer business

2.3       Field of coverage – employee activity

2.4       Geography

2.5       Exceptions

3.         Whose ox is gored here?

Stakes and Interests in Non-compete for different Parties

3.1       Employer Interest – training, access, secrets, corp. opportunities/ “good will”

3.2       Employee Interest – prior knowledge, contacts, reputation

3.3       Public Policies involved – Employee freedom vs. Employer proprietary rights

4.         When did it happen?

Effect of Timing when Non-compete arises in Employment relationship

4.1       At Hiring – employee reliance in accepting position

4.2       Mid-Term / at promotion

4.3       On Termination

5.         What kind of Work?

Effect of Type of Employment relationship

5.1       Full-time /  Part-time

5.2       Consulting / Independent Contractor

5.3       How long was employee on the job

6.         Show me the money!

Effect of Cash and Non-cash Considerations paid for Non-compete

6.1       Signing Bonus

6.2       Cash Bonus, Stock or Options

6.3       Severance Pay

6.4       Return or loss of Benefits

7.         Where’s it say that?

Documentation to effect Employment Non-competes

7.1       Employee Offer Letter/ Term Sheet

7.2       Employment Agreement;  Consulting or Service Agreement

7.3       Separate Non-disclosure /Proprietary Inventions/ Non-compete agreement

7.4       Trade secret/No conflict and other company policies – follow through

7.5       Exit Interview; severance, termination or separation agreement

7.6       No Documentation / operation of law

7.8       Severability of Terms/ Judicial Blue Pencil

7.9       Varied Enforcement by Jurisdiction

8.         Is there more than a job going on here?

Effect of Non-competes arising from Employment AND the Sale of business,

Investment in a business, and other Non-employment Motivations

8.1       Founder’s Employment

8.2       Retention Covenants

8.3       Other Hybrid Covenants

RAA156:\lorman.outline

R.Adelson – 8/14/98

____________________________________________

**  This outline was for the presentation by Attorney Robert Adelson as part of a 4-hour seminar course for attorneys, accountants and other professionals, for continuing professional education credit, sponsored by Lorman Educational Services.

Questions on this presentation or the subjects covered,  including any questions byemployees or  executives regarding non-compete, non-solicitation or other restrictive covenants or other issues of employment or employment termination, may be directed to the author and speaker at his current law firm, as follows:

Robert A. Adelson, Esq.
Engel & Schultz, LLP
265 Franklin Street, Suite 1801
Boston, MA 02110
Tel:  (617) 951-9980 ext 205
E-mail:  radelson@engelschultz.com