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					                             Handbook of venture
                            capital documentation




           MIRTA Partners                            Deliverable

Thessaloniki Technology Park               Deliverable Number: D.3.1.1
Management & Development
Yiannis Bakouros
ylb@mie.uth.gr

Instituto Andaluz de Tecnologia            Date: August 2001
María Fernández García
maria@iat.es
                                           Version: 0.1
University of Rome, Tor Vergata
Maurizio Ferri (Project Co-ordinator)
m.ferri@romascienza.it

                                           Deliverable Author
TechMaPP, The University of Edinburgh      TechMaPP with support and
Tony Kinder                                assistance from Hayward & Co.
 (t.kinder@ed.ac.uk)
** (0) 131 650 2451

                                           Contract Number



                        MIRTA is an EU Funded Project
Handbook of Venture Capital Documentation                                Page   2


                                    Project MIRTA

                Migrating Innovation and Research through Alliance


                    Handbook of venture capital documentation



                                        Abstract


             The MIRTA project aims to build competences and capacity
             for biotechnology company start-ups in Sevilla, Rome and
             Thessoloniki by transferring and adapting best practices
             from Scotland.

             This deliverable is a handbook of documentation typically
             used in Scottish venture capital processes. Documentation
             ranges from fund marketing and initial filtering, through
             investment stages to investment monitoring.

             The handbook has the practical purpose of assisting the
             building of finance and innovation constituencies in the
             target areas.
Handbook of Venture Capital Documentation                       Page   3


                    Handbook of venture capital documentation


                                  Executive summary
Handbook of Venture Capital Documentation             Page   4




 Page     S                                 Content
          e
          c
          t
          i
          o
          n
Handbook of Venture Capital Documentation                                           Page      5


1            INTRODUCTION TO HANDBOOK

According to an OECD survey, the European biotechnology industry
(1999 figures) contains 1,036 companies, employing 39,000 people
with an annual turnover of some EUR 3.1 billion with a R&D
capital expenditure of some EUR 2.2 billion.     This constitutes
roughly a quarter of the global biotechnology industry.1       In
another recent survey the OECD finds little evidence of
biotechnology employment or firms in Spain, Greece and Italy.2
The vision of Project MIRTA is to help address this imbalance in
a this growing industry.    In particular, the project aims to
help transfer expertise and good practice from the successful
Scottish region to the embryonic biotechnology constituencies in
Rome, Seville and Thessoloniki.    The focus of this report is
upon   venture   capital   expertise.      Venture   capital   is
alternatively known as risk capital or private equity.

This section outlines the purpose of the handbook, its use and
following a summary of a typical venture capital investment
process, a list of documents featured in the handbook.       The
section also contains a brief list of Internet and physical
sources of further information on venture capital processes.

1.1          Introduction and purpose of this handbook

The MIRTA project aims to build competences and capacity for
biotechnology    company   start-ups    in  Sevilla,   Rome   and
Thessoloniki by transferring and adapting best practices from
Scotland.    This deliverable is a handbook of documentation
typically   used    in   Scottish   venture  capital   processes.
Documentation ranges from fund marketing and initial filtering,
through investment stages to investment monitoring.           The
handbook as the practical purpose of assisting the building of
finance and innovation constituencies in the target areas.
Adapted documents may be translated and used in deals in the
target regions following consideration on their relevance within
the local fiscal, legal and business regimes.      To assist this
process, the deliverable is available in both digital and paper
format.

This handbook is the result of co-operation between TechMaPP at
the University of Edinburgh and Jeremy Hayward of Hayward and Co
Ltd in Scotland.    Hayward & Co is an SME expert in venture

1
      OECD, 1999, Modern Biotechnology and the OECD, Policy Brief, Paris, available at
      http://www.oecd.org/publications/pol_brief/1999/9903-eng.pdf
2
      See       http://www.olis.oecd.org/olis/2000doc.nsf/c5ce8ffa41835d64c125685d005300b0/c1256
      92700623b74c12569540035a297/$FILE/00082325.PDF
Handbook of Venture Capital Documentation                                                   Page       6


capital investments. This major piece of work is only made
possible by the cumulation of knowledge and expertise by Hayward
& Co over decades of successful investment in innovative SMEs.3

1.2            A typical venture capital process

Venture capital is long-term, committed share capital invested
in early stage, entrepreneurial companies helping them to grow
and succeed and the investor to make a return commensurate with
the risk taken. Since venture capital expects the high returns
associated with high risks, it is appropriate only to companies
aiming for high growth and profitability and often, therefore,
associated with technological innovative companies.  Particular
venture funds are likely to reduce risks by specialising in a
particular sector (spatial, size of investment, stage of
investment or sector).   This is to the advantage of investee
companies, since the VC is then able to offer practical support
in addition to capital.

For the purposes of this report, to illustrate a typical venture
capital (VC) investment process, these processes decompose into
four phases (shown below).    The process described here relates
to investments by a constituted fund.      Equity investments by
(for example) angel funders are likely to take a different form.

     The business of investment – the marketing of venture capital
      availability and the early filtration of business plan
      submissions.
     From enquiry to investment – the evaluation of business
      plans, diligence, negotiation, syndication, structuring and
      completion of a deal, including projected returns and exit
      route.
     Monitoring   investment  –  the   monitoring  of   investment
      performance by the VC and their appointed advisors or non-
      executive directors.
     Exit and Fund reports – the negotiation of VC exit (often by
      buy-back of equity or trade sale of the company) and the
      reporting by the VC of the funds performance to its
      stakeholder.

3
       Hayward and Co is one of the most reputable firms in the areas of venture capital, fund raising
       and financial structuring in Scotland. Jeremy Hayward is a chartered accountant with thirty years
       continuous experience in the venture capital industry including fifteen years with 3i, latterly in
       charge of their Edinburgh office. Investment Adviser and non executive director of Lothian
       Enterprise Board. Jeremy has acted as independent chairman or director of a number of public
       and private limited companies. At the beginning of 1997, Jeremy was appointed Director of
       Corporate Finance for Ernst & Young in Scotland. With thirty years experience in venture capital
       investment, Jeremy Hayward has a wide knowledge of structuring and raising finance.
Handbook of Venture Capital Documentation                               Page   7




The focus of the current report is from the viewpoint of the
investor   –  the   venture   capitalist  and  particularly  the
documentation covering the „enquiry to investment‟ phase of
operations.    For a fuller description of the VC investment
process see the British Venture Capital Association‟s “A Guide
to Venture Capital.4    The practical documentation contained in
this handbook are structured using the four phases of VC
investment listed above.

The figure below lists the 42 venture capital documents forming
the main content of this report.           Their order roughly
corresponds to the stage in the investment process in which they
are used and structure the main text of this report.




4
      Available at http://www.bvca.co.uk/publications/guide/guide.pdf
Handbook of Venture Capital Documentation                              Page    8



    Document number                               Document title
            1                 Standard Confidentiality letter
            2                 Non-disclosure agreement
            3                 Business plan summary
            4                 Enquiry sheet
            5                 Enquiry log
            6                 Terms and conditions
            7                 Investment submission
            8                 IRR calculation
            9                 Outline Terms and Heads of Agreement
           10                 Formal Offer letter
           11                 Reference document seeking diligence on management
                              team
             12               Enquiries for Directors
             13               Engagement letter
             14               Financial forecast
             15               Marketing diligence proposal
             16               Marketing diligence report
             17               Service Agreement
             18               Salary Schedule
             19               Employee Handbook
             20               Licensing Agreement
             21               Investment Agreement
             22               Articles of Association
             23               Easy Loan Agreement
             24               Fast Track Loan
             25               Floating Charge
             26               Ranking Agreement
             27               Option Agreement
             28               Conditional Option Notice
             29               Shareholder‟s Undertaking
             30               Personal Guarantee
             31               Share Capital Certificate
             32               Disclosure Letter
             33               Investment Record
             34               Appointment letter
             35               Standing Order
             36               Exception Report (blank)
             37               Exception Report (example)
             38               Exit proposal
             39               Independent non-executive Directors
             40               Preparing a business plan
             41               Raising venture capital
             42               Equity instruments and deal structuring



Careful reading of these 40 documents will show that they
originate from small and large deals.       They include simple
(number 26) easy loan agreements and complex multiple-syndicator
equity deals.   Most of these documents are general purpose and
relate equally to the biotechnology and other sectors.    No IPO
(initial public offer) documents are included, since the
processes are quite specific to each country.
Handbook of Venture Capital Documentation                                         Page      9




1.3          Handbook use: IPR and copyright

The materials contained in this handbook are to the best of the
knowledge of the authors not subject to copyright, license or
restricted use.    Since most of these materials are found in
general use, they form background intellectual property.
Material contained in this report are subject to the provisions
for materials contained in EU-funded projects.5

It is the clear advice of the authors that prior to making use
of the materials contained in this report for any business or
associated   purpose,  that   user   firstly  consult with  an
appropriately qualified professional advisor.

For assistance and clarification on intellectual property see
the CORDIS helpdesk at http://www.cordis.lu/inco2/src/ipr.htm.
In addition, The Internet Engineering Task Force website
contains useful material at http://www.ietf.org/ipr.html.  Any
enquiry relating to intellectual property should be addressed
initially to the Project Co-ordinator.6

The MIRTA project, its partners and funders disclaim any
responsibility for the use of material contained in this report.
No representations or warranties, express or implied, including,
but not limited to, warranties of merchantability, fitness for a
particular purpose, title or non-infringement are intended.
Additionally, the MIRTA project, its partners and funders make
no representation or warranty that the contents of this report
are free from error or suitable for any purpose nor that
implementation of such contents will not infringe any third
party patents, copyrights, trademarks or other rights.     In no
event will MIRTA project, its partners and funders be liable to
any party for any direct, indirect, special or consequential
damages for any use of this material.


1.4          A note on regulatory and fiscal regimes

Venture capital is more developed as an instrument of investment
in some parts of Europe than others.     Necessarily, therefore,
despite recent harmonisation in tax regimes and company law,

5
      CEC, 1999, An Introduction to Industrial Property Rights Under the Model Contract, OPEC,
      Luxembourg (ISBN 92-828-3581-2).
6
      For a general assessment of biotechnology IPR see OECE, 1996, Intellectual Property,
      Technology Transfer and Genetic Resources: An OECD Survey, ISBN 92-64-14869-8.
Handbook of Venture Capital Documentation                      Page   10


important differences remain between member states.        Since
venture capital investments are highly sensitive to legal and
fiscal regimes it is important to note that there are underlying
presumptions contained in UK law inherent in some of these
documents.   It is important therefore that professional advice
is taken prior to investment on the particular tax and legal
regimes in which an investment is to occur.

Examples of important differences between member states are in
the relationship between corporation tax and local taxes, the
offsetting of tax losses and relief within a corporate fiscal
unity, treatment of goodwill amortisation, the tax treatment of
capital gains by non-residents, prohibitions on senior debt
incurred during acquisition, limitations on the use mezzanine
debt or high yield bonds and variations in the classes of equity
(particular preference and subordinated loan structures.

In each member state‟s state budget cycle it is likely that
important changes in the fiscal and legal regime affecting
venture capital will occur on an annual basis. This reinforces
the point that prior to any investment commitment, investors
must take professional advice.


1.5          Information on venture capital processes

Like most professions, venture capital investment is a mixture
of formal learning and tacit learning.        Skills, judgement and
luck are important.        Since web-based information is often
easiest a number of useful sites are listed below.                The
addresses lists are English language addresses (the working
language of the MIRTA project), however, many of these sites
have multilingual capacity.      This list is intended to give a
flavour of web-based information available and is by no means
exhaustive.
http://www.vfinance.com/home.asp?ToolPage=vcim_detail.asp&id=3218
Commission sites

http://www.cordis.lu/finance/home.html
http://www.cordis.lu/eims/src/eims-r43.htm
http://www.cordis.lu/itt/itt

Venture capital network sites

http://www.bvca.co.uk
http://www.evca.com             (this site give links to groups in all
Member States)
Handbook of Venture Capital Documentation                  Page   11




Major venture fund sites and other relevant sites

http://www.3i.com/stories/99am.htm
http://www.3i.com/market/euro.htm
http://www.3igroup.com
http://www.eco.rug.nl/bib/ee_med.html
http://netec.mcc.ac.uk/WoPEc/data/PaperSeries.html
http://www.bryant.edu/~pnorton/resources/links.html
http://www.hiid.harvard.edu/research/newnote.html
http://www.stanford.edu/~chadj/growth.html
http://rfe.wustl.edu/EconFAQ.html
http://www.vfinance.com
http://invest.8m.com
http://www.betacom.it/aifi/euro.htm
http://www.4venturecapital.com
http://www.Bplans.com
http://www.hbsp.harvard.edu/ideasatwork/entrep/business/

More specifically on venture capital investment in biotechnology
sector, the following sites contain useful information, as do
many of the sites listed above. Again, this list is by no means
exhaustive.   Many of these sites (such as Scottish Enterprise)
offer a newsletter subscription facility.

http://www.scottish-enterprise.com
http://www.sebiotech.org.uk
http://www.bio.com
http://www.iza.org/index.html
http://www.bio.com
http://fbox.vt.edu:10021/cals/cses/chagedor/Extnbull.html
http://www.biotechknowledge.com
http://www.cpb.dtu.dk
http://www.academicinfo.net/biotech.html
http://www.biowise.org.uk/html/enter.html
http://www.4biotech.com
http://www.biowise.org.uk/html/enter.html
http://www.ebi.ac.uk
http://www.cato.com/biotech
http://www.elsevier.com:80/homepage/sah/biotech/search/search_fr
.htm
http://www.abdn.ac.uk/~mmb023/proteome/index.htm
http://www.dti.gov.uk/bioguide/uni.htm
http://www.startuponline.com
http://www.planwizard.com
http://GMWORLD.NEWSCIENTIST.COM
http://www.rdmag.com/index.htm
Handbook of Venture Capital Documentation                                   Page    12




At http://advocacy-net.com/venturemks.htm     lists                   1,000     sites
listed giving information on venture capital.


1.6          Handbook use: Nomenclature and technical terms

The documentation contained in this report is from the viewpoint
of the venture capitalist.    Also, this documentation is taken
from actual investments and therefore there is a need to protect
commercial confidentiality.    Therefore, the report uses the
following nomenclature.

Investor Co             The VC making the investment
New Co                  The newly created company resulting from the investment
Old Co                  Old company(s) the target of the New Co investment
Bank Co                 The banking partner of the VC
Solicitor Co            The solicitor of the VC
Syndicator Co           Syndicating investors alongside the VC

The figures mentioned in some of the documents should be interpreted as illustrative.
In all cases, the figures were accurate in a particular context. However, contexts vary
as will the figures. Additionally, figures mentioned were originally in sterling (GB
Pounds) and have been simply transferred in Euro (EUR) amounts.

There are many web-based resources giving glossaries                          of VC
terms, including those at the BVCA and EVCA (above).   A                      useful
magazine on VC trends and deals is “Red Herring,” which                        has a
web resource (http://www.fundingedge.com/glossary.htm)                        giving
various glossaries of VC terms.
Handbook of Venture Capital Documentation                                              Page     13


                         VENTURE CAPITAL DOCUMENTATION
                          – FROM ENQUIRY TO INVESTMENT

Document Number              1
Document title               Standard Confidentiality Letter
Purpose of document          To ensure confidentiality between potential syndicators
Example of use               This is a standard letter
Key sensitivities            In a mature VC environment such a letter formally establishes
                             working practices based upon trust. Few funds would receive
                             enquiries if it became known that they could not respect confidences.



To:          [Potential Investor]

Dear Sirs

We understand that you wish to investigate the business of [name
of company] (the "Company") [and of its subsidiaries] (together
the "Group") [in connection with [insert nature of transaction]
(the "Permitted Purpose")] and that you, your directors and
employees, other potential syndicate members or other providers
of finance and your financial and professional advisers in
relation to the Permitted Purpose, (together referred to as the
"Disclosees"), will need access to certain information relating
to the Group (the "Confidential Information") [including,
without limitation: ....].

1.    In consideration of our agreeing to supply, and so supplying, the Confidential
      Information to you and agreeing to enter into discussions with you, you hereby
      undertake and agree as follows:-

      (a)    to hold the Confidential Information in confidence and not to disclose or
             permit it to be made available to any person, firm or company (except to
             other Disclosees), without our prior [written] consent;

      (b)    only to use the Confidential Information for the Permitted Purpose
             [provided that on being notified by us that the proposals concerning the
             Permitted Purpose have lapsed, you may approach the Company [or its
             advisers] with separate proposals and we acknowledge that in so doing
             you may have regard to the Confidential Information provided];

      (c)    to ensure that each person to whom disclosure of Confidential Information
             is made by you is fully aware in advance of your obligation under this letter
             and that, in the case of other potential syndicate members, each such
             person gives an undertaking in respect of the Confidential Information, in
             the terms of this letter;
Handbook of Venture Capital Documentation                                      Page    14


      (d)    upon written demand from us either to return the Confidential Information
             and any copies of it or to confirm to us in writing that, save as required by
             law or regulation, it has been destroyed. You shall not be required to
             return reports, notes or other material prepared by you or other Disclosees
             or on your or their behalf which incorporate Confidential Information
             ("Secondary Information") provided that the Secondary Information is kept
             confidential;

      (e)    to keep confidential and not reveal to any person, firm or company (other
             than Disclosees) the fact of your investigations into the Group or that
             discussions or negotiations are taking place or have taken place between
             us in connection with the proposed transaction or that potential
             investors/acquirers are being sought for the Company:

      (f)    that no person gives any warranty or makes any representation as to the
             accuracy or otherwise of the Confidential Information, save as may
             subsequently be agreed.


2.    Nothing in paragraph 1(a) to (f) of this letter shall apply to any information or
      Confidential Information:

      (a) which at the time of its disclosure is in the public
      domain;

      (b)    which after disclosure comes into the public domain for any reason except
             your failure, or failure on the part of any Disclosee, to comply with the
             terms of this letter;

      (c)    which is disclosed by us or the Company, its
             directors, employees or advisers on a non-confidential
             basis;

      (d) which was lawfully in your possession prior to such
      disclosure;

      (e)    which is subsequently received by you from a third
             party without obligations of confidentiality (and, for
             the avoidance of doubt, you shall not be required to
             enquire whether there is a duty of confidentiality);
             or

      (f)    which you or a Disclosee are required to disclose,
             retain or maintain by law or any regulatory or
             government authority.
Handbook of Venture Capital Documentation                               Page   15


3.    In consideration of the undertakings given by you in this
      letter, we undertake and agree:

      (a)    to disclose Confidential Information to you;

      (b)    to keep confidential and not to reveal to any person,
             firm or company (other than persons within our group
             who need to know, our bankers and professional
             advisers) the fact of your investigation into the
             Group or that discussions or negotiations are taking
             place or have taken place between us; (and

      (c)    that we will not prior to [insert date], directly or
             indirectly enter into negotiations or have discussions
             of any kind with any other potential investors which
             relate to the Permitted Purpose without your prior
             written consent and we recognise that in reliance on
             this undertaking you and other Disclosees may incur
             substantial costs.)   (This relates to exclusivity and
             is a matter for negotiation).

4.    (a)    This letter shall be governed by and construed in
             accordance   with   English   law [and  the  parties
             irrevocably submit to the non-exclusive jurisdiction
             of the Courts of England and Wales in respect of any
             claim, dispute or difference arising out of or in
             connection with this letter.]

     (b) The obligations              in    this   letter   will   terminate   on
[insert expiry date].


Please indicate your acceptance of the above by signing and
returning the enclosed copy of this letter as soon as possible.

Yours faithfully



On copy:


We have read and agree to the terms of the above letter.

Signed by                         )
for and on behalf of                           )
                                  )
Handbook of Venture Capital Documentation   Page   16


LIMITED                           )

Date: [......................]
Handbook of Venture Capital Documentation                               Page    17




Document Number              2
Document title               Non-disclosure Agreement (NDA)
Purpose of document          To   protect  the   investor   from  disclosure   of
                             commercially   confidential   information.      This
                             enables information exchange without the investor
                             becoming embroiled in a „bidding war‟ whilst
                             protecting the business ideas of the investee.
Example of use               This example is detailed.    More detailed NDAs may
                             specify particular intellectual properties.
Key sensitivities            An NDA may be the beginning of mutual trust and
                             inter-dependency.



Non Disclosure Agreement

As between (name)       trading as New Co (“New Co”) and
__________________ (“___________________”) having a principal
place of business at (place) __________________________, both
parties agree that disclosed Confidential Information, as
defined below, provided by the disclosing Party, (as "Owner"),
to the receiving Party, (as "Recipient"), for the purpose
stated, shall be treated in accordance with the following
provisions:


1. “Confidential Information”: shall mean any information
obtained for the purpose stated below, whether disclosed orally
or in writing, or through observation, examination or use,
specifically:

INFORMATION DISCLOSED BY ___________________: regarding                    other
companies with which it has business relationships.

INFORMATION DISCLOSED BY New Co: regarding the planned operation
of New Co‟s business, including business plans, financial data
and financial forecasts, technology infrastructure, and customer
information.

FOR PURPOSES OF: raising equity capital in New Co

2. “Disclosing Period”: This NDA governs only that Confidential
Information   disclosed    by  Owner   to  Recipient  during   the
Disclosing   Period:    _________   (DD/MM/YY)  to   _____________
(DD/MM/YY).

3. Continuing Obligation: After the Disclosing Period, Recipient
has a continuing obligation to maintain the confidentiality of
Handbook of Venture Capital Documentation               Page   18


Owner‟s disclosed Confidential Information for a period of five
(5) years.

4. Other Sources Exemptions: Recipient‟s obligations hereunder
will not apply, or shall cease to apply, to that Confidential
Information   which  Recipient   can  establish: (i)   was  not
identified as required by Section 5 of this Agreement; or (ii)
was in the public domain by acts not attributable to Recipient
or otherwise available to the public other than by breach of
this NDA; or (iii) was rightfully in possession of Recipient
prior to receiving it from Owner; or (iv) becomes available to
Recipient from a source other than Owner who is in rightful
possession with the lawful right to provide it to Recipient; or
(v) is independently developed by Recipient without use of or
reference to the Confidential Information; or
(vi) is otherwise agreed in writing to be no longer considered
otherwise restricted by Owner.

5. Limitations on Duty: Recipient‟s duty to maintain the
confidentiality extends only to that disclosed Information
which: (i) is identified as being Confidential at the time of
disclosure by Owner; or (ii) if disclosed in tangible form is
marked Confidential, or with a similar legend, at the time of
disclosure; or (iii) if disclosed orally, or if inadvertently
not identified as Confidential at the time of disclosure, is
summarised and syndicator as Confidential by Owner in a written
memorandum delivered to Recipient within thirty (30) days after
the disclosure.

6. Standard of Care: Recipient shall protect the disclosed
Confidential Information by using the same degree of care, but
no less than a reasonable degree of care, as it uses to
safeguard its own confidential or proprietary information of a
like nature from unauthorised use, disclosure, or dissemination.
Recipient shall not copy, distribute, or disseminate any of the
Confidential Information to any unauthorised persons or entities
without the Owner's express prior written consent and Recipient
shall limit access to the Confidential Information to only those
authorised employees or agents having a need to know.

7. Return of Materials: Upon the earlier of fifteen (15)
calendar days after: (i) Recipient's receipt of Owner's written
request for same, or (ii) Recipient's completion of those stated
purposes for which Owner provided Recipient its Confidential
Information; or (iii) the end of the Disclosing Period; all of
Owner's Confidential Information and all copies thereof in
Recipient‟s possession or control shall be returned to Owner or
Handbook of Venture Capital Documentation                Page   19


destroyed by Recipient at Owner's instruction. At Owner‟s
request, Recipient shall then certify the same in writing and
that no copies have been retained by Recipient, its employees or
agents.

8. Mandatory Disclosure Exemptions: Nothing         herein shall
restrict   Recipient's  right   to   disclose  the   Confidential
Information where such disclosure is required by written order
of a judicial, legislative, or administrative authority of
competent jurisdiction, or is necessary to establish its rights
under this Agreement, provided, however that, in each case,

Recipient will first notify Owner of such need or requirement
and co-operate with Owner in limiting the scope of the proposed
disclosure. Recipient will assist Owner in taking all reasonable
steps for obtaining further appropriate means of limiting the
scope of the required disclosure of Owner‟s Confidential
Information.

9. Freedom for Independent Development: Nothing in this
Agreement shall be construed to limit Recipient‟s right to
independently develop information, materials, technology, or
other products or services for itself or for others which may
compete with Owner so long as no unauthorised disclosures or use
has been made by Recipient during the term of obligation, as
defined in Section 3 herein. Further, nothing herein shall be
construed as a representation or inference by Recipient that it
has not already developed, or may be in the process of
developing, or may have already rightfully received or acquired
from third parties, information similar to that Confidential
Information to be disclosed by Owner.

10. Equitable Relief Availability: Recipient acknowledges that
an unauthorised disclosure of the Confidential Information may
cause irreparable harm to Owner for which no adequate remedy at
law exists and that, in addition to any other remedies which may
be available, Owner shall be entitled to seek injunctive relief
to enforce the terms of this NDA.

11. No Rights or Licenses Extended: No rights or licenses
whatsoever, either express or implied, are granted hereunder by
one to the other as to any patents or patent applications,
copyrights, trade marks, trade secrets, or other intellectual
property now or hereafter acquired, developed, or controlled.
Owner retains all rights and remedies afforded under all U.S.
and   foreign  patent,   copyright,  trade   secret,  and   other
Handbook of Venture Capital Documentation                           Page   20


applicable laws for protecting              confidential,   proprietary,   or
trade secret information.

12. No Waiver of Rights: If one Party breaches this
Agreement then the failure of the other Party to enforce any
rights under this NDA shall not be deemed a waiver of any such
rights. The rights and remedies of the parties, as set forth in
this   agreement, are not exclusive and are in addition to any
other rights and remedies provided by law. Additionally, the
invalidity in whole or in part or condition of this Agreement
shall not affect the validity of any other part or condition.

13. Transfer Restrictions: Recipient will not transfer any
disclosed   information  received  hereunder  to   any  country
prohibited from obtaining such data according to any national
export regulation, (e.g., UK Department of Trade and Industry
Regulations), without first obtaining all valid export licenses
and authorisations.

14. WITH RESPECT TO THE CONFIDENTIAL INFORMATION DISCLOSED,
OWNER PROVIDES INFORMATION “AS IS” AND MAKES NO REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, TO RECIPIENT AS TO ITS
CONDITION,   MERCHANTABILITY,  OPERATION,   OR   FITNESS  FOR A
PARTICULAR PURPOSE OR USE. OWNER FURTHER WARRANTS THAT IT HAS
THE RIGHT TO DISCLOSE THE CONFIDENTIAL INFORMATION TO RECIPIENT
AND THEREFORE HAS GRANTED RECIPIENT LAWFUL ACCESS TO THE
CONFIDENTIAL INFORMATION FOR THE LIMITED PURPOSES SO STATED.

15. No Relationship Established: It is understood that both
parties   do  not   intend  that  any   agency  or  partnership
relationship be created between them by this NDA. Neither party
has any further obligation hereunder to transact any business
whatsoever with the other party.

16. Written Modifications: All modifications to this Agreement
must be made in writing and must be signed by both parties.

17. Governing Law: This Agreement is made under and shall be
construed according to the laws of Scotland.

18. Acceptance by New Co: This Agreement becomes binding upon
New Co when signed by an Officer thereof.

19. Entire Understanding: This Agreement sets forth the entire
understanding between the parties and supersedes all prior
discussions between them regarding the exchange of Confidential
Information, as defined.
Handbook of Venture Capital Documentation               Page   21




IN WITNESS WHEREOF, the parties have entered into this agreement
as of the last date set forth below.

FOR: New Co

By: __________________________________
Name: (name)
Title: Managing Director
Date: ________________________________

FOR: Investor Co
By: _________________________________
Name: _______________________________
Title: ________________________________
Date: ________________________________
Handbook of Venture Capital Documentation                                            Page     22




Document Number                3
Document title                 Business Plan Summary
Purpose of document            To offer entrepreneurs who have not yet created a business plan a
                               way of applying for finance without incurring the time/cost of
                               preparing a full business plan.
Example of use                 The document aims to offer a simplified yet
                               disciplined way for the entrepreneur to lay out
                               their business idea – its costs, risks and
                               possible returns.
Key sensitivities              It may be the worst business plan still contains
                               ideas which if properly managed can become highly
                               profitable.

                                     Investor Co Ltd
Business Plan Summary
COMPANY DETAILS & BACKGROUND

Company Name        .................................................
    Telephone       ........................................
Address             .................................................
                    Fax
                    ........................................
                    .................................................
                    E-mail
                    ........................................
                    .................................................
                    Contact Name
                    ........................................
                    .................................................
                    Position                                      …………………………….
Post Code           .................................................
Nature of Business
................................................................
........................................................

Legal Status (i.e. Ltd) ................      Date Commenced
Trading .............      Subsidiary of another Co     Yes
No
Handbook of Venture Capital Documentation                         Page    23


Where did you learn of Investor Co?
……………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………...
BUSINESS ACTIVITY




COMPETITIVE ADVANTAGE / MARKET OPPORTUNITY (indicate any
registerable IPR)




STAGE OF DEVELOPMENT / TIME TO MARKET / KEY MILESTONES (dates)




MANAGEMENT TEAM (Directors and Senior Managers)
         Name                    Position      Years   Age   % Share     £ Investment
                                                 of          holding      in business
                                              Servic
                                                  e




FUNDING REQUIREMENT
Funds Required For: Capital Expenditure
      £..................
                                            Research & Development
      £ .................
Handbook of Venture Capital Documentation                               Page     24


                                                Working Capital
      £ .................

                                     Other (please specify)
      £ .................…………………………………..…………

                                     Total funds required
      £ ………………..(should be equal to total funding package)

To    be provided by:           Management            /   Existing     Investors
       £..................Confirmed? Y/N

                                    New Equity Investors
      £..................Confirmed? Y/N

                                               Bank (name)
      £..................Confirmed?             Y/N   ….……………………….….

                                              Grants (type)
      £...............…Confirmed?            Y/N   ..…………………………….

                                            Required from Investor Co
                                    £.................

                                              Total Funding Package
     £..................                (should be equal to total funding
requirements)
FINANCIAL INFORMATION                (to    include   proposed    funding      from
Investor Co)
                                  Historical              Historical                  This Year

Year End                          .................       .................           ..........

Turnover                          .................       .................           ..........

Gross Profit                      .................       .................           ..........

Profit Before Tax                 ……………     .................
     .................            .................

Fixed Assets                      .................       .................           ..........

Current Assets                    .................       .................           ..........

Current Liabilities               .................       .................           ..........

Long Term Liabilities             .................       .................           ..........
Handbook of Venture Capital Documentation                         Page    25




Net Assets                        .................   .................        ..........

Equity                                      .................
     .................            .................                            ..........

Total Shareholder Funds           .................   .................        ..........

Retained profit                   ………….     ……………     ………….     ………….

Number of employees (full time equivalents).................                   ..........
Date of latest Audited Accounts    .................
Date of latest Management Accounts .................

Auditors:
Advisers:

Solicitors:
Bankers:

DECLARATION: I warrant that all of the questions above have been
correctly and accurately completed

------------------------------------------------------ ---------
--------------------------         ---------------------------
Signed                             Position                 Date

Please post your completed application form together with your
business plan and any other supporting documentation (both hard
copy and on disk) to Investor Co (+ contact details……………)
Handbook of Venture Capital Documentation                               Page       26




Document Number                4
Document title                 Enquiry sheet
Purpose of document            Begins process of Investor Co project record
                               keeping – a critical aspect of VC.       Reporting
                               document to Board or Investment Panel.
Example of use                 In this example, the basic details are logged.
                               The Enquiry Sheet will form part of a report to
                               the Board or Investment Panel.          Investment
                               Executives judge whether or not to proceed as
                               early as possible (to be fair to the applicant and
                               to keep Investor Co‟s cost-base down).
Key sensitivities              Early filtration of possible investments is a key
                               function for the successful venture capitalist.
                               Decision-rules may apply.



                                  Investor Co Limited
Enquiry Sheet

Name & Address:      New Co                                 Number:         5/01

                                                            Date:           1 February 2001

                                                            Completed By:   (name)
Contact Name:        (name)                                 Adviser:        (name)

Phone Number:                                               Phone Number:   0131-xxxxxxxx
email

Type of Business:     Hardware/software Biotechnology   Engineering/  electronics/
                      textiles/ food/ health/ chemical/leisure/ Internet Related/
                      other …
Nature of
business:
Sector


Brief outline of proposal    (name) is essentially a comparison
shopping site providing a single source of info about price,
service, delivery, availability etc.   Incorporated in Sept 00,
New Co    has already developed a real-time multithreaded and
highly efficient search engine and is currently in the process
of signing up a number of the largest e-commerce merchants.
We like the people but are concerned that the project is too
risky in this economic climate.   Some indication that they are
having difficulty raising funds and so are looking for seed
funding now with a view to a substantial investment in the
summer. Not for us at this time
Handbook of Venture Capital Documentation                  Page   27


Legal Structure: Sole trader/ Partnership / Limited Company

Stage: Seed /Start-up /Early stage Expansion / MBO / MBI

Date Established:                 2000

Number of employees :             3 (founders)

Amount Required:                  EUR 350,000

Other Syndicate Partners:
Handbook of Venture Capital Documentation                                                  Page      28




Document Number                 5
Document title                  Enquiry log
Purpose of document             Enables statistical analysis of number and type of enquiries.
                                Patterns of enquiry will emerge for venture funds over time. Where
                                enquiries are low or too high, actions such as marketing and
                                publicity can be adjusted accordingly.
Example of use                  Here simple criteria are used.
Key sensitivities               In other circumstances logging criteria would reflect policy priorities
                                such as women entrepreneurs, age of applicants or geography.


                     01/32                01/33                 01/34                    01/39
                     1 May                2 May                 3 May                    8 May
Client name     New Co (a)           New Co (b)            New Co (c)
Address         (name)               (name)                (name)
Contact         (name)               (name)                (name)
Phone           xxxxxxxxxxx          xxxxxxxxxxx           xxxxxxxxxxx
Email           xxxxxxxxxxx          xxxxxxxxxxx           xxxxxxxxxxx
Status          O                    D                     D
Funding         EUR 400K now         EUR 50K               EUR 250k
                with   EUR  2m
                next year
Source          O                    O                     O
Type            E                    E                     E
Responsibili    (name)               (name)                (name)
ty
Comments        Spin out software    e-business            Design and
                company from         solutions             distribution
                Edinburgh            company set up        of a range of
                University           in 1995 and           fashion
                developing a suite   now seeking to        leather goods.
                of programs for e-   expand and            Very small
                learning creators.   relocate.             operation with
                Visit arranged       Looked at             initial losses
                                     initially a           and difficult
                                     couple of             to see how
                                     years ago.            this could be
                                     Previous              an attractive
                                     losses and            equity
                                     urgent nature         proposition
                                     of refinancing        for us. Small
                                     package may           loan may be a
                                     make this a           possibility.
                                     difficult one         Referred to
                                     for us to             Business
                                     pursue but            Centre
                                     will have a           initially
                                     preliminary
                                     discussion.


Sourc   A:                O:   Other               Type    B:           Buy   Stat      A: Active
e       Accountant                                         Out                us
        B: Bank           S:   Solicitor                   Exp:                         D: Dead
Handbook of Venture Capital Documentation                     Page    29


                                            Expansion        I:
                                                             Investment
        C:               IC: Invest.        R:      Rescue   O: Open -
        Consultant       Conference                          awaiting
                                                             developmen
                                                             t
        D: Direct        V: Other VC        S:      Start
                         House              up
        W: Web site                         E:      Early
                                            stage
Handbook of Venture Capital Documentation                              Page    30




Document Number                6
Document title                 Terms and conditions
Purpose of document           To explain to the potential New Co how Investor Co
                             operates
Example of use                A standard notice
Key sensitivities             Charging arrangement fees



                                 INVESTOR CO
                    SUMMARY OF MAIN TERMS AND CONDITIONS


Structure of Investment

   We aim to flexible, practical and constructive in our
    approach, tailoring each investment package to the company's
    needs, stage of development and the needs of our investment
    partners.   Investment may be a combination of ordinary, „A‟
    ordinary shares, preference shares and/or loan stock.

   For established businesses and those generating income, we
    normally expect our return to be a combination of income (in
    the form of interest/dividend payments) and capital gains (by
    a premium on redemption of preference shares and/or by a
    trade sale or floatation). Where dividends are appropriate,
    these are normally payable every 6 months and may have a
    fixed (x% of cost) and/or a participating element e.g. (y% of
    profits before tax). Alternatively we may encourage a policy
    to distribute a certain percentage of profits to all
    shareholders.

   Ordinary equity is particularly suitable for seed/very early
    stage investments and those involving emerging technologies.
    In these cases, dividends may not be possible in the early
    years and the focus will be more on building up shareholder
    value for future exit

   We will only make our investment when we are satisfied with
    the information provided to us.    In particular, financial
    details and the background and relevant skills of the main
    promoters, as well as confirmation that any other funding
    will be in place at completion.

   We will not normally seek to have more than 30% of the equity
    in any investee company (frequently much less).     Where our
Handbook of Venture Capital Documentation                Page   31


    initial financial investment is substantial in relation to
    management equity however, we may look for additional
    protections.


Syndication/Co-Investment

   We are happy to work alongside other funders and have in the
    past syndicated with most of the other local and national
    funds, particularly those also interested in economic
    development

   We have also worked with private investors/business angels
    where they can bring a particular expertise

   Of particular importance is the financial contribution made
    by the management shareholders alongside whom we are sharing
    the risks (and rewards). This may vary depending upon
    individual circumstances but must demonstrate commitment to
    the business and to its success.


Income/Dividend/Asset Protection

   We will expect salaries of executive directors and senior
    employees to be set at a realistic level dependent upon the
    size and nature of the business and upon what the business
    can afford at a particular stage of its development.
    Increases   beyond   this,  (which   could affect  dividend
    payments), will only be permitted with our written consent.
    Salaries agreed will include pension contributions, company
    cars and all other benefits in kind.

   We will expect to be involved in your annual budget setting
    and thereafter will expect you to adhere reasonably to
    expenditure on both capital and income.       Any material
    deviation will have to be agreed with us in advance as will
    any further fund raising of any kind.

   Where the directors have contracts of employment, we normally
    expect these to be for a period not exceeding one year
    initially with a maximum of six months notice on either side;
    we also expect some level of restrictive covenant should any
    director leave the company for any reason.
Handbook of Venture Capital Documentation                Page   32


On Going Involvement

   Investor Co is a 'hands on' investor i.e. we don't see our
    involvement ending when we hand over our cheque; rather, we
    aim to do all we can in a practical way to help you achieve
    your objectives.     This will usually mean our coming along
    to your monthly Board meetings.   If we think it helpful, it
    may involve our appointing a non-executive Director to your
    board; in particular we will always want to retain this right
    and the right (in conjunction with other syndicate members)
    to decide which of the Directors should be Chairman (whether
    or not we choose to exercise it).

   The cost to you - for which you will receive the benefit of
    our help and support - will depend largely on the time spent
    but typically will range from EUR 2,000 per annum for
    monitoring and advice, to EUR 10,000+ for an experienced
    Chairman who by his experience and contacts can help you
    develop your business.  Costs will always be discussed with
    you in advance and before you commit yourself to accepting
    our offer.

Costs and Expenses

   Costs will depend on the amount involved and the complexity
    of the deal.      You will normally be expected to pay a
    negotiation fee of 2% and to bear all legal and necessary due
    diligence charges.

   Our external Solicitors will normally only be instructed once
    you have accepted our main terms.         You will then be
    responsible for all charges whether or not the deal proceeds
    to completion. In most cases, we will be able to obtain an
    estimate for you in advance.
Handbook of Venture Capital Documentation                                     Page    33




Document Number                7
Document title                 Investment submission
Purpose of document            Gain acceptance of Board or Investment Panel to
                               pursue negotiations i.e. eliminate „on principle‟
                               reasons for rejection
Example of use                 The example is somewhat bland since all recent
                               examples of investment submissions necessarily
                               contain commercially sensitive information
Key sensitivities              Each fund‟s investment strategy should guide the Board or
                               Investment panel on parameters for the fund‟s investment.

                            INVESTMENT SUBMISSION to
                                  INVESTOR CO
New Co

INVESTMENT EXECUTIVE:             (name)
DATE: xxxxxxxxxxx 2001

SUMMARY OF MAIN REASONS FOR INVESTING:

       Experienced management team
       Product which works!
       Large and fast growing market

KEY SENSITIVITIES

       Lack of sales and marketing team
       Immature market
       Availability and ability to attract key staff

NAME AND ADDRESS:          New Co and (place)

DIRECTORS: (Names)

BANKERS:     Bank Co

AUDITORS: Auditor Co

SOLICITORS:                Solicitor Co

1.     NATURE OF BUSINESS: Design and manufacture of Internet
       Equipment


2.     PURPOSE & SOURCE OF FUNDS
Handbook of Venture Capital Documentation                     Page   34


      PURPOSE                                  £


      Capital expenditure                           180,000
      Product development                      200,000
      Marketing                                 400,000
      Working capital and contingency                     420,000
                                                 ______

                                                       1,200,000
                                                   ========

SOURCE

      Private     investors                                300,000
      Management                                       100,000
      Investor Co                                200,000
      Syndicator Co                         100,000
      Syndicator Co                         300,000
      Syndicator Co                         200,000

                                               _______

                                                1,200,000
                                               =========

      Note that good progress is being made in discussions with
      private investors.    Syndicators Co are still considering
      the proposal and any shortfall may well be made up by
      additional equity from a number of business angels


3.     STRUCTURE OF INVESTMENT

3.1. To be agreed.

4.     INTRODUCTION AND BACKGROUND

4.1. New Co was set up in (date) with      EUR 100,000 in seed
     funding from the founders and in that time, has designed
     and developed their first product.             (Names) were
     founders of Early Co (a computer network management company
     based in Livingston) which was sold two years ago to a US
     company, Buyer Co.

4.2. The company are now seeking to raise a total of     EUR
     2,000,000 in a mixture of equity and debt to create the
Handbook of Venture Capital Documentation                           Page     35


       infrastructure required to successfully market the product,
       complete the R&D and support team and reach profitability
       on a sustainable basis

5.     PRODUCT/SERVICE

5.1. The company‟s first range of products, the Net Product
     series (a new concept in Internet Access management), was
     released in (date).

5.2. Short   term  developments             on   the   product   range     will
     concentrate (details)

5.3. Future products (details)

5.4. The other major opportunity will be (details)

6.     SALES/MARKET/COMPETITION

6.1. New Co‟s target market is all organisations with 25+
     employees with internet access. The potential market size
     (details)

6.2. The two most significant competitors are (names) both
     fairly highly regarded and with aggressive marketing
     strategies.    Where New Co gains is in providing an
     integrated solution which in the main, its competitors do
     not.   While purchase and installations costs are similar,
     New Co annual maintenance is considerable less expensive,
     particularly for large (100+) users

6.3. At present the products are being sold directly (details)

6.4. The next phase of the sales and marketing campaign is to
     increase the number of UK resellers and then to target the
     larger European countries via local key distributors and
     resellers who will carry out a degree of localisation to
     the product. (details)

6.5. The company sees the establishment of a dedicated reseller
     network as the key element in their strategy and the
     majority of the new funding is earmarked for this.    Their
     secondary route to market will be through forming strategic
     alliances with other equipment manufacturers, systems
     integrators and service providers.

7.     PREMISES
Handbook of Venture Capital Documentation                 Page   36




7.1. For the past year, New Co has been operating from a small
     serviced office.   They are now looking for 200 square
     metres in (place)

7.2. KEY EMPLOYEES

7.3. The company currently employs three people with plans to
     increase this by a further eight within the next twelve
     months.   Included in this will be the key appointment of a
     sales and marketing director together with an effective
     sales team.       A non executive chairman and financial
     controller will complete the management team and these will
     also be sought in conjunction with this fund raising.

7.4. (Name) – Managing Director – (bio details)

7.5. (Name) – Technical Director – (bio details)

7.6. (Name) – Financial Director – (bio details).   Part-time.

FINANCIALS – see also attached appendices

The current plan is that the funding being sought now, should be
sufficient to take the company through to break even but
accelerated growth may be possible if additional funds are
generated.    Progress will be closely monitored and new funding
sought where appropriate and at a point where most value will
have been created for the early investors.

INVESTMENT DIRECTOR‟S RECOMMENDATION

This is a management team who have already taken one technology
company from start up to successful multi million dollar sale.
While this was not without its difficulties, they have learned a
lot of valuable lessons which hopefully they will put to good
use in this new venture

While the management team is a bit light weight at present,
there are plans to strengthen this and if we choose to invest,
we should be able to have some influence here.

I recommend this investment
Handbook of Venture Capital Documentation                                               Page   37




Document Number                    8
Document title                     Internal Rate of Return (IRR) calculation
Purpose of document                Training or explanatory document
Example of use                     The two examples illustrate simple calculations.
Key sensitivities                  A high IRR means suits all financial stakeholders.

Judging the return on simple interest bearing investments (5%
simple interest from a deposit account) is straightforward.
Where percentage returns and payment periods vary, calculation
and judgements are more difficult.

Internal Rate of Return (IRR) is the discount rate that results
in a net present value of zero given the stream of benefits and
costs over time. The IRR does not require a pre-selected
discount rate and inherently assumes that the benefits received
over the life of the project are reinvested.      Since business
cash-flows are prone to variability, the IRR is often the
preferred standard of VCs to calculate and compare investments.
Alternatives include Net Present Value (NPV), which (based upon
a pre-selected discount rate) results in an easy computation and
decision rule (invest in anything where the net present value
greater than zero).

An IRR is calculated based on a series of positive and negative
income streams over time.7 Calculations will usually be done in
Excel (or similar) or on a financial calculator.    The formula
is: F = -P(1+i)**n - [p(1+i)((1+i)**n - 1)/i] .

   F is the future value of your investment (i.e., the value
    after "n" periods)
   P is the present investment value
   p is the payment each period
   n is the number of periods
   i is the interest rate per period
   **' is used to denote exponentiation (2 ** 3 = 8).

"P" and "p" will be negative. This formula is devised representing cash paid out as
negative and cash received (as in the case of a loan) as positive. Technically, IRR is a
discount rate: the rate at which the present value of a series of investments is equal to
the present value of the returns on those investments. As such, it can be found not only
for equal, periodic investments for any series of investments and returns. There are
also two flows to define. The first flow is positive and is the value of the portfolio at the
start of the period over which IRR is being computed. The last flow is negative and is

7
       For a tutorial see http://hadm.sph.sc.edu/Courses/Economic/irr/irr.html
Handbook of Venture Capital Documentation                                       Page    38


the value of the portfolio at the end of the period over which IRR is being computed. The
IRR is the rate of return per whatever time unit is used. The IRR is the discount rate that
sets the NPV of the given cash flows made at the given times to zero.
Handbook of Venture Capital Documentation                                                                        Page         39


Ass ume £350,000 'A' ords for 21% (us and Bank)
Dividends 10% participating
                                          IRR:                                 44.05%
                                          GUESS:                               30.00%



YEAR                                            2002             2003             2004             2005             2006
============ ========                    ========         ========         ========         ========         ========
PBT(FORECAST)                                     -60             -328              289            1090             1300
PBT(DISCOUNTED)                                     15               82             -72            -273             -325
--------------------- --------------     --------------   --------------   --------------   --------------   --------------
                                                  -45             -246              217              818              975
============            ========         ========         ========         ========         ========         ========
PART DIV                  10.00%                                                 21.68            81.75            97.50
PART DIVI 2                                                                                         0.00             0.00
PREF DIV                                        0.00             0.00             0.00              0.00             0.00
ORD DIV                       0.00%             0.00             0.00             0.00              0.00             0.00

---------------------   --------------   --------------   --------------   --------------   --------------   --------------
TOTAL DIV                                        0.00             0.00           21.68            81.75            97.50
ADD:TAX
---------------------   --------------   --------------   --------------   --------------   --------------   --------------
GROSS DIV                                        0.00             0.00           21.68            81.75            97.50

REDEMPTN
REDEMPTN PREM
DIRS FEES

LOAN INTEREST                                   0.00             0.00             0.00             0.00              0.00
LOAN CAPITAL                                    0.00             0.00             0.00             0.00              0.00
BUY-OUT                                                                                                        1911.00
--------------------- --------------     -------------- --------------     --------------   --------------   --------------
INCOME                       -350                0.00           0.00             21.68            81.75        2008.50
============ ========                    ======== ========                 ========         ========         ========
                                                 £000
INVESTMENT              prefs                                              % EQUITY                              28.00%
                        ords                350.00                         REDEMPTN PREM
                        loan                                               REDEMPTN PREM
                        term                         5
                        rate
TAX RATE
P/E RATIO                                         7
DISCOUNT T/O                                 25.00%
Handbook of Venture Capital Documentation                                                                          Page       40




Ass ume £350,000 'A' ords for 21% (us and Bank)
Dividends 10% participating
                                          IRR:                                 52.76%
                                          GUESS:                               30.00%



YEAR                                    2002           2003           2004           2005           2006
============ ========            ======== ======== ======== ======== ========
PBT(FORECAST)                             -60           -328            289          1090           1300
PBT(DISCOUNTED)                              0              0              0              0              0
                                 -------------- -------------- -------------- -------------- --------------
--------------------- --------------
                                          -60           -328            289          1090           1300
============            ======== ======== ======== ======== ======== ========
PART DIV                  10.00%                                     28.90        109.00         130.00
PART DIVI 2                                                                           0.00           0.00
PREF DIV                                 0.00           0.00           0.00           0.00           0.00
ORD DIV                    0.00%         0.00           0.00           0.00           0.00           0.00

---------------------   --------------   --------------   --------------   --------------   --------------   --------------
TOTAL DIV                                        0.00             0.00           28.90          109.00           130.00
ADD:TAX
---------------------   --------------   --------------   --------------   --------------   --------------   --------------
GROSS DIV                                        0.00             0.00           28.90          109.00           130.00

REDEMPTN
REDEMPTN PREM
DIRS FEES

LOAN INTEREST                                   0.00             0.00             0.00             0.00              0.00
LOAN CAPITAL                                    0.00             0.00             0.00             0.00              0.00
BUY-OUT                                                                                                        2548.00
--------------------- --------------     -------------- --------------     --------------   --------------   --------------
INCOME                       -350                0.00           0.00             28.90          109.00         2678.00
============ ========                    ======== ========                 ========         ========         ========
                                                 £000
INVESTMENT              prefs                                              % EQUITY                              28.00%
                        ords                350.00                         REDEMPTN PREM
                        loan                                               REDEMPTN PREM
                        term                         5
                        rate
TAX RATE
P/E RATIO                                            7
DISCOUNT T/O
Handbook of Venture Capital Documentation                                            Page     41




Document Number              9
Document title               Outline terms and Heads of agreement
Purpose of document          To form the basis for negotiating a detailed document with investee
                             and syndicators and to identify at an early stage „deal breakers.‟




                                                NEW CO

                                   OUTLINE TERMS & CONDITIONS
                          FOR   AN INVESTMENT   TOTALLING EUR 250,000

                                      (SUBJECT TO CONTRACT)



                                                (DATE)




Investor Co
Handbook of Venture Capital Documentation                                   Page    42


                                  EQUITY TERMS



INVESTEE                  New Co (to be confirmed and agreed)



INVESTOR                  Investor Co


PURPOSE                   The subscription monies are to be used to fund capital
                          expenditure, recruitment and salary costs, and other working
                          capital requirements.


AMOUNT                    Up to EUR 250,000



SUBSCRIPTION              By way of [ „A‟ ] Ordinary Shares in New Co.



OWNERSHIP                 Following completion of the share subscriptions the resulting
                          shareholdings would be as follows:

                          Management                  [60]%
                          Investor Co                 [20]%
                          Other investors             [20]%


VALUATION                 The proposed structure values the Company on a pre-money
                          basis at EUR 750,000.
Handbook of Venture Capital Documentation                                           Page    43


CONDITIONS PRECEDENT


Investor Co to be satisfied with the following prior to the facilities being available :-

FINANCIAL INFORMATION                 -   The Company's Management Accounts to [30
                                          April xxxx]

                                      -   A certified pro forma Opening Consolidated
                                          Balance Sheet.

                                      -   The level and terms of outstanding
                                          debt   facilities    [or   contingent
                                          liabilities] as at the date of
                                          subscription and confirmation that no
                                          events of default are outstanding or
                                          have been waived.


DUE DILIGENCE                         -   An Accountant's Report addressed to
                                          Investor Co (the nature and content
                                          of which to be discussed and agreed).

                                      -   A      [Commercial/Market]    Report
                                          addressed to Investor Co (the nature
                                          and content of which to be discussed
                                          and agreed).

                                      -   A Legal Report addressed to Investor
                                          Co (the nature and content of which
                                          to be discussed and agreed).

                                      -   Management references.

                                      -   The Board of New Co.

                                  -       There being no material adverse change in the
                                          financial condition of the Company or in its trading
                                          prospects between the date of its latest
                                          Management Accounts delivered to Investor Co
                                          and subscription.



LEGAL DOCUMENTATION                   -   The   Investment  Agreement   between
                                          Investor Co    , the Management Team
                                          and the Company (including standard
Handbook of Venture Capital Documentation                                         Page    44


                                        warranties from the Management Team
                                        and the Company).

                                    -   The Articles       of    Association       of    the
                                        Company.

                                    -   The   Service    Agreements              of      the
                                        Management Team.

FINANCE                             -   A minimum of     EUR 600,000 to be
                                        invested in this round of fundraising
                                        (including EUR 250,000 from Investor
                                        Co ).


                                ONGOING CONDITIONS

FINANCIAL                           -   Annual consolidated audited accounts
                                        within 90 days of the end of each
                                        financial year.

                                -       Annual budgets 4 weeks prior to each financial
                                        year end.

                                    -    Monthly management accounts within 4 weeks of
                                         each month end (containing profit & loss
                                         account, cash flow and balance sheet
                                         statements), calculations of financial covenants
                                         and any other financial information that Bank Co
                                         may reasonably require from time to time.

SHARE CAPITAL                       -   No issues of any class of new shares or other
                                        variations to the share capital of New Co or any of
                                        its subsidiaries (without Investor Co consent);

                                    -   No transfer or disposal of shares by Directors or
                                        employees (without Investor Co consent);

                                    -   If any employee and/or director leaves the
                                        Company his/her shares will be offered for sale at
                                        fair value to the other shareholders or as
                                        otherwise directed by the Board;

                                    -    A minimum of 10% of profits after tax to be
                                         distributed by way of dividend to the [„A‟] ordinary
                                         shareholders following the signature of each
                                         year‟s annual audited accounts.          No other
Handbook of Venture Capital Documentation                                    Page        45


                                       distribution by way of dividend, share capital
                                       redemption or otherwise is declared or paid
                                       (without Investor Co consent);

                                  -    A compensatory dividend to be paid to the [„A‟]
                                       ordinary shareholders should remuneration
                                       awarded to the directors (including bonuses)
                                       exceed EUR [to be agreed] per annum.

OPERATIONS                        -   No material change in the nature of the business

                                  -   No acquisitions of assets, shares or businesses
                                      exceeding EUR 250,000 (in aggregate) in any
                                      year, other than as approved in the annual
                                      budgets

                                  -   No borrowings other than as approved in the
                                      annual budgets

                                  -   No variation to the terms of engagement of any
                                      Director or Senior Executive of New Co or any
                                      subsidiary including fees, remuneration and
                                      options (without Investor Co consent).

                                  -    The company to have its premises based in
                                       (place)

                                  -    No change to the Company‟s accounting
                                       reference date or auditors without Investor Co ‟s
                                       prior written consent.

BOARD                             -   Investor Co   to have the right (in
                                      consultation   with   the   Management
                                      Team) to appoint a non-executive
                                      director to the board of the Company
                                      (whose remuneration shall be paid by
                                      the Company).   Investor Co    to also
                                      have the right to appoint the non-
                                      executive chairman (in consultation
                                      with the Management Team).

                                  -    Investor Co     to appoint a non-
                                       executive remuneration committee.

                                  -   Investor Co  to have the right to
                                      have a Investor Co representative
                                      present (as an observer) at the
Handbook of Venture Capital Documentation                            Page    46


                                      Company‟s board meetings, from time
                                      to time.


ARRANGEMENT FEE                   EUR 12,500 payable on first drawdown of
                                  these facilities.

EXPENSES                          Company   to   meet    the  cost    of   (or
                                  reimburse Syndicator Co on a full
                                  indemnity    basis     for)   all     legal,
                                  valuation,   due    diligence   and    other
                                  charges/expenses     (+VAT)   incurred    in
                                  connection with the Investment.

MONITORING FEE                    EUR   6,000   pa   (payable   monthly      in
                                  advance)    during   the   life   of      the
                                  investment.

GOVERNING LAW                     The agreement shall be subject to Scots
                                  Law.

DISCLOSURE                        No disclosure or press release may be
                                  issued about Syndicator Co's investment
                                  unless its wording is agreed between the
                                  Company and Syndicator Co , unless
                                  required by law or any regulatory
                                  authority.

DISCLAIMER                        This outline of investment is subject to
                                  and conditional upon Investor Co Board
                                  approval and the execution by the
                                  parties    of    investment     agreements
                                  reflecting these terms and conditions
                                  and in a form acceptable to Investor Co
                                  , (and Investor Co    reserves the right
                                  to incorporate such other terms and
                                  conditions     into     the     investment
                                  agreements    as    it     may    consider
                                  appropriate) prior to the occurrence of
                                  which Investor Co     shall be under no
                                  obligation   whatsoever   to   make   this
                                  investment.

TIME LIMIT                        These Outline Terms and Conditions are
                                  open for acceptance until 5pm on 1 June
                                  xxxx after which time this offer of
                                  investment shall lapse.
Handbook of Venture Capital Documentation   Page   47
Handbook of Venture Capital Documentation                              Page    48




Document Number                10
Document title                 Formal offer letter
Purpose of document            A formal offer, (often subject to contract) to
                               supply finance, for specified purposes and in
                               exchange for specified assets and options.
Example of use                 Here New Co is buying a Business (Target Co) for
                               which transaction it needs the approval of
                               Investor Co.
Key sensitivities              Whilst prescribing the use to which funds are to
                               be put, investors will not wish to over-prescribe
                               and therefore constrain management. Both sides to
                               a contract benefit from clarity over e.g. share
                               rights,    Board    structure,   warranties   and
                               indemnities and abortive costs.



                                    SOLICITOR CO

Our reference: xxxxxxxxxxx
August xxxxxxxxxxxxxx

The Directors
New Co
(place)

The Shareholders of New Co Limited
all as set out in Appendix 1


New Co Limited
Acquisition of New Co Limited (“the Company”)

We act on behalf of Buyer Co a company incorporated in Scotland
(registered number xxxxx) being registered in Scotland under the
Companies Acts and having its registered office at (place) and
are writing to outline the terms on which our clients offer
(“the Offer”) to purchase from the persons listed in Appendix 1
of the Schedule (“the Shareholders”) the whole ordinary    share
capital of Target Co a company incorporated in Scotland
(registered number xxxxxxxx) and having its registered office at
(place) being the aggregate of those ordinary shares of EUR 1
each set out in Appendix 1 opposite the Shareholders‟ names
(“the Offer Shares”).

   1.     Conditions Precedent

        The purchase by Buyer Co of the Offer Shares (“Completion”)
        on the terms set out herein will be entirely conditional
Handbook of Venture Capital Documentation                                    Page    49


      upon the purification of the following conditions precedent
      to the satisfaction of New Co in its sole discretion:-

      a)   completion   of  due             diligence      on     the    Target      Co
      satisfactory to New Co;

      b)     New Co agreeing terms with certain of the creditors of the Company for the
             restructuring of the terms of the loan facilities granted to the Company by
             such persons;

      c)   Buyer Co being satisfied that all outstanding options
      over shares in the Company have been waived;

      d)     Buyer Co being satisfied with the Company‟s management
             accounts produced to the end of June 2001 and financial
             position generally;

      e)     Buyer Co being satisfied that the proposed change of
             control shall not prejudice the Company‟s material
             trading relationships;

      f)     Buyer Co receiving sufficient acceptances of this Offer
             where on Completion thereof      it could effect the
             provisions referred to in Clause 6 hereof;

      g)     Buyer Co being satisfied with the form and content of such ancillary
             documents to the Completion as it considers reasonably necessary;


      h)     Buyer Co being satisfied with the terms and status of the Regional
             Selective Assistance Award as given to the Company.


2.    The Purchase Consideration

      The purchase price of the Offer Shares is a total price of
      EUR 200,000 being a price per Offer Share of EUR 20 (“the
      Consideration”) subject to the following:-

                  a) 50% of the Consideration shall be paid to the
                     Shareholders at Completion pro rata in proportion
                     to   the  number   of   Offer   Shares  held   in
                     consideration for the transfer of the relevant
                     Offer Shares;

                 b) the balance of the Consideration shall be paid
                    to the Shareholders on the first anniversary of
Handbook of Venture Capital Documentation                                       Page    50


                      Completion and shall be fully guaranteed by the
                      Bank Co.

       The proposed purchase price assumes, in addition to the
       matters listed above, that there will be no material
       alteration of existing trading arrangements or loss of
       major customers.


3.     Shareholders‟ Warranty

       Acceptance of this offer by each of the Shareholders will
       be deemed to constitute a warranty given at Completion by
       that Shareholder that:-

          a) The relevant Offer Shares held by that Shareholder in
             respect of which this Offer is so accepted are being
             transferred on Completion free of all liens, charges
             and   encumbrances  and  together  with   all  rights
             attaching thereto;

          b) That the acceptor is the registered and beneficial
             owner of the Offer Shares so referred to opposite the
             acceptor‟s name in Appendix 1.


4.     Announcements & Confidentiality

Neither we nor you nor Buyer Co nor any company within Buyer Co‟s group or its
personnel shall prior to Completion make any announcement in relation to the proposed
acquisition without first obtaining the other‟s written agreement. In consideration of your
making available information to us, our clients, and their advisers, our clients undertake
to keep same confidential save as may be required by law.

5.     Exclusivity

You undertake to Buyer Co that from the date of acceptance of
this proposal until 31st August 2001 you will not enter into
negotiations with or provide any information concerning the
Company to any prospective purchaser or other person with a view
to a sale of your shareholding in the Company.


6.     Purchase of Minority Interests

If sufficient acceptances are received Buyer Co intends to apply the provisions of
section 428 to 430 of the Companies Act 1985 to acquire compulsorily any remaining
Handbook of Venture Capital Documentation                                  Page   51


Offer Shares in respect of which the Offer has not been accepted. Section 428 to 430
allow an offeror, whose offer for shares of a particular class in another company has
been accepted by the holders of at least 90% in nominal value of the class of shares
involved, to acquire the remaining shares compulsorily at the same price.
Handbook of Venture Capital Documentation                              Page    52


7.      Information

The following documents have been delivered to the Company‟s principal place of
business at (place) and are available for inspection free of charge there:-

     a) the Memorandum and Articles of Association of the Company
     b) the Memorandum and Articles of Association of Buyer Co
     c) the audited accounts of the Company for its last two accounting reference
        periods


8.      Timing

This offer shall remain open for 21 days following the date of
issue and upon acceptance all parties will use their respective
best endeavours to complete the acquisition by 31st August 2001
failing which the terms of this Offer will lapse save for the
provisions of Clause 4 which shall continue thereafter.

This Offer is governed by and construed by the laws of Scotland
and upon acceptance the parties hereto irrevocably submit to the
jurisdiction of the Court of Session.

If you are in any doubt about this offer you should consult a
person authorised under the Financial Services Act 1986 who
specialises in advising on the sale of shares or debentures.

We look forward to your early acceptance.

Yours faithfully


Solicitor Co


Form of Acceptance


I,………………..   hereby accept the terms of the foregoing offer of
which this is a duplicate.


........................................
     ........................................
Signed                                   Date
Handbook of Venture Capital Documentation                                     Page    53




Document Number              11
Document title               Reference document seeking diligence on
                             management
Purpose of document          To seek references about a proposed member of a New Co
                             management team. The letter would often be followed up by a
                             telephone call or discussion.



Our Reference: xxxxxxxxxxxx

(Date)

( Name and Address)


Dear (          )

We are considering making an investment of (        ) as part of a
total package of (        ) in [a new venture] (                 )
Limited. (              ) a (Director/Shareholder of the Company),
has given your name as a [personal] referee.

I would be very grateful to receive any comments which you may
have with regard to his integrity and suitability in this
venture. Your reply will, or course be treated in the strictest
confidence.

I look forward to hearing from you at your earliest convenience.

Yours faithfully




(name)
INVESTMENT DIRECTOR
Handbook of Venture Capital Documentation                                        Page     54




Document Number              12
Document title               Enquiries for Directors
Purpose of document          Diligence on potential New Co Directors
Example of use               Standard
Key sensitivities            Attention to detail over personal diligence can be revealing to
                             investors.



Investor Co
Address

date
                                  ENQUIRIES FOR DIRECTORS


NOTES:-

(1)    Please answer all questions. If a question is answerable in
       the negative, please answer "NO". Do not leave any section
       blank.

(2)    If insufficient space is provided for completion of any
       paragraph, additional information may be entered on a
       separate sheet of paper duly signed and attached.


1.     Director's full name

       ............................................................
       ............................................................
       .......


2.     Titles and qualification (i.e. B.A., FRICS, etc)

       ............................................................
       ............................................................
       .......


3.     Age                                  Date of Birth

       .............................................
       ………………………………..
Handbook of Venture Capital Documentation                       Page   55


4.   Home addresses and telephone numbers during the last five
years.

     1) .........................................      2)
.........................................         3) …………………………

       ..........................................
.........................................
.........................................

       ..........................................
.........................................
.........................................

           ..........................................
                                                         ...............
                                                         ...............
                                                         ...........

                                                         ...............
                                                         ...............
                                                         ...........


5.    Business address and telephone number

      ............................................................
      ............................................................
      ...............

      ............................................................
      ............................................................
      ...............

      ............................................................
      ............................................................
      ...............

      ............................................................
      ............................................................
      ...............


6.    References - Business

      1)    Bankers                              2)     Other
Handbook of Venture Capital Documentation                            Page   56


      …………………………………………..                    ……………………………………

      ……………………………………………                     ……………………………………

      ……………………………………………                     …………………………………….

      ……………………………………………                     ……………………………………..

7.    Position in company                   ………………………………

8.    Date of joining                       ………………………………

9.    Current Salary and Benefits

      Salary               ………………………………………………..

      Pension       ………………………………………………..

      Car           ………………………………………………..

      Other         ………………………………………………..


BUSINESS INTERESTS

10.   (a)     List all shareholdings            currently held by you or your
              spouse which represent            more than 5% of the relevant
              company.    List also            details of any unincorporated
              business or partnership          in which you are involved.


                   ..................................................
              .......................................................
              ........................


                   ..................................................
              .......................................................
              ........................


                   ..................................................
              .......................................................
              ........................


                    ..................................................
Handbook of Venture Capital Documentation                    Page   57


             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


      (b)    List all directorships/interests in any unincorporated
             business or partnership held by you or your spouse
             during the last fifteen years (including those still
             held by either of you)


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................



      (c)    Have you ever been a director of a company, sole trader
             or partner in a business which, or against other
             directors/partners of which, criminal proceedings have
             ever successfully been brought?
Handbook of Venture Capital Documentation                                 Page   58




                   ..................................................
              .............................

              If   so,   please     supply   full   details   on   an   additional
page.


        (d)   Are any companies in which either you or your spouse
              hold directorships or are substantial shareholders, or
              any unincorporated business or partnership in which
              either you or your spouse has a substantial interest,
              currently involved in any High Court, Court of Session,
              Sheriff Court, County Court or Crown Court proceedings?



     ............................................................
...................

              If   so,   please     supply   full   details   on   an   additional
page.


        (e)   Have you ever been convicted of any offence as a result
              of, or been a director of a company which has been the
              subject of or linked with an inspection by the
              Department of Trade and Industry?



     ............................................................
..................

              If so,     please     supply   full   details   on   an   additional
              page.

PERSONAL

11.     (a)   Are you satisfied that you and your spouse have the
              financial   resources   to  meet   your existing and
              anticipated financial liabilities?



     ............................................................
..................
Handbook of Venture Capital Documentation                                 Page   59




        (b)   Have you ever been convicted of a criminal offence,
              other than motoring offences?



     ............................................................
..................

              If   so,   please     supply   full   details   on   an   additional
page.


        (c)   Are you currently, or have you ever been the subject of
              any investigation by the police, the Inland Revenue,
              the Department of Health and Social Security or any
              other Government body?



     ............................................................
..................

              If so,     please     supply   full   details   on   an   additional
              page.



        (d)   Have any Sheriff Court, High Court, County Court or
              Court of Session judgements been issued against you or
              your spouse in the last five years?



     ............................................................
..................

              If   so,   please     supply   full   details   on   an   additional
page.


        (e)   Have any allegations of fraud ever been made against
              you or any of your co-directors?
Handbook of Venture Capital Documentation                                  Page   60




     ............................................................
..................

              If so,     please     supply   full   details   on    an   additional
              page.


        (f)   Are you aware of any legal proceedings which may come
              to Court in the future, in which you are likely to be a
              party?



     ............................................................
..................

              If   so,   please     supply   full   details   on    an   additional
page.


        (g)   Have you ever been the subject                   of    disciplinary
              proceedings by any professional body?



     ............................................................
..................


              If   so,   please     supply   full   details   on    an   additional
page.



PREVIOUS EMPLOYMENT

9.      (a)   Please supply a list of the names of your employers
              during the last ten years and the dates during which
              you worked for them, together with a short description
              of your job, and your job title in each case.



     ............................................................
.................................................................
....
Handbook of Venture Capital Documentation                                    Page   61




                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


      (b)    Please state        your       reason   for   leaving   each   place   of
             employment.



     ............................................................
.................................................................
....


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................


                  ..................................................
             .......................................................
             ........................
Handbook of Venture Capital Documentation                                    Page   62


      (c)    Have you ever been dismissed, suspended or asked to
             leave your employment for any reason during your
             working career?



     ............................................................
.................................................................
....

             If so,      please     supply    full   details   on    an    additional
             page.


      (d)    Please give details of any major periods of illness
             during the last ten years through which you have been
             absent from work.



     ............................................................
.................................................................
....

      (e)    Please attach a copy of your current CV.

10.   References - Personal

      1)    Bankers                   2)    Last Employers      3)    Other

         .............................................
     .............................................
.............................................

         .............................................
     .............................................
.............................................

         .............................................
     .............................................
.............................................

STATEMENT OF ASSETS AND LIABILITIES

Assets                                                               EUR
EUR
House - Main residence                                              ..........
Handbook of Venture Capital Documentation                   Page   63


Other property                                     ..........
Motor Vehicles                                     ..........
Investments                                        ..........
                                               ..........
                                               ..........
                                               ..........
Building Society Deposit                           ..........
          ..........
                                               ..........
Bank Balances                                  ..........
          ..........
                                               ..........
Other                                          ..........

Liabilities
Mortgage
          ..........
Hire Purchase/Lease                                ..........
                                               ..........
                                               ..........
                                               ..........
Credit Cards                                       ..........
                                               ..........
                                               ..........
                                               ..........
Bank Loans                                     ..........
                                               ..........
             ..........
Other                                          ..........
                                               ..........
             ..........

DECLARATION


I
.................................................................
..................... a Director/Shareholder


of
.................................................................
.................................................................
..

declare that the information and answers supplied in reply to the
foregoing paragraphs are true.
Handbook of Venture Capital Documentation                 Page   64




Signed
.................................................................
..............


Dated
............................................................
19.................
Handbook of Venture Capital Documentation                                         Page     65




Document Number              13
Document title               Engagement letter
Purpose of document          Especially in complex deals, accountants may be engaged to check
                             the financial due diligence of a business plan.
Example of use               Standard
Key sensitivities


DRAFT

PRIVATE & CONFIDENTIAL

The Directors
Investor Co
Place


Our reference: xxxxxxxxxxxxxx

xx June 2001




Dear Sirs

ENGAGEMENT LETTER - FINANCIAL FORECAST REVIEW
New Co

We shall be pleased to act for Investor Co Limited in the matter of the proposed
investment in New Co. This letter and attached Appendix sets out the terms of our
engagement in relation to this project.

Our Contract

Once you have read this letter, please confirm that you accept
the contents by countersigning the enclosed copy and sending it
back to us.

If there are any points which do not agree with your
understanding or which you would like to discuss with us, please
let us know.     The scope of our work will be limited to the
matters set out in this letter, subject to any subsequent
variations agreed by both parties in writing.
Handbook of Venture Capital Documentation                                  Page    66


Background

It is understood that Investor Co Limited and Bank Co are preparing to invest EUR
100,000 and EUR 300,000 respectively in New Co. In this regard, Consult Co have
been asked to review the business plan and financial forecast prepared by New Co.

Scope of our Engagement

We shall carry out an overall review of the financial
projections prepared by New Co for the three years to 31 March
2004 and in particular, we shall comment on:-

1    The consistency of the figures in the financial model with
the accompanying assumptions and the “Expansion Plan” prepared
by New Co.

2    The internal consistency of the financial projection model
(although, for the avoidance of doubt, we will not carry out a
full arithmetical check on the figures provided).
……/

3    The accounting policies adopted                by   the   company     for    the
purposes of the financial projections.

4    The appropriateness of the               assumptions      made   by    New   Co
underlying the figures presented.

We shall present our report in a letter format. A draft will be issued for comment to
Investor Co Limited and New Co on Friday 15 June and a final report will be issued as
soon as is practicable thereafter.

Our Engagement Team

Name ……. will be the engagement Partner on the work, which we
carry out for you, assisted by other staff as appropriate.

Information and Documents

Our advice will be based on the information received from New Co

We must have access to all the information and documentation
that we need to carry out our responsibilities.     New Co have
agreed to provide us promptly with all information and documents
they consider to be relevant to the engagement and any other
information or documents that we specifically request.    New Co
have also agreed to inform us of any circumstances which may
alter the position. In particular, they must let us know about
Handbook of Venture Capital Documentation                                        Page    67


any material changes to their business that may have an impact
on the engagement.

Our Fees

Our fees for the engagement will no more than EUR 2,250 plus
VAT. Our payment terms are 30 days and the fee will be rendered
on presentation or our report. Our fees will be payable by New
Co.

Liability

Consult Co will perform the engagement with reasonable skill and care and
acknowledges that, subject to the following provisions, it will be liable to you for losses,
damages, costs or expenses caused by its negligence or wilful default. You agree that:-

1    Consult Co will not be so liable if such losses are due to
provision or false, misleading or incomplete information or
documentation or due to any other act or omissions of any other
person other than (name).

2    Consult Co shall have no other liability of any nature,
whether in contract, tort or otherwise, for any losses
whatsoever and howsoever caused arising from, or in any way
connected with, this engagement.

3    The aggregate liability whether to you or any third party,
of whatever nature, whether in contract, tort or otherwise of
Consult Co for any losses whatsoever and howsoever caused,
arising or in any way connected with this engagement will not
exceed EUR 200,000.

4    Nothing in this section of our letter shall impose on
(name) any liability of any kind or for any amount which Consult
Co would not have or preclude any defence which Consult Co would
have but for this section.

Nothing in this letter shall exclude or restrict any liability
of Consult Co for fraud or dishonesty or to the extent that it
cannot do so by law.     In this section Consult Co refers to
Consult Co Accountants, its Partners, Directors, Staff and
Agents, and in all cases any successor or assignee.

5    You agree the provisions of this section with us for our
benefit and as trustees for the benefit of other Consult Co
parties.    You agree that you have fully considered the
provisions of this section and the other provisions of this
Handbook of Venture Capital Documentation                                  Page    68


letter and that they are reasonable in the light of all factors
relating to this engagement.      If any terms or provisions of
this section are, or become, invalid, illegal or unenforceable,
the remainder shall survive the unaffected.

Confidentiality

We will not disclose any confidential information which we
obtain in carrying out this engagement to any other persons
without your permission except as required by law, court
proceedings, regulations or professional duties

Yours faithfully




Consult Co

I accept the terms of engagement set out in this letter and the Appendix on behalf of
Investor Co Limited.


Signed…………………………………………………
                                            Director

Date…………………………………………………….
Handbook of Venture Capital Documentation                                             Page     69




Document Number              14
Document title               Financial forecast report
Purpose of document          Financial due diligence report
Example of use               Where a company is trading it is important to identify that reported
                             results are accurate and complete.
Key sensitivities


PRIVATE & CONFIDENTIAL

The Directors
Investor Co Limited
(address)

Our reference: xxxxxx

(date)


Dear Sirs

New Co
FINANCIAL FORECAST REVIEW

In accordance with our terms of engagement dated xxxxxx 2001, we are writing to
present the results of our review of the financial projections prepared by the Directors of
New Co in connection with the proposed investment by Investor Co Limited, Bank Co
and others.

As set out in our Terms of Engagement, we have carried out an
overall review of the financial projections prepared by New Co
for the three years to 31 March 2004 and set out our comments
thereon. Our particular areas of emphasis in carrying out our
review have been :-

5    The consistency of the figures in the financial model with
the accompanying assumptions and the “Expansion Plan” prepared
by New Co.

6    The internal consistency of the financial projection model
(although, for the avoidance of doubt, we will not carry out a
full arithmetical check on the figures provided).

7    The accounting policies adopted                      by    the     company      for     the
purposes of the financial projections.
Handbook of Venture Capital Documentation                                       Page   70


8    The appropriateness of the                  assumptions       made    by   New    Co
underlying the figures presented.

9    The adequacy of the proposed funding to enable New Co to
meet its liabilities as they fall due over the period of the
financial projection.

We have carried out our review on the basis of information and
explanations supplied by the Directors of New Co and would
comment as follows:-

a)   The figures presented in the financial models appear
consistent with the accompanying schedule of assumptions and the
“expansion plan” prepared by the directors of New Co in
contemplation of the investment.

b)   We have reviewed the internal consistency of the financial
projection model and found this to be satisfactory.

c)   The accounting policies adopted by the company for the
purposes of the financial projection appear reasonable and
appropriate to the company‟s circumstances.    However, we would
expect that, for statutory accounts purposes, professional fees
payable in relation to the issue of shares would be set against
the share premium account arising on that issue, rather than
being charged directly to profit and loss account.

d)   In relation to the assumptions made by New Co underlying the figures presented,
we would make the following points.

-    Outstanding trade debtors are projected to represent 45 days
sales.   New Co is operating in a market where many customers
will be supplied on a one-off basis. In those circumstances, we
would consider an average of 60 days debt to be more prudent for
projection purposes.

-     It is assumed that the creditor for PAYE and NIC at each month end represents
25% of the gross pay for the previous month. No allowance is made for employers
NIC. We would consider that a more appropriate figure would be 30% of gross salary,
plus employers NIC.

-      Included within the financial projections are detailed schedules of projected staff
requirements, costs and estimated recruitment dates. Whilst these schedules cover
technical and marketing staff in considerable detail, we consider that there might be a
further requirement for administrative support staff. We consider that in order to meet
the internal, external and statutory accounting and reporting requirements of the
organisation, additional expenditure may be required in this area. Having considered
Handbook of Venture Capital Documentation                                       Page    71


this point, the directors remain of the opinion that the requirements of the business until
October 2003 can be met through increased utilisation of the one existing administration
staff member and additional input from (name) as and when required.

-       We note from the “Expansion Plan” that during the period from October 2001 to
December 2002 turnover is projected to increase by 500% and, in addition, the
company plans to launch upgraded products in Q4 of 2001, Q2 of 2002 and Q4 of 2002.
During that period the anticipated staff requirement rises only by two and there is no
significant rise in the cost of bought-in research and development costs. The directors
consider that the resource currently included within the projection is sufficient to carry
out the level of development specified in the business plan.

-       Expenditure on fixed assets during the lifetime of the projection is limited to an
initial EUR 26,000 followed by EUR 4,000 per additional employee, which is projected
to be incurred at the time of recruitment. Replacement of obsolete fixed assets is
projected to commence with expenditure of EUR 5,000 in February and March 2004.
We consider that, as the company‟s operations expand, it is likely that there will be a
requirement for capital expenditure beyond these amounts. This would cover such items
as the upgrade of IT and communications systems, additional software licenses and the
fit out of additional office space as the company expands. The directors consider that
there will be no significant requirement for capital expenditure beyond what is projected
until after March 2004 and intend that any minor items of capital expenditure be met
from the contingency within overheads which amounts to EUR 90,000 in year 2 and
EUR 200,000 in year 3.

E)      The effect of our observations on the projected cash position at each year end is
illustrated below:-

                                                      31/03/0231/03/0331/03/04
                                                         EUR     EUR     EUR

Cash balance per projection                        150,000 30,000 650,000
Less : effect of increased trade debt              (30,000)(100,000)
                                                  (260,000)
Add : effect of increased PAYE/NIC creditor5,000 6,000 15,000
                                              -----------------------------
-------
              Revised cash position                125,000 (76,000)455,000
                                                   ======= ======= =======
The financial projection does however include a 10% contingency on operating
expenses. The cumulative effect of this contingency on the cash flow position is as
follows:
                                                   (50,000)(125,000)
                                                  (320,000)
                                                   ======= ======= =======
Handbook of Venture Capital Documentation                                      Page    72


The financial projection presented for review indicates that,
following the receipt of the proposed investment funds in xxxxxx
2001, the company will have a minimum of EUR 50,000cash in hand
during the lifetime of the projection This figure is projected
to be reached in October 2002.        Taking into account the
financial effect of the items noted above, (and assuming that
the contingency is utilised on other operating items) the
company would require an overdraft facility from August 2002
until November 2003 peaking at EUR 110,000 in May 2003.

In summary, having carried out our review and in order to demonstrate the sensitivity of
the cash flow projection model, we would recommend that the company prepare a
revised sensitivity of the projection to include 60 days trade debtors and a 10%
reduction in unit sales. Given the element of contingency already built in to the model in
relation to operating expenses, we would consider that it is unnecessary to make any
increase in order to test sensitivity in that area.

If you wish to discuss further any of the matters raised above,
please contact … name …… or … name …… at the above address.

Yours faithfully




(name)
Handbook of Venture Capital Documentation                                               Page      73




Document Number              15
Document title               Marketing diligence proposal
Purpose of document          Where markets are newly emerging or rapidly changing, a specialist
                             marketing consultancy may be engaged to check business plan
                             projections.
Example of use
Key sensitivities            For new technology products are notoriously difficult to predict market
                             size, share and competition.



MARKETING DUE DILIGENCE FOR New Co

Proposal

Xx xxxxxx 2001

Prepared for:

(name)
Investor Co

Prepared by:

(name)
Consult Co
details


BACKGROUND

Investor Co is considering an investment in a new start up
company called New Co Ltd. New Co aims to design and manufacture
a range of (details) products targeted at the small and medium
sized enterprise market. The company‟s proposed route to market
is to establish a network of dedicated resellers initially in
the UK and then in Europe.

Investor Co invited (name) of Consult Co to carry out due
diligence with specific focus on the company‟s proposed route to
market, its pricing and its choice of international markets.
Invest Co‟s Investment Director, also expressed interest in
assessing the company‟s proposed Sales Director.

To gain an understanding of New Co and Investor Co‟ due
diligence requirements, (name) familiarised herself with New Co‟
business plan and held a meeting with the two directors,
(names), on xxxxxxxx 2001.
Handbook of Venture Capital Documentation   Page   74
Handbook of Venture Capital Documentation               Page   75


CRITICAL INFORMATION

In order to meet the due diligence requirements as outlined
above, we propose to collect information in the following areas.

End user buying behaviour
What is the likely demand for New Co‟ product? How do SMEs buy
hardware; do they use the reseller channels that New Co is
targeting? Do the proposed reseller channels reach the critical
decision makers who in the case of (details)

Target SME segments
Which types of SMEs are likely to have highest demand for
content filtering and (details)? Do the proposed reseller
channels effectively target these market segments?

Resellers
Are resellers interested in New Co product? What do they see as
the major sales opportunities? What are the strengths and
weaknesses of the offer for resellers? What is the experience of
existing resellers?

Pricing
Is the price anticipated by New Co justified by the benefits its
products offers to a SME? How does New Co value proposition for
a SME compare with that of its competitors?

Does New Co offer resellers an attractive combination of
potential volumes and margins? How does New Co value proposition
for a reseller compare with that of its competitors?

Market trends
What is the likely impact of major technological trends on the
caching side of New Co‟ products? (Details)

International markets
What is the initial reaction of European resellers to the
product? What are the ambitions and capabilities of the current
management team, in terms of developing international markets?

Sales Director
What is the proposed Sales Director‟s experience of launching a
new product by a new and unknown company? How would the
candidate cope with working in a start up environment? What
experience does the candidate have of the technology and of
working with the proposed reseller channels? What experience
does the candidate have of breaking into international markets?
Handbook of Venture Capital Documentation   Page   76
Handbook of Venture Capital Documentation                                   Page   77


METHODOLOGY

Due to the tight time constraints, we propose to collect the
critical information through a relatively small number of
interviews. It should be noted that this will, therefore, not be
a statistically representative report. However, by selecting
interviewees and the interview questions carefully, we will be
able to provide a clear picture for Investor Co.

We propose to conduct structured interviews with the following
types of companies:

   telephone interviews with SMEs including 3 existing customers
   5 telephone interviews with UK resellers including 3 that are
    currently using (name)
   Up to 2 face-to-face meetings with reputable local IT
    resellers.
   Up to 2 telephone interviews with (details)
   An interview with the prospective Sales Director

We will provide a written report summarising and analysing our
findings with full transcripts of the interviews in an appendix.
We will be available for a meeting with Investor Co to discuss
our findings.

TIMING

We estimate the time required to complete Stage I will amount to 5 working days.

We are available to commence work upon commissioning and present
the results by 12 June 2001.

COST

Fees to carry out the work above will be                  EUR 4,500 plus VAT at
17.5%.

TERMS AND CONDITIONS

We will invoice New Co Ltd upon completion of work as defined
above.

Payment is due within 7 days of receipt of invoice.

We will take great care to ensure accuracy and completeness of
our work. However, neither (name) nor Consult Co, are able to
Handbook of Venture Capital Documentation             Page   78


accept legal responsibility for any actions taken on the basis
of the information contained therein and its adoption is a
matter for Investor Co‟s own commercial judgement.
Handbook of Venture Capital Documentation                                          Page   79




Document Number              16
Document title               Marketing diligence report
Purpose of document          Report from expert in response to document 17 engagement
Example of use
Key sensitivities


MARKETING DUE DILIGENCE FOR New Co

Report

Prepared by:

Name
Principal Consultant


12 June 2001




Although great care has been taken to ensure the accuracy and
completeness of this report, neither … name ….. nor Consult Co
can accept legal responsibility for any actions taken on the
basis of the information contained therein.

This report has been prepared by

Name
Consult Co
…… address etc

for

Name
Investor Co

Name
Bank Co

Name, Managing Director, New Co Ltd
Handbook of Venture Capital Documentation   Page       80


CONTENT

1     Background                                   4

2     Methodology                                  4

3     The Market                                   6
3.1   Market Size                                  6
3.2   Market Segments                              6
3.3   Market Trends                                6
3.4   Competitors                                  7
3.5   Market Summary                               7

4   Marketing Mix                                  8
4.1 Product and Price                              8
4.2 Route to Market and Promotion                  9

5   Marketing Skills and Attitude              11
5.1 Potential Sales Director                   12

6     Conclusion                               14


Appendix:       Interviews
Handbook of Venture Capital Documentation                 Page   81


1    BACKGROUND

     Investor Co and Bank Co are considering an investment in a
     new start up company called New Co Ltd.

     New Co aims to design and manufacture a range of internet
     (details) products targeted at the small and medium sized
     enterprise market. The company‟s proposed route to market is
     to establish a network of dedicated resellers initially in
     the UK and then in Europe.

     (Name) of Consult Co was invited to carry out marketing due
     diligence with specific focus on the company‟s proposed route
     to market, pricing and choice of international markets. In
     addition, (name) of Investor Co requested an assessment of
     (name), the company‟s proposed Sales Director.

2    METHODOLOGY

     To meet the due diligence requirements, we collected critical
     information from two main sources. Firstly, we gained an
     understanding of New Co from the company‟s Business Plan, its
     White Paper and a meeting with its two directors, (name) and
     (name) on 28 May 2001. Secondly, we conducted a series of
     structured interviews with existing customers and potential
     resellers as follows:

     Existing customers:    Customer Co
                            Customer Co
                            Customer Co
     Potential resellers:   Potential Customer Co
                            Potential Customer Co
                            Potential Customer Co
                            Potential Customer Co


     Two interviews were conducted face-to-face (name and name),
     the others were conducted over the telephone. Interview
     transcripts are attached in the appendix.

     It should be noted that the information presented is not
     statistically representative. However, we believe that by
     having   selected  interviewees  and   interview  questions
     carefully, we can provide a clear picture for the potential
     investors.
Handbook of Venture Capital Documentation                    Page   82


3    THE MARKET

3.1 Market Size

     Interviewees commented that Net Product is a very widely
     applicable piece of equipment. Its key functions, namely
     content filtering, reporting and internet access acceleration
     are of growing interest to small and medium sized companies
     (SMEs).

     Even without formal market data, it is clear that there is a
     very large number of small and medium sized companies which
     make significant use of the internet. We believe that a sales
     volume of 1,500 units by the end of year 3 represents a
     relatively small share of the potential market.

3.2 Market Segments

     The product is seen to appeal to a wide base of small and
     medium sized companies. In general, interviewees found it
     hard to identify specific market segments. Indeed one
     interviewee  commented  that   the  product   was   sector
     independent. Two possible segments were mentioned, as
     follows:

      Branch or field offices (details)
      Professional service firms, e.g.     lawyers,   IT   solutions
        companies, where (details)

3.3 Market Trends

     Interviewees identified two strong trends which are in favour
     of New Co‟ product:

        An inexorably growing demand for increased speed of access
         to the internet
        Growing awareness of the risk and potential legal issues
         of        use       of       internet        at       work

     No significant negative trends were identified. The advent of
     ADSL and ever increasing bandwidth are not seen as a
     significant threat to the product as companies‟ demand for
     bandwidth will always exceed supply.

     Some   interviewees   commented   that  application   service
     providers (ASPs) would provide a growing demand for products
     and that this would be an opportunity for Net Product .
Handbook of Venture Capital Documentation                            Page   83




3.4 Competitors

     The   following         competing      solutions   were   mentioned    by
     interviewees:

        Competitor Co (names)

     None of these solutions appear to offer the same ease of use
     or degree of integration as New Co‟s product.

     The potential Sales Director mentioned that he had seen
     reports of another plug and play system but he could remember
     no details of it.

     We note that New Co has identified many of these competitors,
     e.g. (names). The company know that they have competition and
     are realistic about it.

3.5 Market Summary

     Within the parameters of the research conducted, we would
     consider that there are reasonable grounds for an investor to
     accept New Co‟ contention that there is a large and
     attractive potential SME market for internet acceleration and
     content filtering products.

4    MARKETING MIX

4.1 Product and Price

     In general, Net Product was received very favourably by
     interviewees. They clearly view the product as an „appliance‟
     and see it as being:

        Easy to install
        Easy to configure
        Plug and play
        A self contained box that fits into any environment
        Reasonably priced

     We believe that Net Product ‟s uniqueness lies in being an
     appliance. As such it is more of a triumph of intelligent
     packaging than a triumph of ground breaking technical
     content. This may mean that the IPR in Net Product will be
     relatively hard to protect.
Handbook of Venture Capital Documentation                          Page    84




     The main perceived benefit is that Net Product is easy to
     install and configure. The associated problem, however, is
     that Net Product may not offer resellers sufficient ability
     to add value through installation, configuration or training.

     The reporting function is viewed as a welcome feature. We
     note that New Co does not make enough of the reporting
     function in its White Paper.

     There is no adverse reaction           among   interviewees   to     Net
     Product being Linux based.

     A number of small technical issues were identified, such as:

      Lack of scalability
      Lack of custom reports
      Lack of clarity on the frequency of URL updates
      One company, (name), is experiencing a technical problem

     There is little adverse reaction to the price offered to the
     end user. Some interviewees see a need for a cheaper cut down
     version of the product to sell to smaller companies. Others
     suggest a range of products at low, medium and high price
     points.

     Resellers generally consider the cost to them as being
     acceptable. Some expressed a preference for buying from
     distributors but it is not clear whether New Co has
     sufficient margin to allow this.

     Based on the comments from interviewees, we would consider
     that New Co has a real and functioning product that potential
     customers   react   to   favourably  and   that   is   priced
     realistically.

4.2 Route to Market and Promotion

     The distribution channels for products such as Net Product
     are highly fragmented. Interviewees indicate that small and
     medium sized companies tend to buy this kind of equipment on
     an item-by-item basis from a large number of different
     resellers, for example:

       Seller Co
       Seller Co
Handbook of Venture Capital Documentation                      Page   85




     As mentioned previously some of these companies may buy from
     distributors rather than from original manufacturers.

     Within SMEs the decision to buy equipment such as Net Product
     tends to made by senior management but the actual purchase is
     handled by an IT manager. Resellers such as those interviewed
     seem to be an appropriate channel to reach these IT managers.

     Interviewees   identify   promotion    and        exclusivity    of
     distribution as the key issues for New Co.

     Our research leads us to identify two possible approaches to
     breaking into the market:

     1. The appliance like nature of the product calls for an
        approach similar to that for a consumer electronics
        product. Here the product is widely distributed, well
        packaged for end user installation and heavily promoted to
        both end users and intermediaries.

        For this approach to succeed, New Co may need to find an
        OEM partner with an established brand and distribution
        channels, for example, (details).

        If New Co was to try this approach on its own, it would
        need to make a significant financial commitment to
        promotion at an early stage. It would probably also need
        to work closely with large distributors who may drive down
        its prices.

        In general, this approach could offer an attractive exit
        route for an investor.

     2. Alternatively,        interviewees felt that the small company
        nature of New         Co calls for the company to build close
        alliances with        a select number of resellers who actively
        market   and          sell    the   product  by   word-of-mouth
        recommendation.

        The main value of the product to resellers is that it
        gives them the ability to differentiate their offer from
        their competitors.

        This approach would require less promotional support and
        would be practical in terms of the resources of New Co. It
        runs contrary, however, to the intrinsic appliance like
Handbook of Venture Capital Documentation                    Page   86


         nature of the product which seems to      provide    little
         opportunity for resellers to add value.

     In summary, while the very nature of Net Product calls for
     extensive promotion to a relatively large market, the
     resources of New Co call for a small scale, focused approach
     that may not make most of the strengths of the product.

     It could be tactically acceptable to start with the small
     scale more focused approach, in order to build brand
     awareness, while simultaneously New Co directors would
     actively identify and nurture relationships with potential
     OEM partners.

     The approach that is chosen will affect a number of factors,
     for example:

         the type of future products the company develops
         the required make up of the company‟s senior management
         team
         the likely exit route for investors

     The appropriate export strategy may also depend on the above
     choice. If New Co decides to go for the large market, large
     promotion route, it may be most appropriate to target the US
     first, as this is the largest market. If the company chooses
     the more gradual approach then Europe would seem a more
     attractive target.

     We would suggest that the route to market is a key issue for
     a potential investor. The question should be resolved at an
     early stage and the chosen route to market should be
     practical in terms of the proposed investment.


5    MARKETING SKILLS AND ATTITUDE

     Feedback from the interviews shows that the two directors of
     New Co have clear and definite skills in product design and
     development. We also find the directors to be realistic about
     competitors and about the price the market will bear.

     At present, however, the company appears to have little focus
     on route to market, selling and promotion. We found evidence
     for this in a number of areas:

     Existing customers
Handbook of Venture Capital Documentation                Page   87




        (details)

     In marketing terms the real issue is the company has not
     actively used existing customers to develop its marketing
     pitch.

     UK Resellers

        (details given)

     European Resellers

        (details given)

     The real issue is that New Co has opportunistically
     approached a number of resellers that the directors are
     familiar with from their time at (name). While this is an
     acceptable approach initially, the company has not yet
     identified strategically important resellers, aggressively
     approached them and worked hard to win their approval.

     Overall, New Co does not yet have an organised marketing or
     sales plan. In particular, the company does not appear to
     have plans for:

        Targeting distribution channels
        Lead generation
        A sales process
        Promotion

     Most importantly, (details)

     The two key issues for an investor are:

        How much power and support are the two technically
         oriented directors really going to give to the Sales
         Director?
        Can a Sales Director be recruited who is able to make
         „hunger for sales‟ a part of the culture of the company?

5.1 Potential Sales Director

     We interviewed (name) who has been identified by New Co as a
     potential candidate for the post of Sales Director. The two
Handbook of Venture Capital Documentation                            Page    88


     directors have known (name) as a business               contact   for   a
     number of years and rate him highly.

     (name) has 14 years experience as (details).

     (details)

     While we would not want to rule out (name) on the basis of a
     brief telephone interview, we would recommend that New Co
     search for other candidates to interview alongside (name). We
     would also recommend that all these candidates including Ian
     are taken through a full formal interview process.


6    Conclusion

     In conclusion, our             research   identifies   two   strong    and
     positive points.

      Firstly, there are reasonable grounds for an investor to
        accept New Co‟ contention that there is a large and
        attractive potential SME market for (details)

      Secondly, we consider that New Co has a real and
        functioning product that potential customers react to
        favourably and that is priced realistically.

     Based on these two points, we believe that New Co offers a
     potentially attractive investment opportunity.

     There are, however, a number of key issues that the investors
     will need to resolve with New Co.

            The route to market is one key issue. We identified
         two possible routes to market. Which of these is chosen
         should be resolved at an early stage. The chosen path
         should be practical in terms of the proposed investment
         but should also deliver the result that the investors
         require.

            A further issue is the role of the Sales Director. We
         would recommend that the position of Sales Director is
         given full power and support within the company. The Sales
         Director needs to be able to make „hunger for sales‟ a
         part of the culture of the company. It is likely that the
         investors will need to play an active role in ensuring
         that this happens.
Handbook of Venture Capital Documentation               Page   89




            Finally, there is the question of who to recruit as
         Sales Director. We would recommend that New Co searches
         for other candidates to interview alongside (name) and
         that these are taken through a full formal interview
         process. We would recommend that the investors take an
         active part in the recruitment process.
Handbook of Venture Capital Documentation                                                                        Page   90




Document Number                         17
Document title                          Service Agreement
Purpose of document                     To lay down the terms of employment for individuals avoiding
                                        difficulties of later interpretation. In the main the Service Agreement
                                        relates to the incoming Management team. Employees are likely to
                                        be covered by a normal Contract of Employment.
Example of use                          Standard for medium to large sized company
Key sensitivities                       Often company founders cannot understand why investors should
                                        wish to limit expenditure (on management salary and benefit
                                        packages) or attach improvements to company performance.


1    TERM ..................................................................................................... 91

2    HOURS OF WORK ................................................................................ 91

3    DUTIES .................................................................................................. 92

4    REMUNERATION .................................................................................. 92

5    PLACE OF WORK ................................................................................. 92

6    HOLIDAYS AND HOLIDAY PAY .......................................................... 93

7    EXPENSES ............................................................................................ 93

8    SICKNESS/INCAPACITY ...................................................................... 93

9    PENSION ............................................................................................... 94

10   CONFIDENTIAL INFORMATION .......................................................... 94

11   INVENTIONS ......................................................................................... 94

12   TERMINATION BY RECONSTRUCTION OR AMALGAMATION ........ 95

13   TERMINATION OF DIRECTORSHIP .................................................... 95

14   EARLY TERMINATION ......................................................................... 95

15   EFFECT OF TERMINATION ................................................................. 96

16   RESTRICTIVE COVENANTS ................................................................ 96

17   OTHER TERMS AND CONDITIONS ..................................................... 97

18   NOTICES ............................................................................................... 98

19   DEFINITIONS ........................................................................................ 98
Handbook of Venture Capital Documentation                                                             Page   91


20    GOVERNING LAW ................................................................................ 99

SERVICE AGREEMENT

between

NEW CO, having its registered office at (place) (the “Company”)

and

(name) being an employee of New Co (the “Executive”)

IT IS HEREBY AGREED:

        TERM
1)      The Company shall employ the Executive and the Executive shall serve the
        Company in the capacity of Managing Director of the Company unless and until
        his employment is terminated according to the provisions hereunder.
2)      The Executive's employment under this Agreement shall commence on the date
        of execution hereof and shall continue until :
3)      terminated by the Company giving to the Executive not less than 6 months'
        written notice; or
4)      terminated by the Executive giving to the Company not less than 6 months'
        written notice.
5)      In lieu of the notice provided under clause 1.2.1, the Company may terminate this
        Agreement by notice in writing forthwith following the payment to the Executive of
        a sum equal to the gross salary and the gross value of all other contractual
        benefits (under deduction of any tax and other statutory deductions on such sum)
        which would have been payable during the period of notice specified in clause
        1.2.1 or any unexpired part thereof and any such termination shall not constitute
        a repudiation of this Agreement.
6)      Without prejudice to any other competent rights hereunder, the Company shall
        be entitled, at any time after either party has given notice to the other of
        termination of this Agreement, to require the Executive until such termination not
        to attend any place of work and to exclude him from any premises of the
        Company at such times as the Company in its sole discretion may determine and
        the Company shall be under no obligation to provide any work for the Executive.
7)      For the purposes of the Employment Rights Act 1996, the Executive's period of
        continuous employment with the Company began on the 1 June 2000.
        HOURS OF WORK
8)      The Executive agrees that he shall work such hours as are necessary for the
        proper performance of his duties. The Executive shall work a minimum of 37.5
Handbook of Venture Capital Documentation                                      Page    92


      hours per week, from 9:00am to 5:00pm Monday to Friday with a break of half an
      hour for lunch each day.
9)    In particular, the Executive agrees to work hours which exceed the maximum
      weekly working time limit of 48 hours imposed by the Working Time Regulations
      1998. The Executive may withdraw his agreement on giving to the Company 3
      months' prior written notice.
      DUTIES
      During his employment hereunder the Executive shall:
10)   perform the duties and exercise the powers and functions which from time to time
      may reasonably be assigned to or vested in him by the Board;
11)   comply with all reasonable requests instructions and regulations made by the
      Board (or by any one authorised by them) and give to the Board such
      explanations information and assistance as the Board may reasonably require;
12)   well and faithfully serve the Company to the best of his ability and use his best
      endeavours to promote the interests of the Company;
13)   not without the prior consent of the Board of Directors (which consent shall not
      be unreasonably withheld or delayed) hold an interest in any other business,
      save that the Executive shall not be prohibited from:
14)   holding shares or other securities which are quoted on a recognised stock
      exchange, so long as such interest does not extend to more than 3% of the total
      amount of shares or securities of the company in question;
      REMUNERATION
15)   By way of remuneration for his services hereunder the Company shall pay to the
      Executive a salary at the rate of xxxxx per annum (which shall be deemed to
      accrue from day to day) payable in arrears by equal monthly instalments on the
      last day of each month.
16)   For the avoidance of doubt, the Executive shall not be entitled to payment for any
      overtime worked beyond the core hours set out in Clause 2.1.
17)   The Executive‟s salary shall be reviewed annually with effect from 1 st July but not
      decreased by the Board.
18)   The Executive shall be entitled to receive on an annual basis a discretionary
      bonus of [        ] subject to approval by the Board of Directors.
19)   PLACE OF WORK
      The Executive‟s place of work will be the Company's offices at (place) or such
      other offices as the Company may have from time to time in the United Kingdom
      as the parties may agree from time to time. The Executive will travel at home
      and abroad on Company business as is required in fulfilling his duties.
Handbook of Venture Capital Documentation                                        Page    93


      HOLIDAYS AND HOLIDAY PAY
20)   The holiday year shall run from 1st January to 31st December. In addition to the
      normal bank and public holidays recognised by the Company, the Executive shall
      be entitled to 25 working days paid holiday during each calendar year to be taken
      at such time or times as may be agreed with the Board.
21)   For the calendar year during which the Executive's employment hereunder
      commences or terminates, the Executive's holiday entitlement shall be calculated
      pro rata.
22)   Upon termination of the Executive's employment for whatever reason the
      Executive shall if appropriate either be entitled to salary in lieu of any outstanding
      holiday entitlement or be required to repay to the Company any salary received
      in respect of holidays taken in excess of his proportionate holiday entitlement.
23)   Any holiday entitlement not taken by the Executive in the relevant calendar year
      shall not be carried over into the following calendar year without the prior consent
      of the board (such consent not to be unreasonably withheld or delayed).
24)   EXPENSES
25)   The Company shall reimburse to the Executive all travelling, hotel, entertainment
      and other expenses reasonably, properly and necessarily incurred by him in the
      performance of his duties hereunder provided that on request the Executive shall
      provide the Company with such vouchers or other evidence of actual payment of
      such expenses as the Company may reasonably require.
      SICKNESS/INCAPACITY
26)   If the Executive shall be absent from his duties hereunder due to illness, accident
      or other incapacity he shall be entitled to his full salary for a maximum of six
      months in aggregate in any period of two years and thereafter statutory sick pay
      only (if payable) or such additional remuneration (if any) as the Board shall in its
      sole discretion determine.
27)   All payments paid by the Company pursuant to the provisions of sub-clause 7.1
      above shall include any Statutory Sick Pay payable to the Executive. Monday to
      Friday inclusive in each week shall be Qualifying Days for such purposes.
28)   In the event of absence due to illness, accident or other incapacity, the Company
      reserves the right to require the Executive to undergo (at the Company's
      expense) a medical examination(s) by a doctor appointed by the Company.
29)   Notwithstanding the terms of clause 1.3, if the Executive shall be absent from his
      duties hereunder due to illness, accident or other incapacity for more than six
      months in any period of two years the Company may terminate his employment
      by service of the appropriate period of statutory minimum notice.
30)   If the Executive's absence shall be occasioned by the actionable negligence of a
      third party in respect of which damages are recoverable, then the Executive
      shall:
Handbook of Venture Capital Documentation                                       Page    94


31)   notify the Company immediately of all the relevant circumstances and of any
      claim, compromise, settlement or judgement made or awarded in connection with
      it; and
32)   if the Company so requires, pay to the Company any amount received by him
      from any such third party provided that the payment shall be no more than the
      amount which he has received from the Company by way of remuneration during
      the period of absence.
33)   PENSION
      At present, the Executive has no pension entitlement hereunder and no
      contracting out certificate is in force.
      CONFIDENTIAL INFORMATION
34)   The Executive shall not during his employment hereunder (save in the proper
      course thereof) or at any time after its termination disclose to any person or
      persons whatsoever or otherwise make use of any confidential or secret
      information which he has or may in the course of his employment hereunder
      come into his possession relating to the Company or any Associated Company
      or any of its suppliers, agents, distributors or customers, including, without
      limiting the generality of the foregoing, confidential or secret information relating
      to the business, technical processes, or finances of any of the aforesaid or
      relating to know how, inventions or improvements or other matters connected
      with the products or services developed, manufactured, marketed, provided or
      obtained by the Company or any others of its suppliers, agents, distributors or
      customers.
35)   The restriction in clause 9.1 shall not apply to information which the Executive is
      required to disclose by statute or by any legislative or judicial or regulatory order
      or decree or which is or may become (otherwise than through the Executive's
      action) available to the public generally.
      INVENTIONS
36)   In view of the fact that the business of the Company and of its Associated
      Companies (if any) consists in part in the development and exploitation of
      software, inventions, techniques and methods and that it is the Executive‟s
      responsibility to further the interests of the Company and any Associated
      Companies in respect thereof, the Executive agrees that each and every
      discovery, invention, improvement, trade mark, service mark, copyright and
      secret process (whether capable of being patented or registered or not) made,
      created, discovered, developed or produced by the Executive (whether alone or
      with any other person or persons) wholly or substantially in the course of his
      normal duties or in the course of duties specifically assigned to him (hereinafter
      collectively referred to as “Inventions”) whether before or after the date or dates
      hereof at any time in connection with or in any way affecting or relating to the
      business of the Company or of any Associated Company or capable of being
      used or adapted for use therein or in connection therewith shall forthwith be
      disclosed to the Company or any such Associated Company as the Company
Handbook of Venture Capital Documentation                                      Page    95


      may nominate for that purpose and the Executive hereby assigns to the
      Company all IPR rights, copyright and other proprietary rights (if any) (whether
      existing as at the date or dates hereof and subsequently made, created,
      discovered, developed or produced) for the full terms thereof throughout the
      world in respect of all such Inventions.
37)   If and whenever required by the Company so to do, the Executive shall, during
      the course of his employment at the expense of the Company (or its nominee),
      give and supply all such information, data and drawings as may be requisite to
      enable the Company (or its nominee) to exploit any Inventions to the best
      advantage.
38)   If and whenever required by the Company so to do, the Executive shall, during
      the course of his employment, at the expense of the Company (or its nominee)
      apply or join in or appoint the Company (or its nominee) as his agent with full
      powers for the purpose of applying for patent, letters of patent, registered IPR,
      utility model, trade mark, service mark or other similar protection in the United
      Kingdom or any other part of the world as the Company may specify for any of
      the Inventions and execute all instruments and do all things necessary for vesting
      the said patents, letters of patent, registered, utility model, trade mark, service
      mark or other similar protection when obtained and all rights, title and interest to
      and in the same in the Company (or its nominee) absolutely and as sole
      beneficial owner or in such other person as the Company may require; provided
      that nothing herein shall prejudice the rights of the Executive as contained in
      sections 39 to 43 of the Patents Act 1977 as amended.
      TERMINATION BY RECONSTRUCTION OR AMALGAMATION
39)   If before the expiration of this Agreement the employment of the Executive
      hereunder shall be terminated by reason of the liquidation of the Company for the
      purposes of amalgamation or reconstruction or as part of any arrangement for
      the amalgamation of the undertaking of the Company not involving liquidation
      and the Executive shall be offered employment with the amalgamated or
      reconstructed company on terms not less favourable than the terms of this
      Agreement the Executive shall have no claim against the Company in respect of
      the termination of his employment by the Company.
      TERMINATION OF DIRECTORSHIP
40)   If during his employment hereunder the Executive shall cease (otherwise than by
      reason of death) to be a Director of the Company, his employment hereunder
      shall continue as if he was employed as a manager of the Company.
      EARLY TERMINATION
41)   Notwithstanding anything in clauses 1.2, 1.3 or 12, the Company without
      prejudice to any remedy which it may have against the Executive for the breach
      or non-performance of any of the provisions of this Agreement may by notice in
      writing to the Executive forthwith determine this Agreement and the Executive
      shall have no claim for damages, payment in lieu of notice or otherwise against
      the Company in respect of such termination if the Executive shall:
Handbook of Venture Capital Documentation                                        Page    96


42)   suffer his estates to be sequestrated or execute a trust deed for his creditors or
      make any provision or enter into any deed of arrangement with his creditors; or
43)   become a patient as defined in the Mental Health (Scotland) Act 1984; or
44)   be convicted of any criminal offence other than an offence which in the
      reasonable opinion of the Board does not affect his position as an employee of
      the Company under this Agreement (bearing in mind the nature of the duties he
      is engaged in under this Agreement and the capacity in which he is employed);
      or
45)   commit any act of dishonesty whether relating to the Company, any of its
      employees or otherwise; or
46)   be or become prohibited by law from being a company director; or
47)   conduct himself in a manner amounting to serious misconduct, any conduct
      tending to bring the Company or himself into disrepute, serious or persistent
      neglect of his duties hereunder, or any serious breach of any of the conditions of
      this Agreement that is not capable of rectification or if he fails promptly to rectify
      that breach (if reasonably capable of rectification) after a request by the Board to
      do so.
48)   Any delay or forbearance by the Company in exercising any such right of
      termination shall not constitute a waiver of it.
      EFFECT OF TERMINATION
49)   Upon the termination of his employment hereunder for whatever reason the
      Executive shall deliver up to the Company all property belonging to the Company
      that is in his possession or under his control.
50)   The expiration or determination of this Agreement howsoever arising shall not
      operate to affect such of the provisions hereof as are expressed to operate or
      have effect thereafter and shall be without prejudice to any other accrued rights
      or remedies of the parties.
      RESTRICTIVE COVENANTS
51)   In this clause 15 (and wherever used elsewhere in this Agreement where the
      context so permits), the following expressions shall have the following meanings:
52)   “Associated Company” means any other company which is for the time being or
      from time to time a holding company of or subsidiary of the Company or of any
      other holding company;
53)   “Competing Business” means any business or activity or any part of any
      business or activity which is similar to and is, or seeks with the Executive‟s
      involvement to become, directly competitive within the Restricted Area with any
      business or activity carried on as at the Termination Date by the Company or by
      an Associated Company and with which business or activity the Executive had
      during the Relevant Period been personally involved in the course of his
      employment, having regard to the products of the Company;
Handbook of Venture Capital Documentation                                       Page    97


54)   “Relevant Period” means the 12 month period ending with the Termination Date;
55)   “Restricted Area” means Scotland;
56)   “Restricted Period” means during the continuance of this Agreement and
      thereafter for a period of twelve months thereafter;
57)   “Termination Date” means the date on which this Agreement shall determine
      irrespective of the cause or the manner.
58)   Since the Executive has obtained and is likely to obtain in the course of his
      employment with the Company knowledge of confidential information regarding
      the Company and any Associated Company, he hereby agrees, without prejudice
      to any duty or restriction implied by law, to be bound by the following restrictions:
59)   during the Restricted Period, he shall not, without the prior written consent of the
      Company, be directly or indirectly engaged, interested or concerned in any
      business with a Competing Business (subject always to the Company continuing
      to pay the Executive monthly in arrears a sum equivalent to the Executive‟s
      monthly gross salary (excluding bonuses and benefits-in-kind) as was current
      prior to the Termination Date during such time as the foregoing restriction shall
      be enforced by the Company, it being understood that the Company may elect to
      waive such restriction against the Executive at any time upon giving at least 2
      weeks‟ prior written notice to that effect);
60)   during the Restricted Period, he shall not, without the prior written consent of the
      Company, solicit or entice away or endeavour to solicit or entice away from the
      Company or from an Associated Company any person who had been, at any
      time during the Relevant Period , a director or senior or key employee of the
      Company or an Associated Company;
61)   during the Restricted Period, he shall not, without the prior written consent of the
      Company, seek to employ in any capacity or offer employment in any capacity to
      or enter into or offer to enter into partnership with any person in relation to whom
      clause 15.2.2 is applicable;
62)   during the Restricted Period, he shall not act in any manner or make any public
      statements which are calculated to be prejudicial to the interests of the Company
      or an Associated Company.
63)   The Executive hereby acknowledges and agrees that each of paragraphs 15.2.1
      to 15.2.4 constitutes an entirely separate and independent restriction on him and
      that the duration, extent and application of each of the restrictions are not greater
      than is necessary for the legitimate protection of the interests of the Company
      and its Associated Companies from time to time, unless determined otherwise by
      a court of competent jurisdiction.
64)   The restrictions set out in clause 15.2 shall apply to any action taken by the
      Executive whether as agent, representative, partner, principal, employee, joint
      venturer or consultant or as a director of any company and/or by any spouse of
      the Executive and/or by any company controlled by him or any such spouse.
      OTHER TERMS AND CONDITIONS
Handbook of Venture Capital Documentation                                       Page   98


65)   The following particulars are given in compliance with the requirements of the
      Employment Rights Act 1996:
66)   The Executive shall be required to work such reasonable hours as may be
      necessary so as properly to fulfil his duties hereunder to the satisfaction of the
      Board.
67)   If the Executive is dissatisfied with any disciplinary decision or if he has any
      grievance relating to his employment hereunder he should refer such disciplinary
      decision or grievance to the Board and the reference will be dealt with by
      discussion and decision of a Board Meeting which decision shall be final.
68)   No Contracting-Out Certificate pursuant to the provisions of the Pensions Act
      1993 is in force in respect of the Executive's employment hereunder.
69)   There are no collective agreements which affect the terms and conditions of the
      Executive's employment.
      NOTICES
70)   Any notice to be given hereunder shall be in writing. Notice to the Executive shall
      be sufficiently served by being delivered personally to him or by being sent by
      recorded delivery addressed to him at his usual or last known place of abode.
      Notice to the Company shall be sufficiently served by being delivered to the
      Company Secretary or a Director of the Company (other than the Executive) or
      by being sent by recorded delivery to the registered office of the Company. Any
      notice, if delivered by hand shall be deemed to have been received immediately
      (if delivered during business hours on a business day) or on the next business
      day (otherwise), and, if so posted by recorded delivery, shall be deemed served
      upon the third business day following that on which it was so posted.
71)   For the purposes of clause 17.1, "business hours" means between 9 am and 5
      p.m. and "business day" means the days between Monday and Friday inclusive
      on which banks in Scotland are open for business.
      DEFINITIONS
72)   In this Agreement:
73)   The "Board" shall mean the Board of Directors of the Company.
74)   Clause headings are inserted for convenience only and shall not affect the
      construction of this Agreement.
75)   Unless the context otherwise requires any references in this Agreement to:
76)   a "person" shall include any individual, company, corporation, firm, partnership,
      joint venture, association, organisation or trust (in each case whether or not
      having separate legal personality) and references to any of the same shall
      include a reference to the others;
77)   "writing" or "written" shall include any means of visible reproduction;
78)   words denoting the singular shall include the plural and vice versa;
Handbook of Venture Capital Documentation                                  Page    99


79)   statutory provisions shall be construed as references to those provisions as
      respectively amended or re-enacted or as their application is modified by other
      provisions (whether before or after the date hereof) from time to time and shall
      include any provisions of which they are re-enactments (whether with or without
      modification).
      GOVERNING LAW
80)   The construction, interpretation and performance of this Agreement shall be
      governed by the laws of Scotland, and the parties hereto agree to submit to the
      non-exclusive jurisdiction of the Scottish courts.

SUBSCRIBED for and on behalf of
NEW CO Ltd
at                          on                    2001
by
……………………………………
before this witness
Director
Witness.........................................................
.
Full name...................................................…
Address.......................................................…


SUBSCRIBED for and on behalf of
(person name)
at                          on                    2001
by
……………………………………
before this witness
Director
Witness.........................................................
.
Full name...................................................…
Address.......................................................…
(date)
Service Agreement between New Co and (name)
Solicitor Co (name and Place)
Handbook of Venture Capital Documentation                                                                                                      Page             100




Document Number                                              18
Document title                                               Salary schedule
Purpose of document                                          As with document 16, to lay down and agree rules for outgoings.
Example of use
Key sensitivities                                            To reconcile motivation with New Co cashflow requirements.




Com pany Nam e
Schedule of Re muneration
Date

                                                                                                                                          Potential       Potential
                                          Salar y       NI         Pension       Car       Fuel       PHI       Medical       Total       Bonus           Total
                                          £             £          £             £         £          £         £             £           £               £


A Director                                                                                                                            0                               0
Another Director                                                                                                                      0                               0




Total Excutives                                     0          0             0         0          0         0             0           0               0               0


Chairman                                                                                                                              0                               0
Non exec                                                                                                                              0                               0
Non exec                                                                                                                              0                               0
Non exec                                                                                                                              0                               0

Total non exe cs                                    0                                                                                 0                               0

Gr and Total                                        0          0             0         0          0         0             0           0               0               0



Notes

Only executives are included in the salary cap




DOCUMENT NUMBER                                              19
DOCUMENT TITLE                                               EMPLOYEE HANDBOOK
PURPOSE         OF                                           TO ENSURE THAT (PARTICULARLY START-UPS) COMPLY
DOCUMENT                                                     WITH    LEGAL  AND    ACCEPTABLE   STANDARDS   OF
                                                             EMPLOYMENT
EXAMPLE OF USE                                               STANDARD
KEY SENSITIVITIES                                            MIGRATING FROM A START-UP GROUP TO A COMPANY
                                                             RECRUITING ITS FIRST (SAY) TWO OR THREE OUTSIDERS
                                                             CAN BE THE BIGGEST SINGLE LEAP A COMPANY MAKES.
                                                             TACIT UNDERSTANDINGS AND SHARED VISIONS BEGIN TO
                                                             NEED ENCAPSULATING IN FORMAL RULES, WITHOUT
                                                             INTRODUCING BARRIERS TO INNOVATION OR TO
                                                             FLEXIBILITY.



                                                                     New Co Ltd .
Handbook of Venture Capital Documentation                                   Page   101


                                 Employee Handbook
1. PREAMBLE
The Directors of New Co Ltd (referred to in this handbook as “New Co” or “the
Company”) hope that you will find the experience of working for the Company fulfilling
and rewarding. We strongly believe that if you look forward to coming to work every
day, it is a win-win situation for both you and New Co. If we are to make this Company
the success that we hope for then we need every single person not only to pull their
weight but to enjoy a sense of enthusiasm and excitement and to be continually alert to
opportunities for doing things better.
The purpose of this handbook is to explain a number of the
aspects of your work with New Co - how we do things, what you
can expect of the company and what New Co expects of you. In a
formal sense therefore the contents of this handbook are, to the
extent applicable, terms of your contract of employment and you
are employed only on this understanding; any variation of the
contents    (by issue of a new edition of the handbook or
replacement pages) therefore constitutes notice by New Co of a
variation in the terms of your employment.


2. CODE OF CONDUCT
The following code of conduct has been adopted by New                          Co to
summarise the principles which we hope will govern the                        way in
which we do business.    It is the duty of all staff to                       uphold
this code and to conduct themselves at all times in a                         manner
which brings credit to the company:


As a professional organisation New Co will endeavour always to
act in a proper manner in its relationships with customers,
employees, suppliers, competitors and with the general public by
making the following commitments:
2.1   Customers
 To express the terms on which we do business clearly and precisely and to fulfil
  commitments in good faith.
     To ensure that customers are clearly informed concerning:
          a. The nature and specification of the product or service
             which they are buying,
          b. The price which they will be required to pay.
          c. Delivery timescales
          d. Any inputs which are required from the customer
Handbook of Venture Capital Documentation                                Page   102


    To provide       proper      security     for    customers'   confidential
    information.
2.2    Employees
    To provide good and safe working conditions, scope for job
     satisfaction and opportunities for professional development
    To ensure that every employee understands what is expected of
     them.
    To discuss performance and prospects with each employee on a
     regular basis.
    To work continuously             to    improve   employees'    skills      and
     technical competence.
    To encourage professional behaviour and a high standard of
     service to customers.
2.3    Competitors
1. To   recognise          that      disparagement      of     competitors       is
   unprofessional.
2. To refrain from recruiting competitors'                   employees   for    the
   purpose of obtaining trade secrets.


3. HEALTH & SAFETY POLICY
Our policy is to provide and maintain safe and healthy working
conditions, equipment and systems of work for all our employees,
and to provide such information, training and supervision as
they need for this purpose.   We also accept our responsibility
for the Health and Safety of other people who may be affected by
our activities.

All employees have the responsibility to co-operate with
management in implementing this policy and to take reasonable
care of themselves and others. This means, among other things,
keeping working areas tidy and gangways clear, operating
electrical equipment in a safe manner, taking care not to lift
heavy objects without assistance and generally being alert to
potential hazards.
3.1 Display Screen Equipment
The company recognises that it is important that employees who
need them are properly equipped with spectacles for use with
VDUs. In each calendar year, the company will therefore pay for
one professional eyesight test for each employee.       You are
Handbook of Venture Capital Documentation               Page   103


strongly advised to take advantage of this and to find out the
appropriate arrangements you should ask your manager.
If a test results in your being advised to wear spectacles for
working with a VDU, and you do not otherwise require to wear
spectacles or the spectacles required for VDU work are different
from the spectacles which you normally wear, then New Co will
pay for the lenses and   cheapest available frames.   Should you
wish to have more expensive frames, then you will be required to
pay the additional cost.
3.2 Accidents
In the event of an accident, injury or illness, immediate first
aid can be administered from the First Aid Box; however, if you
are in doubt you should seek professional medical help or
consult a qualified First Aider.     Please ensure that you are
familiar with the location of the First Aid Box and the names of
trained and qualified First Aiders. (The Company does not
guarantee that a First Aider will always be available.)
The details of all accidents must be recorded in the incident
   book.
3.3 Smoking
New Co does not permit smoking on any of its premises
3.4 Visitors
If you have visitors, you should advise them to report to the
Administration Office upon arrival. Whenever practical no
visitor should be left unaccompanied.    In the event of a Fire
Alarm or other emergency make sure that you accompany out of the
building all visitors which you have.     All visitors should be
encouraged to abide by New Co‟s in – house rules, including the
no smoking rule.


4. INDUCTION
The introduction of new employees into New Co is assisted by our
induction procedure,   the object of which is to introduce new
employees to the faces, products and processes that make up New
Co as an organisation.
On your first day, many of the items in this handbook will be
explained to you and, where possible, you will meet certain key
staff .


5. HOURS AND PAY
Handbook of Venture Capital Documentation                      Page   104


In common with many similar companies, New Co expects that its
employees will be highly committed, professional individuals who
will not require to be the subject of detailed policing to
ensure that they work set hours. Nevertheless, as general
guidance to the minimum that is expected of you:
    Your normal working hours are Monday to Friday 0900   -    1700
    You may take a lunch break of 30 minutes between 1200 and
     1400.
    In order to accommodate individual circumstances, you may
     arrive for your work at any time up to 0930 and you may take
     off up to 90 minutes for lunch. You will however be expected
     to make up the deficit by working after normal finishing time
     on the same day.     Please note that this is an informal
     concession and not a flexi-time system.       In particular,
     surpluses and /or deficits may not be carried over to another
     day and a deficit arising from a late start may not be
     „repaid‟ by reducing your lunch break to less than 30
     minutes.
    If you require additional flexibility for any reason, please
     discuss the matter with your manager. (In general it is the
     company‟s policy to be flexible in accommodating employees
     requirements for short periods of absence for appointments
     such as attending the dentist, and conversely you are
     expected to try to schedule such appointments so as to
     minimise disruption of your working day. If the time off for
     this purpose amounts to half a day or more in any one day
     then you will be expected to take it as holiday.)
5.1 Overtime
New Co does not normally make any payment in respect of
additional hours worked outside normal working hours. If however
it has been specifically agreed in writing that overtime will be
paid, the following conditions apply:
     Overtime is calculated to the nearest half hour each day.
      Overtime will be paid only when it has been specifically
    authorised in advance by a director.
      Overtime will be paid at a rate per hour of 1/1350 of your
    annual salary.


5.2 Salary Payments
Basic salaries (net of PAYE and NI which are deducted at source)
are paid monthly in arrears directly into your bank account.
Handbook of Venture Capital Documentation                Page   105


(Because details of overtime, sales commission and the like are
not generally available at the time that net salaries are
computed, payments in respect of these items are generally
carried forward to the following month.) Payment will be made
from the Company‟s bank account on or before the 24th of each
month and this should ensure that payments will reach employees
accounts with clearing banks by the last day of the month. Funds
may take longer to reach accounts which are held with a building
society or non-clearing bank.


6. HOLIDAYS
You are entitled to take holidays (including public holidays)
totalling 32 days during each year of employment. Scheduling of
holidays is by mutual agreement between you and your manager,
but they must be agreed in advance.


The holiday year is from 1 January to 31 December with holiday
entitlement, rounded    to the nearest whole day, accruing on
completion of each month of service. You are encouraged to take
your holiday entitlement within the current calendar year, the
onus being on you to ensure that it is taken. If, for reasons
beyond your immediate control, you cannot take all of your
holiday entitlement, agreement should be sought from your
manager on the number of days that may be carried over.     The
maximum entitlement which may be carried over from one year to
the next is 15 days.
If you take holidays in excess of your accrued entitlement,
these will normally be set off against future entitlement to
paid holidays, or, on termination of your employment, these will
be set off against salary or other money due to you.


7. SICKNESS.
For purposes of   Statutory Sick Pay (SSP) your qualifying days
are Monday to Friday.
If you are absent from work due to sickness, disablement or
injury:
1. During the first six months from commencement of your
   employment you will be paid your full salary for up to 10 days
   absence
2. Thereafter you will be paid your full salary for up to 20 days
   absence in any period of 12 months and 50% of your salary for
   up to a further 20 days in the same period.
Handbook of Venture Capital Documentation                                           Page    106


3. New Co is not obliged to pay your salary in respect of any
   additional absence.


(For this purpose "full salary" includes any Statutory Sick Pay (SSP) to which you may
be entitled (and which New Co will under normal circumstances pay to you and reclaim
from the DSS). If you are paid 50% of your salary or less you will be entitled in addition
to any SSP receivable.)
If you are absent due to sickness you must follow the following
procedure:


 First* Working Day of Sickness                   Notify New Co by telephone
 Fourth* Day of Sickness           and    every   Notify   New       Co    again     by
     fourth day thereafter.                           telephone
 Eighth* Day of Sickness                          You must obtain a medical
                                                  certificate   to  cover   the
                                                  eighth day onwards and supply
                                                  this    and  any   subsequent
                                                  medical certificates to your
                                                  manager


*The first day of sickness must be a working day but subsequent
days include non-working days (e.g. if your first day of
sickness is a Friday, then your fourth day is the following
Monday).
New Co reserves the right to withhold salary payments if it
considers that there is insufficient evidence of sickness or
injury.


8. COMPASSIONATE LEAVE
There are no fixed rules concerning compassionate leave; however
the Company‟s general policy is to be sympathetic and flexible
in cases of bereavement, serious family illness and the like. If
the situation arises you should discuss the matter with your
manager. Please note that time off to look after children who
are off school due to illness is not considered to be
compassionate leave but must be taken as part of your holiday
entitlement.


9. EXAMINATION LEAVE
Company policy is that employees will be given time off for revising and for sitting exams which
are relevant to their employment with New Co. Granting of such leave is at the company’s
Handbook of Venture Capital Documentation                                              Page    107


discretion but the general rule is that one day of revision leave is permitted for each paper being
sat. If you are sitting exams, please discuss the matter with your manager.


10.PENSION & SOCIAL SECURITY
New Co does not operate a company pension scheme and there is
therefore no contracting-out certificate under the Social
Security Pensions Act, 1975 in respect of your employment by New
Co.
It is the intention of New Co to make arrangements as required
by legislation for employees to be able to contribute to a
stakeholder pension scheme. When these arrangements have been
made, the details will be advised to you.


11.EXPENSES
If you have to travel and/or stay away from home in the course
of your work you will be reimbursed for any additional
reasonable expenses which you incur as a result. The principle
is that you should be able to subsist to a reasonable standard.
No expenses may be incurred without the prior approval of your
manager.
If you use a car on company business, you may claim mileage at
the following rates.

Normal parking and toll charges will be reimbursed, but not
penalties or fines related to parking or driving offences.

If you have expenses to claim you should do so by entering the
items on your weekly claim form. Ensure that receipts in respect
of all amounts claimed are stapled to the back of the claim
forms.

                               If you use        If you are        If you
                               your own car      in receipt        purchase fuel
                               and you are       of a car          for a company
                               not in            allowance         car which is
                               receipt of a      and use your      also available
                               car               own car           for your
                               allowance                           private use
For the first 100 miles        38 cents per
in each day                    mile              19 cents per
                                                                   12 cents per mile
Additional miles               19 cents          mile
                               per mile


12.MOBILE PHONES
Handbook of Venture Capital Documentation                                      Page   108


The company has a number of mobile phones which are available
for use by staff for company business only.   It is important
that you observe this restriction and do not use a company
mobile phone for personal purposes.


13.GENERAL DUTIES OF EMPLOYEES
As an employee of New Co you are expected to carry out to the
best of your ability the task designated to you by your manager.
You are also expected to devote all of your working time and
energy to the business of New Co and you may not be a director,
partner or employee of any other business or engage in any other
profession, trade or business without the consent of New Co.
You must at all times protect New Co and its customers' property
and, except in the performance of your duties, you may not
remove from the company's or customers' premises, nor employ,
lend, give or otherwise dispose of any drawings, designs,
software (including any copies or listings) or any other
property not belonging to you.


14.RESTRICTIONS
You may not, for a period of one year from the                                 date    of
termination of your employment for any reason whatever:
81)   Directly or indirectly solicit or endeavour to entice away,
      offer employment to, employ or cause to be employed any
      person who at any time during the twelve months prior to
      such termination is or was an employee of New Co.
82)   Induce or endeavour to induce any person with whom New Co
      has done business at any time within twelve months prior to
      the date of termination, to remove their business from New
      Co.
If any of the foregoing restrictions is held for any reason not to be valid or enforceable
as going beyond what is reasonable for the protection of the interests of New Co, but
would be valid if part of the wording were deleted or its extent reduced or modified, then
such restrictions shall apply with such modifications or variations as may be necessary
to make them enforceable, and any such modification or variation shall not thereby
affect the validity of any of the other restrictions.


15.INVENTIONS
Subject to your statutory rights under the (UK) Patents Act 1977
and the (UK) Copyright, Designs and Patents Act 1988, and any
other applicable Act, any invention, discovery, process, design,
Handbook of Venture Capital Documentation               Page   109


plan, computer program or other intellectual property whatever,
and any modification, enhancement or development of any existing
such thing (hereinafter referred to as "Inventions") made or
discovered by you (whether alone or with others) while in the
employment of New Coin connection with or in any way affecting
or relating to the business of New Co or capable of being used
or adapted for use therein shall forthwith be disclosed to New
Co and shall belong to and be the absolute property of New Co.

If so required by New Co(whether before or after the termination
of your employment) you will, at New Co‟ request and expense,
apply or join in applying for letters, patent registration or
other appropriate protection in the United     Kingdom, for any
Inventions, and execute all documents and do all other things
necessary, expedient or desirable to vest such letters, patent
registered rights or other protection when obtained, and all
right, title and interest in and to the same, in New Co as sole
beneficial owner, and for this purpose shall, at New Co expense,
take or defend any proceedings to procure or defend such
application, registration or protection.

You hereby irrevocably appoint New Co to be your attorney in
your name and on your behalf to execute any such document or do
any such thing, and generally to use your name for the purpose
of giving to New Co the full benefit of the provisions of this
Clause.

CONFIDENTIALITY
Save as specifically authorised by New Co, or as required in the
performance of your duties hereunder, you shall at all times
(both during and after termination of your employment) maintain
absolute confidentiality in respect of all trade secrets, secret
or confidential operations, know how, processes or dealings,
inventions, discoveries, designs, plans, computer programs and
other intellectual property whatever and all information
concerning the organisation, business finances, transactions and
affairs, of New Co which have come to your knowledge during your
employment, and shall not disclose any of same to any other
person, firm or authority, or use or attempt to use any such
information in any manner which may injure or cause loss or may
be calculated to injure or cause loss directly or indirectly to
New Co.
Handbook of Venture Capital Documentation                                   Page    110


APPRAISALS
Your manager will invite you to attend a formal appraisal at
least once in each calendar year.     At this meeting, issues of
performance, job content, development and future training needs
will be discussed.      The appraisal scheme is designed to
facilitate the exchange of views and perceptions from both
parties; as such both you and your manager should feel free to
discuss anything that they see as influencing the development of
you, the team in which you work, or the company as a whole. The
appraisal should be treated as confidential and is not related,
in any way, to issues of pay or promotion.


GRIEVANCE PROCEDURE
New Co recognises that all employees who feel that they have a
grievance concerning anything to do with their employment,
should have the means of having their grievance fully examined
and, whenever possible, remedied. In such a case you should do
the following:
4. Discuss the matter in the first instance with your manager.
5. If the matter is not resolved in this way you should write a
   letter describing the situation and addressed to the Company
   Secretary.
Once a grievance has been notified in writing to the Company Secretary you will receive
a reply within one week.


UNSATISFACTORY PERFORMANCE OR CONDUCT
If you are failing to meet the requirements of your employment,
whether relating to performance or conduct,    then your manager
will formally discuss the matter with you and explore possible
ways of     improvement.   Following this, with the help and
encouragement of your manager, you will have the opportunity to
raise the standards of your    performance or conduct.    If the
problem persists, your manager may issue a written warning which
will detail :-
     Why the warning has been given.
     What improvements in performance or conduct are required.
     The timescales and monitoring process involved.


If   the required improvement is achieved, you will be informed
and the warning will be deleted from all records.
Handbook of Venture Capital Documentation                    Page   111




If adequate improvement is not achieved either a further warning
may be issued or your manager may recommend dismissal or other
disciplinary action.

In the event of gross misconduct or dishonesty, you may be
dismissed   without  notice or subject to   other immediate
disciplinary action.

If you are subject to disciplinary action (including dismissal),
you will receive a letter from the company which will detail:-

   An explanation of the penalty imposed
   The reasons for the penalty.
If you think        that a penalty has been unfairly imposed, you
should follow       the Grievance Procedure set out above. At any
point during a       disciplinary procedure, you have the right to be
accompanied by      a fellow employee of your choice.

TERMINATION
Except in the event of serious misconduct when you may be
dismissed without notice, New Co may terminate your employment
by giving one month's notice in writing.

If you wish to leave New Co employment, you are required to give
one month's notice in writing.

If at the date when you leave you have taken either more or less
holiday than the entitlement which you have accrued, your final
salary payment will be adjusted for the difference.

TRAINING

Training required for developing individuals and meeting the
needs of the business will be reviewed every year as part of the
appraisal   system.     Individuals   identified  as   requiring
additional training will be invited to undertake it.    Training
can be in-house or external depending on availability of
courses.   Employees should be willing to undertake off-site
training when required.

SHARE OPTIONS
Handbook of Venture Capital Documentation                                Page   112


If you have been awarded share options, you will be advised by
letter signed by a director:

3.   The   date of the award of the options (the “Award Date”)
4.   The   number of options
5.   The   Option Price
6.   Any   special conditions relating to your options.

The options will then be subject to the following rules:


    Subject to any special conditions which may be specified at
     the time of award of the option and to the rules below, each
     option entitles the holder to subscribe, at the Option Price
     for the issue of a new, fully paid ordinary share of New Co
     Ltd . Such subscription constitutes “exercise” of an option.
    Except as required for the purpose of exercise following an
     option holder‟s death, an option is personal to the person to
     whom it has been awarded and may not be transferred to any
     other person
    Any option which has not lapsed may be exercised following
     the earliest of the following events:
    the second anniversary of the Award Date
    the death of the Option Holder
    the   Holder  ceasing  by   reason  of  injury,  disability,
     redundancy or retirement to be a director or employee of New
     Co Ltd or any of its subsidiaries
    the acquisition by any person of control of New Co, the term
     “control” having the same meaning as in Section 840 of ICTA
     1988.*
    An option      shall     lapse    on   the   earliest   of   the   following
     events:
    the tenth anniversary of the Award Date.
    the first anniversary of the Option Holder‟s death
    three months following the Option Holder ceasing, other than
     by reason of his death, to be a director or employee of New
     Co Ltd or any of its subsidiaries.
    six months after any person who has acquired control of New
     Co has given to the Option Holder valid written notice of
     such lapse.*
Handbook of Venture Capital Documentation                                     Page   113


   In the event of any variation of the share capital of the Company by way of
    capitalisation or rights issue, consolidation, subdivision or reduction of capital or
    otherwise, the number of Options held by each Option Holder and the Option Price
    for each of those Options shall be adjusted in such manner as the company‟s
    auditor shall confirm in writing to be fair and reasonable.

* The purpose of these two rules is to ensure that if the
Company is taken over by another company then Option Holders
will have the opportunity either to exercise their options
(which should then allow them to participate with other
shareholders in the terms of the takeover) or to reach an
agreement with the acquiring company for their options in New Co
to be replaced by options in the company taking over.

It is the Company‟s intention to ensure that as far as possible
options granted in accordance with the above rules will qualify
for favourable tax treatment under the UK regulations governing
Enterprise Management Incentives (EMI). However the Company does
not accept any responsibility in this regard and will not be
liable for any losses suffered by Option Holders as a result of
taxation levied in relation to the award, holding or exercise of
Options.
Handbook of Venture Capital Documentation                                    Page   114




DOCUMENT NUMBER              20
DOCUMENT TITLE               LICENSING AGREEMENT
PURPOSE         OF           To agree a license to use IPR owned by others
DOCUMENT
EXAMPLE OF USE               In this example two universities are licensing IPR
                             developed by their employees, for       commercial
                             exploitation.
KEY SENSITIVITIES            Valuing IPR



                                LICENCE AGREEMENT


                                        Between

                               THE UNIVERSITY XXXXX

XXXXXX UNIVERSITY


Licensee Co Limited
(a company formerly known as xxxxxx) and incorporated in England
         and Wales (Company Number xxxxxx) and whose registered
                          office is at (place)

      (hereinafter together referred to as “the Joint Owners”)

                                            and

NEW CO LIMITED
 Incorporated under the Companies Acts (Scottish Company Number
         xxxxxx) and whose registered office is at (place

               (hereinafter referred to as “the Licensee”)


WHEREAS:


1.    The Joint Owners collaborated as part of a joint
      development agreement under the Secretary of State for
      Trade and Industry LINK Sensors and Sensor Systems for
      Industrial Applications research Programme.

2.    As a result of said collaboration the Joint Owners have
      developed and are the beneficial owners of a substantial
      body of valuable Technical Information (as hereinafter
      defined).
Handbook of Venture Capital Documentation                                Page   115



3.    The Joint Owners are the owners of the Patent Rights (as
      hereinafter defined).

4.    The Joint Owners and the Licensee wish to enter into an Agreement in terms of
      which:

      (a)    the Licensee will obtain certain exclusive rights
             within the Field of Use to use the Patent Rights in
             order to manufacture and sell Products (as hereinafter
             defined) incorporating the Technical Information;

      (b)    the Licensee might purchase further technical support
             in order to facilitate the development of the
             Products.

5.    The parties have decided to enter                    into    the    present
      Agreement to formalise the above:-

NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS:-


1.    Definitions

      In this Agreement the following terms shall have the
      following meanings unless the context otherwise requires:


      “Field of Use”              means   the    measurement    of    layer
                                  thickness by means of fluorescence in
                                  the technical field of application or
                                  product   market   consisting    of   the
                                  coating of plastic films and paper in
                                  the hot stamping foils market;

      "Improvements"              means all improvements, modifications or
                                  adaptations to any part of the Technical
                                  Information which might reasonably be of
                                  commercial interest to either party in
                                  the agreement, manufacture or supply of
                                  the Products and which may be made or
                                  acquired by either party during the
                                  Improvements Period

"Improvements Period" Period during which the licence is in force as set out
Clause 2.1

      "Gross Profit"                   means the total value of sales of
                                  the Products less the manufacturing
                                  costs incurred by the Licensee in
                                  producing the Products sold as the said
                                  costs are agreed by the Joint Owners
                                  and the Licensee or, failing Agreement,
Handbook of Venture Capital Documentation                          Page   116


                                  as determined by arbitration pursuant
                                  to   Clause   13   of this  Agreement,
                                  declaring however that for sales made
                                  during the two year period immediately
                                  following the Commencement Date the
                                  manufacturing costs shall be fixed at
                                  Fifteen Thousand Pounds (£15,00) for
                                  each Product sold.

      "Patent Rights"                  means   (i)   the    patents   and
                                  applications, short particulars whereof
                                  are set out in Part 1 of the Schedule
                                  hereto;

                                  (ii) all patent applications that may
                                  hereafter be filed in the Territory by
                                  or on behalf of the Joint Owners which
                                  either are based on or claim priority
                                  from any of the foregoing patents and
                                  applications or which are in respect of
                                  any Improvements to which either party
                                  is exclusively entitled; and

                                  (iii) all patents which may be granted
                                  pursuant to any of the foregoing patent
                                  applications;

      "Products"                  means any machinery which utilises an
                                  (details) which falls in whole or in
                                  part within the scope of any of the
                                  claims of the Patent Rights and/or
                                  which    incorporates    any    Technical
                                  Information,   for   the   avoidance   of
                                  doubt, including any Improvements made
                                  in terms of this Agreement.

      "Schedule"                       means the Schedule annexed         and
                                  subscribed as relative hereto;
      "Technical Information" means all know-how, experience,
                          drawings, circuit diagrams, computer
                          programs    and   all   other    technical
                          information relating to the Products
                          and   which   might   reasonably   be   of
                          commercial interest to either party in
                          the   manufacture   or   supply   of   the
                          Products ;

      "Territory"                      means all or     any   countries   or
                                  parts of the world.
Handbook of Venture Capital Documentation                Page   117



2.    Duration

2.1   This Agreement shall commence on [            ] 2000 ("the
      Commencement Date") and shall continue in full force and
      effect for a period of 10 (ten) years from the Commencement
      Date unless earlier terminated in accordance with the
      provisions of this Agreement.

3.    Technical Information

3.1   The Joint Owners warrant that all Technical Information
      disclosed or to be disclosed to the Licensee hereunder is
      or will be, to the best of the Joint Owners knowledge and
      belief, accurate, but the Joint Owners shall be under no
      further liability to the Licensee in respect of the
      Technical Information or of the manufacture, use, sale or
      other disposition of the Products.

3.2   The Licensee shall be exclusively responsible and for
      incorporating any modifications or developments thereto
      that might be necessary and for all Products sold or
      supplied by the Licensee and accordingly the Licensee shall
      indemnify the Joint Owners in respect of all costs, damages
      and expenses incurred as a result of any claims by third
      parties against the Joint Owners arising in any way out of
      the use of any of the Technical Information by the
      Licensee.

3.3   The Licensee shall be exclusively responsible for the
      technical and commercial operation of the Products and for
      incorporating any modifications or developments thereto
      that might be necessary and for all Products sold or
      supplied by the Licensee and accordingly the Licensee shall
      indemnify the Joint Owners in respect of all costs, damages
      and expenses incurred as a result of any claims by third
      parties in delict or otherwise against the Joint Owners
      arising in any way out of the use of any of the Technical
      Information by the Licensee.


4.    Grant of Rights

4.1   The Joint Owners hereby grant to the Licensee an exclusive
      licence under the Patent Rights to use, manufacture or
      otherwise deal in the Products in the Field of Use anywhere
      in the Territory.

4.2   The Joint Owners hereby grant to the Licensee a non-
      exclusive licence to use the Technical Information in order
      to assist with the development, manufacture, use or
      otherwise deal with the Products in the Field of Use in the
      Territory.
Handbook of Venture Capital Documentation                 Page   118




      Licensee shall have no right to grant sub-licences under
      this Agreement, but this shall not prevent the Licensee from
      sub-contracting aspects of some, but not all, of the
      manufacture of Products, PROVIDED THAT in so doing the
      Licensee ensures that any such sub-contractors agree to
      conditions of confidentiality no less strict than those
      contained within this Agreement.

4.4   No further right or licence is granted to the Licensee save
      as set out expressly in this clause 4.

4.5   The Joint Owners have no obligation under this Agreement to
      provide the Licensee with any Technical Information or know-
      how of any nature except as expressly set out in this
      Agreement.

4.6   The Licensee shall have no right hereunder to manufacture,
      use or sell the Products or to use the Patent Rights
      otherwise than as expressly licensed to the Licensee
      hereby.

4.7   In the event that the Licensee during the continuance of
      this Agreement or within a period of [     ] years from the
      date of its termination for any reason or until expiry of
      any relevant Patent Rights (whichever is the sooner) is
      directly or indirectly concerned in the manufacture,
      distribution, sale or other supply in any part of the
      Territory of any manufactured goods which by reason of their
      properties and performance are commercially competitive with
      any Products, the Joint Owners shall be entitled to convert
      this the licence granted in terms of this Agreement from
      exclusive to non-exclusive.

4.8   The Joint Owners shall be entitled to exploit the Patent
      Rights outside the Field of Use. Subject to obligations of
      confidentiality the Joint Owners shall advise the Licensee
      in the event that an approach is made by a third party with
      a view to exploiting outwith the Field of Use.     The Joint
      Owners shall discuss any such approaches in good faith with
      the Licensee, who shall be offered the opportunity to
      negotiate a further licence with the Joint Owners to exploit
      outside the Field of Use. The Joint Owners shall be under
      no further obligation in this regard.

5.    Payment
      5.1 Subject to Clause 6.4 below, the Licensee shall pay to
      EACH of the parties royalty of five per cent (5%)of the
Handbook of Venture Capital Documentation                   Page   119


      Gross Profit of all Products (or any part thereof) sold or
      otherwise supplied for money or money's worth by the
      Licensee.

5.2   If any Products are incorporated in any other equipment or
      apparatus sold by the Licensee hereunder at a price which
      is included in the price for the other equipment or
      apparatus, the Gross Profit for the purpose of calculating
      royalties due hereunder shall be that proportion of the
      Gross Profit of that other equipment or apparatus which is
      fairly   attributable  to   such   Products comparing  the
      manufacturing cost of the other equipment or apparatus to
      that of the Products as components thereof.

5.3   For the purposes of this Clause 5, Products are sold when
      invoiced.
5.4   Payments due under Clause 5.1 shall be made within 60
      (sixty) days of the end of each calendar quarter in respect
      of royalties accruing on Products invoiced in that calendar
      quarter failing which interest shall be payable thereon at
      the rate of five per centum above the Base Lending Rate of
      the Bank Co plc from time to time or such other rate as is
      equivalent thereto.

5.5   All sums due under this Agreement:

      5.5.1 are exclusive of any Value Added Tax which shall be
            payable in addition on the rendering by the Joint
            Owners of any appropriate Value Added Tax invoice;

      5.5.2 shall be made in Pounds Sterling to the credit of bank
            accounts to be agreed in writing by the Joint Owners.

      5.5.3        shall be made in full without deduction of taxes,
              charges and other duties that may be imposed except in
              so far as any such deduction may be credited in full
              by the Joint Owners against the Joint Owners‟ own tax
              liabilities.   The parties agree to co-operate in all
              respects necessary to take advantage of such double
              taxation agreements as may be available.

5.6   If in any calendar year the amount of any royalty paid to
      each of the Joint Owners under this Clause shall be less
      than the amount paid by each of the Joint Owners pursuant
      to their obligations to maintain the patents under Clause
      10.1, the Licensee shall forthwith on demand pay to the
      Joint Owners such further amount as is necessary to ensure
      that the total amount paid by Licensee under this Clause
      (being royalties and any balance due) in such calendar year
      is not less than the amount payable by the Joint Owners
      under said Clause 10.1.

6.    Records and Reports
Handbook of Venture Capital Documentation                  Page   120



6.1   The Licensee agrees to keep true and accurate records and
      books of account containing all data necessary for the
      determination of royalties payable under Clause 5.1 which
      records and books of account shall upon reasonable notice
      of the Joint Owners be open during business hours for
      inspection by the Joint Owners or their duly authorised
      agent for the purpose of verifying the accuracy of the
      Licensee's reports hereunder.    The Joint Owners or their
      duly authorised agent may take copies of the records and
      books of account but shall not disclose to any third party
      any information relating to the business or affairs of the
      Licensee other than such information as properly should
      have been contained in any statement required to be
      furnished by the Licensee to the Joint Owners.

6.2   The Licensee shall submit to the Joint Owners within 30
      days of the end of each calendar quarter a statement
      setting forth with respect to the operations of the
      Licensee hereunder during that period the quantity of
      Products made, used or sold and the Gross Profit of
      Products.

6.3   The Joint Owners agree to maintain as confidential, all
      financial   information  received  with   respect  to   the
      Licensee's operations pursuant to the foregoing Clauses 6.1
      and 6.2.


7.    Confidentiality

7.1   Each party agrees to maintain as confidential all Technical
      Information obtained from the others, both pursuant to this
      Agreement, and prior to and in contemplation of it and all
      other information that it may acquire from the other in the
      course   of  this   Agreement,  to   respect   the  other's
      proprietary rights therein, to use the same exclusively for
      the purposes of this Agreement, and to disclose the same
      only to those of its employees and sub-licensees pursuant
      to this Agreement (if any) to whom and to the extent that
      such disclosure is reasonably necessary for the purpose of
      this Agreement.

7.2   The foregoing obligations of Clause 7.1 above shall not
      apply to Technical Information or other information which:

      (1)    prior to receipt thereof from one party was in the
             possession of the other and at its free disposal;

      (2)    is subsequently disclosed to the recipient party
             without any obligations of confidence by a third party
             who has not derived it directly or indirectly from one
             of the other parties;
Handbook of Venture Capital Documentation                                 Page   121


      (3)    is or becomes generally available to the public in
             printed publications in general circulation through no
             act or default of the recipient party or its agents or
             employees.

7.3   Notwithstanding the foregoing provisions, the parties shall
      be entitled to disclose Technical Information of the other
      to actual or potential customers for Products in so far as
      such disclosure is reasonably necessary to promote the sale
      or use of Products.

7.4   Each party shall procure that all its employees who have
      access to any information of the other to which the
      obligations of Clause 7.1 apply, shall be made aware of and
      subject to these obligations and shall further procure that
      so far as is reasonably practicable all of such employees
      and sub-licensees shall enter into written undertakings in
      favour of the other party to this end in a form previously
      approved by the Joint Owners.

8.    Improvements

8.1   Each party shall forthwith disclose to the other in
      confidence and in such detail as that other may reasonably
      require all Improvements that it may develop or acquire
      during the Improvements Period except in so far as such
      disclosure would disclose information derived from and
      subject to confidentiality obligations in favour of a third
      party.

8.2   Improvements that the Joint Owners are due to disclose to
      the Licensee under Clause 8.1 above shall be deemed to be
      part of the Technical Information for the purposes of the
      rights granted to the Licensee under Clause 2 hereof.

8.3   Improvements arising from work carried out jointly shall
      belong to the parties equally unless they shall otherwise
      agree.

8.4   The Licensee acknowledges and agrees to further contract with the Joint Owners
      on terms to be agreed (which shall include remuneration to the Joint Owners)
      between the parties for the Joint Owners to provide on-going consultancy
      services for the further development of Technical Information and Improvements
      aimed at improving the Products
.
9.    Performance

9.1   During      the    continuance        of   this   Agreement   the   Licensee
      shall:

      9.1.1use its best endeavours to promote the distribution
           and sale of Products in the Field of Use in the
           Territory as widely as its resources reasonably permit
Handbook of Venture Capital Documentation                 Page   122


             and will make available all necessary selling and
             manufacturing   facilities  to   meet  all reasonable
             demands for Products in the Field of Use throughout
             the Territory.    The Licensee shall seek to maximise
             such demand, consistent only with the Licensee
             obtaining a reasonable rate of return on its assets
             employed in making and selling Products;

      9.1.2ensure that all Products supplied by the Licensee meet
           all such reasonable specifications as the Joint Owners
           may from time to time apply thereto and satisfy in
           performance   quality   construction    and  use   the
           reasonable requirements of the Joint Owners and shall
           upon reasonable notice from the Joint Owners give the
           Joint Owners or their authorised representative(s)
           free access at any reasonable time to the premises of
           the Licensee for the purpose of ensuring that the
           Licensee is observing these obligations;


      9.1.3ensure that all literature prepared by the Licensee
           and relating to Products bears an acknowledgement to
           the effect that they are subject to a licence from the
           Joint Owners, and attach to all Products a label
           quoting relevant patent numbers and stating that such
           Products are made under licence from the Joint Owners;

      9.1.4include in the terms and conditions of sale or other
           supply of the Products a guarantee to the effect that
           the Licensee will during at least the period of 12
           months from the date of such sale or supply replace at
           its own expense and free of charge any Products
           supplied by it that are defective by reason of faulty
           manufacture or through inadequate workmanship or
           materials;

      9.1.5provide adequate servicing facilities for any Products
           manufactured and/or supplied by the Licensee;
      11.1.6not purport to be acting as an agent of the Joint
           Owners and specifically not give any indication that
           it is acting otherwise than as principal and in
           advertising   or  selling  Products  not   make  any
           representation or give any warranty on behalf of the
           Joint Owners.


10.   Patents

10.1 As from the Commencement Date and subject to the provisions
     of Clause 5.6 the Joint Owners shall at their own cost
     (such costs to be borne equally by each of the Joint
     Owners) diligently prosecute to grant all subsisting patent
     applications within the Patent Rights in the name of the
Handbook of Venture Capital Documentation                Page   123


      Joint Owners so as to secure the broadest monopoly
      reasonably obtainable consistent with avoiding serious
      prejudice to the validity of such granted patents and shall
      maintain all patents within the Patent Rights in force for
      the full terms thereof.

10.2 In the event of any infringement by a third party of any of
     the Patent Rights in the Territory on such a scale as to
     affect prejudicially the Licensee's business in the
     Products to a substantial extent, the Licensee will    take
     all legitimate steps to halt such infringement. Subject to
     receiving advice from experienced Patent Counsel that
     infringement   proceedings,  including   any  interlocutory
     proceedings where relevant, stand a reasonable chance of
     success, the Licensee may request the Joint Owners to lend
     their names to such proceedings and provide reasonable
     assistance and the Joint Owners will do so subject to the
     Licensee giving them an indemnity in respect of all costs,
     damages and expenses that it may incur including any award
     of costs against them in so far as the aggregate of all
     such costs and damages may exceed that recoverable under
     the next following provisions.     Where such infringement
     proceedings are conducted by the Licensee under the name of
     the Joint Owners the Licensee may apply all royalties due
     under Clause 4.2 hereof subsequent to the date of
     notification by the Licensee to the Joint Owners of the
     relevant infringement to defray any costs directly incurred
     by the Licensee (excluding award of costs in favour of
     third parties) provided however that the total liabilities
     or waiver of royalties of the Joint Owners hereunder shall
     in no circumstances exceed the sum of all royalties due
     subsequent to that date and up to the date of the delivery
     of the final decision in the relevant infringement
     proceedings and provided further that this provision shall
     only apply subject to the Licensee exercising all due
     diligence in pursuing the proceedings to a conclusion].
     Any damages recovered shall be dealt with in a manner which
     shall be fair and reasonable as between the Joint Owners
     and the Licensee.

10.3 To the best of the Joint Owners' knowledge and belief the
     exercise of the rights granted or to be granted to the
     Licensee hereunder will not result in the infringement of
     valid patents of third parties. Subject thereto, the Joint
     Owners gives no warranty in this respect and does not give
     the Licensee any indemnity against costs, damages, expenses
     or royalties arising out of proceedings brought against the
     Licensee or any customer of the Licensee by any third
     party. Should the Licensee be sued for infringement of any
     patent or patents of the third party by reason of its
     manufacture, use or sale of the Products, the Joint Owners
     shall, on request, assist the Licensee in its defence to
     such action to the extent that in all the circumstances it
     is reasonable to do so but shall otherwise be under no
Handbook of Venture Capital Documentation               Page   124


      obligations in respect thereof.     All costs of any such
      action shall be borne by the Licensee to whom shall belong
      all sums that may be recovered from the third party.

10.4 If at any time during this Agreement the Licensee directly
     or indirectly opposes or assists any third party to oppose
     the grant of letters patent on any patent application
     within the Patent Rights or disputes or directly or
     indirectly assists any third party to dispute the validity
     of any patent within the Patent Rights or any of the claims
     thereof, the Joint Owners shall be entitled at any time
     thereafter to terminate all or any of the licences granted
     hereunder forthwith by notice thereof to the Licensee.

10.5 Where one party hereto has developed or acquired an
     Improvement to which Clause 8 above applies, it shall not
     publish the same or do anything that might prejudice the
     validity of any patent that might subsequently be granted
     on it until the other party has had at least 15 working
     days from disclosure in writing of all information relating
     to it to consider whether patent or other protection should
     be applied for. The first party will on request notify the
     other whether it intends to seek any relevant protection.
     If it does not wish to do so and if the other party within
     the 15 working day period notifies the first party that it
     would like to seek patent or other protection, and if it is
     agreed between the parties that the other party may do so,
     then this obligation shall continue for such time as may be
     reasonably required to prepare and file an application for
     patent or other protection.

10.6 Either party to this Agreement may at any time in respect
     of an Improvement elect not to pursue further an
     application for patent protection either jointly or on its
     own behalf or to maintain any such patent protection as it
     may have obtained and the party so electing shall notify
     the other party and shall if so requested assign all rights
     it may have therein to that other party provided that the
     party electing not to pursue the application or the
     resulting patent shall be entitled to a full irrevocable
     licence under all relevant rights with the right to sub-
     license.

10.7 Subject to the foregoing, each party shall be free to apply
     for patent protection for any invention not made in whole
     or in part by an employee of the other provided however
     that the specification in support thereof does not disclose
     any confidential information of the other.


11.   Termination
11.1 If any party is in breach of any obligation on it hereunder
     and, in the case of a breach capable of remedy, it shall
Handbook of Venture Capital Documentation                               Page   125


      not have been remedied by the defaulting party within 28
      days of written notice specifying the breach and requiring
      its   remedy,  or   if  the   Licensee  becomes  apparently
      insolvent, has a receiver or administrator appointed over
      the whole or any part of its assets, enters into any
      compound with creditors, or has an order made or resolution
      passed for it to be wound up (otherwise than in furtherance
      of a scheme for amalgamation or reconstruction) or if the
      ownership or control of the Licensee shall pass into the
      hands of any legal person, which the Joint Owners in their
      reasonable discretion considers is unable to meet the
      obligations of the Licensee under this Agreement then the
      Joint Owners or, in the case of breach, the party not in
      breach of the obligation or condition, may forthwith
      terminate this Agreement by notice without prejudice to the
      accrued rights of either party.
11.2 Termination of this             Agreement   for   any   reason   shall    not
     bring to an end:

      (1)    the confidentiality obligations on the parties hereto;

      (2)    the Licensee's obligations to pay royalties or other
             sums which have accrued due or which will become due
             in respect of sales under Clause 11.4;

      (3)    the obligations (if any) on the Licensee under Clause
             11.5;

      (4)    the licences (if any) under Clauses 8.5 and 10.6.

11.3 On termination of this Agreement for any reason, the
     Licensee shall continue to have the right for a period of
     twelve (12) months from the date of termination to complete
     deliveries on contracts in force at that date and to
     dispose of Products already manufactured subject to payment
     to the Joint Owners of royalties thereon in accordance with
     Clause 6.1above.


12.   Force majeure

12.1 If any party to this Agreement is prevented or delayed in
     the performance of any of its obligations under this
     Agreement by force majeure, and if such party gives written
     notice thereof to the other parties specifying the matters
     constituting force majeure, together with such evidence as
     it reasonably can give and specifying the period for which
     it is estimated that such prevention or delay will
     continue, then the party in question shall be excused the
     performance or the punctual performance as the case may be
     as from the date of such notice for so long as such cause
     of prevention or delay shall continue.
Handbook of Venture Capital Documentation               Page   126



13.   Arbitration

13.1 Any dispute between the parties arising under or in
     connection with this Agreement    shall be referred to an
     Arbiter who will be appointed by mutual agreement failing
     which by the xxxxxxx for the time being of The Law Society
     of Scotland.

13.2 Without prejudice to any other powers, the Arbiter shall
     have power: to direct such surveys and valuations as may in
     his opinion be xxxxxxx to determine the rights of the
     parties; to order the execution of deeds, the performance
     of   works,  the   carrying   out   of  repairs,  and   the
     implementation of any provision of this Agreement; to award
     damages to or against any of the parties; and, to award
     interest on any sum due to one or other of the parties from
     the date of submission to Arbitration.

13.3 All arbitrations shall take place in Scotland and shall in
     all respects be governed by the law of Scotland.        The
     Arbiter's decisions on questions of law shall be final and
     the provisions of section 3 of the Administration of
     Justice (Scotland) Act 1972 (power of Arbiter to state case
     to Court of Session) shall not apply in relation to an
     arbitration under this Clause.

13.4The costs of such arbitration shall, unless directed
     otherwise by the Arbiter be shared equally between the
     parties.


14.   General

14.1 No variation or amendment of this Agreement shall bind
     either party unless made in writing in the English language
     and agreed to in writing by duly authorised officers of
     both parties.
14.2 In all cases where a provision of this Agreement is
     reducible, invalid or unenforceable in terms of any
     legislation or other legal authority, such provision shall
     not affect the validity of the remaining portion of this
     Agreement which shall remain in force and effect as if this
     Agreement had been granted with no such provision and it is
     hereby declared the intention of the parties that they
     would have executed the remaining portion of this Agreement
     without including therein any such provisions.

14.3 This Agreement shall be binding upon and ensure to the
     benefit of the parties hereto and their respective legal
     successors but shall not otherwise be assignable by the
     Licensee without the written consent of the Joint Owners
     which consent shall not be unreasonably withheld.
Handbook of Venture Capital Documentation                                       Page   127



14.4 A failure by either party hereto to exercise or enforce any
     rights conferred upon it by this Agreement shall not be
     deemed to be a waiver of any such rights or operate so as
     to bar the exercise or enforcement thereof at any
     subsequent time or times.

14.5 The headings in this Agreement are for convenience only and
     are not intended to have any legal effect.

14.6 The Licensee hereby undertakes and agrees to be solely
     responsible at its own cost and expense for dealing with
     and for any liability arising from any contractual,
     delictual or other claims or proceedings concerning the
     Products or their development, production, marketing,
     distribution or sale in particular product liability claims
     or proceedings.
14.7 The text of any press release or other communication to be
     published by or in the media concerning the subject matter
     of this Agreement shall require the approval of each party
     hereto.


15.   Notices

15.1 Any notice required to be given hereunder by either party
     to the other shall be in writing and shall be served by
     sending the same by registered or Recorded Delivery Post to
     the address of the other party as given herein or to such
     other address as that party may have previously notified to
     the party giving notice at its address for such service.

15.2Any notice to the Joint Owners shall be sufficiently served if served as aforesaid to:

In the case of the University of xxxxxxxxx to

(names and places for each signatory)

15.3 Any notice to the Licensee shall be sufficiently served if
     served as aforesaid to

      [                                                ] for the attention of [
      ].

15.4 Any notice sent by Recorded Delivery Post shall be deemed
     duly served at the expiry of two days after the date of
     posting.   In proving service, it shall be sufficient to
     prove that the envelope was duly addressed to the
     appropriate party in accordance with this Agreement

16.   Governing Law
Handbook of Venture Capital Documentation               Page   128



      This Agreement and all matters relating thereto shall be
      governed by the law of Scotland and the parties agree to
      prorogate the non-exclusive jurisdiction of the Court of
      Session.

IN WITNESS WHEREOF these presents consisting of this and the [
] preceding pages are executed by the parties hereto as follows:


SIGNED FOR THE UNIVERSITY OF XXXXXXX by
...........................................
Full Name .......................................
Date ............................

Witness ....................................
Full Name ..................................
Address ....................................
............................................
Occupation .................................


SIGNED FOR XXXXXXX UNIVERSITY by
...........................................
Full Name .......................................
Date ............................

Witness ....................................
Full Name ..................................
Address ....................................
............................................
Occupation .................................


SIGNED FOR Licensee Co LIMITED by
.................................................
Full Name .......................................
Date ............................

Witness ....................................
Full Name ..................................
Address ....................................
............................................
Occupation .................................



SIGNED FOR NEW CO LIMITTED by ………………………………

Full Name .......................................
Handbook of Venture Capital Documentation                Page   129



Date ............................

Witness ....................................
Full Name ..................................
Address ....................................
............................................
Occupation .................................


This is the Schedule referred to in the foregoing Agreement


Part 1          - Patent Rights

Part 2          - Products
Handbook of Venture Capital Documentation                                               Page   130




DOCUMENT NUMBER              21
DOCUMENT TITLE               INVESTMENT AGREEMENT
PURPOSE         OF           Details of basis upon the investment is made
DOCUMENT
EXAMPLE OF USE               Standard model document



To:   [                             ] Limited [                                     ]
[     [                             ]

                             ] (“the Company”)            (“the Directors”)


Dear Sirs

We, Investor Co , a company limited by guarantee incorporated
under the Companies Acts in Scotland with registered number
[               ] and having our registered office at (place),
(“Investor Co ”) hereby offer to [invest £[               ] in]
[and] [to make a loan of £[                  ] to] the Company,
subject to the following terms and conditions:-

1       PURPOSE AND SOURCE OF INVESTMENT

1.1    The purpose of the investment will be:-
                                    £
       [Purchase of fixed assets]   [
       [Working capital]
                                    ]
                                    [                                           ]

       Source                                     £
       [Investor Co equity]                       [                         ]
       [Investor Co loan]                         [                         ]
       [               ]                          [                         ]
       ]                                          ]
                                                  [                             ]



2       INVESTMENT [LOAN] SUMMARY
Handbook of Venture Capital Documentation                       Page       131


2.1     WHEN THE CONDITIONS PRECEDENT SET OUT IN PART 1 OF THE
        SCHEDULE HAVE BEEN FULFILLED TO INVESTOR CO ‟S SATISFACTION
        INVESTOR CO WILL [SUBSCRIBE FOR SHARES IN THE COMPANY AS
        FOLLOWS:-

       Number of Shares           Class of Shares   Consideration
                                                    £
       [                      ]   [preference]      [                  ]
       [                      ]   [„A‟ ordinary]    [                  ]
                                                    ]

2.2     [and] [lend to the Company and the Company shall borrow
        from Investor Co the sum of £[             ] (which sum or
        such part thereof as is for the time being and from time to
        time owing by the Company to Investor Co being hereinafter
        referred to as “the Loan”)] upon the following terms.

3       LOAN TERMS

3.1     Security

        3.1.1 Prior to the advance of the Loan, the Company shall
              execute and deliver to Investor Co a [standard
              security     [in     respect     of     subjects    at
              [                ]] [a bond and floating charge in
              respect of all sums due or to become due by the
              Company to Investor Co ] in the form agreed between
              the Company and Investor Co (herein together referred
              to as “the Security”) [and procure the execution and
              delivery to Investor Co by [its subsidiary[y][ies] of
              a [collateral standard security [in respect of
              subject at [                 ]] [a collateral bond and
              floating charge] (herein [together] referred to as
              “the Collateral Security”)].

        3.1.2 The Company hereby agrees that repayment of the Loan
              together with interest thereon and all other monies
              and liabilities that may be owing or incurred by the
              Company to Investor Co in terms of this letter shall
              be secured by the Security [and the Collateral
              Security].

        3.1.3 The Company shall enter into a ranking agreement in
              the form agreed between Investor Co and [the Bank,]
              in terms of which the Security and [the Bank‟s
              securities] shall rank as follows:-
        3.1.4 [                                      ]].
Handbook of Venture Capital Documentation                        Page   132




3.2     Interest

        3.2.1 The Company shall pay Investor Co interest on the
              Loan at the rate of [      ] per cent per annum [above
              the LIBOR [           ] rate from time to time] which
              will be payable [by direct debit] [quarterly] [in
              arrears] on [                  ], (each an “Interest
              Payment Date”) the first such payment to be made on
              [                     ] for the period from Completion
              to [               ].

        3.2.2 [The Company shall pay interest on the Loan net of
              tax in accordance with Section 349(2) of the Income
              and Corporation Taxes Act 1988 and shall provide
              Investor Co at the time of payment with a certificate
              of deduction of tax in accordance with Section 352 of
              the Income and Corporation Taxes Act 1988.]

3.3     Repayment

        3.3.1 Save as otherwise provided herein or by the Security
              [or the Collateral Security] the Company shall repay
              the     Loan     [by      a      single       payment     on
              [                      ]]      [by        [                ]
              [annual]     [half-yearly]       [quarterly]       [monthly]
              instalments [consisting of [             ] instalments of
              £[           ] and a final instalment of £[                ]
              each   to    be    paid    on     [the     last   day    of]
              [                ]   in     each    year    commencing    on
              [                ] (or if any such day is not a
              Business Day, on the immediately preceding Business
              Day).

        3.3.2 The Company will notify Investor Co forthwith in
              writing if on, or as a result of, a sale or transfer
              or allotment of any shares, the Company becomes a
              Quoted Company, or if a Control in the Company is
              obtained by any person or persons (whether or not a
              body corporate) who did not have Control of the
              Company on the date of the advance of the Loan; and
              upon receipt of such notification, Investor Co may
              within a period of 3 calendar months from receipt of
              such notice by Investor Co , by notice in writing
              require the Company to repay the Loan together with
Handbook of Venture Capital Documentation                                   Page    133


                all interest accrued to the date of repayment and any
                other sums due to Investor Co .

3.4     [Default Interest

3.5     If any payment of capital is not made on the due date,
        interest shall continue to accrue on the Loan in terms of
        clause 3.2.1 and, in addition, the Company shall pay
        Investor Co interest on such capital from the due date
        until the date of actual payment at the rate of [   ] per
        centum per annum].]


4       SHARE RIGHTS

4.1     The shares to be subscribed for by Investor Co in terms of
        this Agreement will have the rights summarised for
        reference purposes only in Part 2 of the Schedule hereto,
        and set out at length in the articles of association of the
        Company in the terms approved by Investor Co to be adopted
        at Completion.

        Share Capital

4.2     Immediately after Completion the Company‟s authorised share
        capital   will   be    £[               ]   consisting    of
        [          ]   [preference]   shares   of   [     ]    each,
        [          ] [„A‟ ordinary] shares of [        ] each, and
        [          ] ordinary shares of [         ] each; and the
        Company‟s issued share capital will be:-

                            [Preference]         [„A‟ Ordinary]       Ordinary
                            Shares of            Shares of [          Shares of [
                            [     ] each]        FORMTEXT             FORMTEXT
                                                  ] each               ] each
       Investor Co          [               5                     6
       [   FORMTEXT                         7                     8
           FORMTEXT
           FORMTEXT
         ]
       [                                    9                     10]
         ]
                                            11                    12



              BUSINESS CONDUCT AND INVESTMENT PROTECTION
Handbook of Venture Capital Documentation                       Page   134




          General Restrictions

      The Company will not, except with the prior written consent
 of Investor Co :-

                 borrow monies or create charges;

                 advance or lend any money with or without security
                    or give any guarantees;

                 factor its debts;

                 alter or vary its Articles of Association, its
                    authorised or issued share capital or the rights
                    attaching to any class of share

                 enter into         any credit sale, hire purchase or
                    equipment       leasing facilities if the aggregate
                    liability       under all such agreements exceeds
                    £[               ];

                 change its accounting reference period;


                 while there are [             ] directors, allow the
                    combined Benefits of the directors of the Company
                    and any subsidiaries [excluding any non-executive
                    director appointed by Investor Co in terms of
                    clause [6] below] to exceed £[             ] Index
                    Linked a year, and, in the event of there being a
                    variation in the number of directors, allow the
                    combined Benefits of the directors of the Company
                    and any subsidiaries [excluding any non-executive
                    director appointed by Investor Co in terms of
                    clause   [6]   below]   to   exceed   such   other
                    appropriate figure as Investor Co shall, acting
                    reasonably, determine;

                 allow the directors of the Company to invest in any
                    other   company   or   partnership   (except for
                    investments not exceeding 3% of any class of
                    security traded on the Stock Exchange);

                 expand or develop its business, or allow the
                    expansion or development of the business of any
                    subsidiary of the Company from time to time,
Handbook of Venture Capital Documentation                    Page   135


                    except through itself, the Company or a wholly
                    owned subsidiary of the Company;

                 enter into a service or any other agreement with any
                    director or Connected Person, or materially
                    change such an agreement;

                 incur    capital   or   revenue expenditure above
                    £[          ] in aggregate in excess of that
                    provided for in the budget to be provided
                    pursuant to clause [13.]3;

                 permit any dealings which are not for full value and
                    on an arms‟ length basis;

                 appoint or change the auditors of the Company or any
                    of its subsidiaries; and

                 move the Company‟s main operating base outwith [West
                    Lothian].

                               SUBSCRIPTION OPTION

          Investor Co shall have the option (“the Option”) at any
             time prior to [                      ] or, if longer,
             for so long as Investor Co shall hold any share in the
             capital of the Company] [or for so long as any part of
             the Loan remains outstanding] (“the Option Period”) to
             subscribe at a price of £[       ] per share for such
             number of „A‟ Ordinary Shares of £[          ] each as
             represent [           ] per cent of the equity share
             capital (as defined by Section 744 of the Companies
             Act 1985) of the Company as enlarged by the allotment
             and issue of such shares and assuming for the purposes
             of calculation that all other existing options to
             subscribe for shares in the capital of the Company at
             the date of exercise of the Option have been exercised
             in full prior to the exercise of the Option.

          During the Option Period the Company will procure that:-

                 there are at all times sufficient unissued shares in
                    the share capital of the Company to effect the
                    exercise of the Option without further increasing
                    the share capital;
Handbook of Venture Capital Documentation                     Page   136


                 no alteration is made to the share capital of the
                   Company;

                 none of the shares of any subsidiary of the Company
                    held by the Company are transferred, sold,
                    disposed or otherwise alienated without the prior
                    written consent of Investor Co ;

                 copies of notices of all shareholders meetings and
                    of all circulars to shareholders are given to
                    Investor Co at the same time as they are given to
                    other shareholders;

                 no change is made to the memorandum or articles of
                   association of the Company without the prior
                   written consent of Investor Co ;

                 an    offer to purchase any issued shares of the
                      Company which would result in Control of the
                      Company being obtained by any person or persons
                      not in Control of the Company on the date of the
                      Company‟s execution of this letter shall not be
                      accepted and transfers resulting from such an
                      offer shall not be registered unless the offer
                      extends to the shares subject to the Option.

          The proceeds of subscription pursuant to exercise of the
             Option shall, if Investor Co so directs the Company in
             writing, be applied in the first instance in or
             towards [repayment of the Loan and/or] redemption of
             any of the Preference Shares held by Investor Co , in
             such proportions as Investor Co shall direct.

          The new „A‟ Ordinary Shares issued pursuant to the
             exercise of the Option will [rank pari passu in all
             respects with the existing „A‟ Ordinary Shares of the
             Company] [have the rights attributed to them in the
             agreed form of articles of association of the Company
             to be adopted by the Company at Completion.]

   PUT OPTION ON DEFAULT

          Investor Co shall be entitled by notice in writing to the
             Directors to require the Directors to purchase in such
             proportions as Investor Co may specify all of the
             shares held by Investor Co or its assignees (herein
             referred to “the Investor Co Shares”) in the share
Handbook of Venture Capital Documentation                                  Page   137


             capital of the Company at the price (including any
             premium) originally subscribed by Investor Co for such
             shares at any time following the occurrence of either
             of the following events:-

          if the Company or any of the Directors fails to comply
            with any condition or undertaking contained herein,
            or, if any warranty given by [the Company and] any of
            the Directors to Investor Co proves to be materially
            untrue;

          if the Company fails to:-

                 make payment on the due date of any dividend payable
                    to Investor Co in terms of the articles of
                    association of the Company; and/or

                 redeem any Preference Shares held by Investor Co or
                    its assignees on the due date for such redemption
                    in terms of the articles of association of the
                    Company;

          except in circumstances where payment of such dividend and/or redemption
             moneys, as the case may be, are prohibited in terms of the Companies
             Act 1985 (as amended or re-enacted from time to time) or other statutory
             provisions.

   OBSERVER

          Investor Co may appoint an observer to attend board meeting of the
             Company. Any such observer will not be entitled to vote at board
             meetings, but may table items for discussion and speak at board
             meetings.

   NON-EXECUTIVE DIRECTOR

          Investor Co may appoint a non-executive director to
             [chair] the Company and its subsidiaries from time to
             time.

          The Company will pay the director‟s fees. If the Company
             and the director cannot agree the level of fees to be
             paid, then Investor Co will fix a reasonable sum.

   CONSUMER CREDIT ACT 1974
Handbook of Venture Capital Documentation                                     Page   138


          To enable Investor Co to fulfil its obligations under the Consumer Credit Act
             1974, the Company shall notify Investor Co immediately of any licence
             under such act issued to it or any company it controls, or if such a licence
             is revoked, or if it acquires or loses control of any company which holds
             such a licence.

   EXIT

          If any of the equity share capital of the Company is
            admitted to the Official List of the Stock Exchange or
            permission for any of the equity share capital of the
            Company to be dealt in on any Recognised Investment
            Exchange becomes effective:-

          there will be no restriction on dealing in the shares
             Investor Co holds in the Company; and

          Investor Co will not be required to give any warranty or
             indemnity to any party other than a warranty as to its
             title to the shares held by it in the Company.

   ENVIRONMENTAL OBLIGATIONS

          In connection with the environment, the Company and its subsidiaries from
             time to time will comply with all applicable legislation and regulations,
             maintain all required consents and licences and notify Investor Co
             immediately if the Company, or any subsidiary of the Company should so
             fail to comply or loses any such consent or licence.

          [Consider    expanding   and including environmental
             warranties if Company engaged in environmentally
             sensitive activities]

   INSURANCE

          The Company and its subsidiaries from time to time shall insure with a
             reputable insurance office and keep so insured at all times all of their
             respective assets in accordance with good commercial practice.

   INFORMATION

   The Company will give Investor Co :

   Audited Accounts

   within 4 months of the end of each financial year, copies of:
Handbook of Venture Capital Documentation                                  Page    139


   audited accounts of the Company and of every subsidiary of the
   Company and audited consolidated accounts of any group of
   companies of which the Company forms part, in each case
   showing the information needed to calculate the dividends due
   to Investor Co ;

   any audit letters addressed to the directors of the Company or
   any subsidiary of the Company;


   Management Accounts

   within 3 weeks of each month end copies of monthly management
   accounts in a form acceptable to Investor Co ;

   Budgets

   prior to the start of each 12 month trading period, capital expenditure and trading
   budgets for that period;

   Other Information

   within a reasonable time, any further information about the
   financial position of the Company or any subsidiary of the
   Company, or the progress of the Company‟s, or any subsidiary
   of the Company‟s business which Investor Co may reasonably
   request;

   at the same time as they are given to the board of directors,
   all agendas, minutes and other documents circulated for (or
   following) discussion at a meeting of the board of directors;

   immediate written details of any actual or proposed offer to
   any of the ordinary shareholders of the Company to buy their
   shares.

   If the Company does not provide Investor Co with any of the
   information requested in this clause [14] within the time
   specified, Investor Co may appoint accountants to do so by
   attending the Company‟s premises, carrying out all necessary
   investigations and preparing the documents. The Company must
   co-operate with the accountants and pay their fees and
   expenses.
Handbook of Venture Capital Documentation                                      Page    140


   WARRANTIES

   ALT. 1 Short form warranties appropriate to start-up.

   NB       If MBO consider whether Directors should also be asked to warrant
   Target Accounts - see wording in ALT.2.

   The warranties in this clause are given subject to any matters fairly disclosed in any
   disclosure letter accepted by or on behalf of Investor Co .

   Each Director severally warrants to Investor Co as set out
   below.

   Information Documents

   There are no material inaccuracies in the factual information
   in the Accountants‟ Report and the opinions and forecasts it
   contains are reasonable.


   The Company has disclosed to Investor Co in writing all key
   assumptions underlying the profit and cash flow forecasts in
   the Business Plan [as updated by financial projections dated
   [               ];

   The factual information in the Business Plan is accurate in
   all material respects;

   The opinions and forecasts in the Business Plan as updated by
   the financial projections dated [               ] are made on
   reasonable grounds after thorough enquiries;

   The Directors knows nothing which invalidates or potentially
   invalidates the opinions and forecasts in the Business Plan as
   updated by the said financial projections.

   Assets and Liabilities

   The Company has not traded.

   The Company has disclosed to Investor Co in writing all its
   assets actual and contingent liabilities including pending or
   threatened litigation director‟s service contracts; its share
   capital (issued, authorised and under option) and interests in
   the share capital of any other company.

   Intellectual Property
Handbook of Venture Capital Documentation                Page   141




   The Company [and the Target] own outright all the intellectual
   property rights they need for [its]/[their] current or
   proposed business, and insofar as such intellectual property
   rights are capable of protection, they have been appropriately
   protected.

   Subsidiaries

   The Company has no subsidiaries [except for [               ]
   which [are all] [is a] wholly owned subsidiary[y][ies] within
   the meaning of Section 736 of the Companies Act 1985)].

   Information Supplied

   The written information supplied to Investor Co by the
   Directors in connection with Investor Co ‟s investment was
   when given accurate in all material respects and remains
   accurate in all material respects.

   The Directors do not know of anything which makes the written
   information given to Investor Co misleading.

   The Directors know nothing which materially adversely affects
   the financial or trading prospects of the Company [or Target.]

   [So far as the Directors are aware there are no matters which
   would allow any claim to be made under the warranties
   contained in the Acquisition Agreement.]

   Directors’ Personal Interests
Handbook of Venture Capital Documentation                      Page   142




   Each of the Directors warrants, on his own account only, that
   he:

      has no business interests except for shareholdings in the
      Company or in companies quoted on the Stock Exchange;

   has never been:

      convicted of a criminal offence (except any road traffic
      offence not punished by a custodial sentence);

      disqualified from being a company director;

      the subject of an Inland Revenue or Customs & Excise
      investigation and, so far as he is aware, no such
      investigation is pending or threatened against him.

   Each of the Directors warrants, on his own account only, that
   neither he nor anyone with whom he is Connected has any
   contract with the Company [or the Target], nor owns any
   property used by the Company [or the Target].

   Each of the Directors warrants, on his own account only, that
   the information contained within the director‟s information
   form submitted by him to Investor Co is true and accurate.

   The warranties in this Clause 15 shall be deemed to be given
   immediately before Completion

   ALT 2     Warranties appropriate to an existing business.

   The warranties in this clause are given subject to any matters
   fairly disclosed in any disclosure letter accepted by or on
   behalf of Investor Co .

   The Company and the Directors jointly and severally warrant to
   Investor Co as set out below.

   Information Documents

   There are no material inaccuracies in the factual information
   in the Accountants‟ Report and the opinions and forecasts it
   contains are reasonable.

   The Company as disclosed to Investor Co in writing all key
   assumptions underlying the profit and cash flow forecasts in
Handbook of Venture Capital Documentation                 Page    143


   the Business Plan [as updated by financial projections dated
   [               ];


   The factual information in the Business Plan is accurate in
   all material respects;

   The opinions and forecasts in the Business Plan as updated by
   the financial projections dated [               ] are made on
   reasonable grounds after thorough enquiries;

   The Directors know nothing which invalidates or potentially
   invalidates the opinions and forecasts in the Business Plan as
   updated by the said financial projections.

   Accounts

   The financial position of the Company at [               ] was
   that disclosed by the audited balance sheet and trading and
   profit and loss accounts of the Company as at that date, which
   are true and accurate, and the financial position of the
   Company at [               ] was that disclosed by the
   management accounts of the Company as at that date which are
   true and accurate in all material respects.

   Since [the management accounts date]:

      there has been no material adverse change in the financial
      or trading position or prospects of the Company and its
      subsidiaries;

      the business of the Company and the subsidiaries has been
      carried on in the ordinary course;

      except in the normal course of business, there has not been
      any acquisition or disposal of assets by the Company or any
      subsidiary of the Company.

   [NB    If investment is to fund an MBO, additional warranties
   on the Target accounts may be required.]

   Assets and Liabilities

   The Company has disclosed to Investor Co in writing all its
   and its subsidiaries:
    assets;
Handbook of Venture Capital Documentation                  Page   144


    actual and contingent liabilities, including pending or
   threatened litigation;
    director‟s service contracts;
    share capital (issued, authorised and under option) and
   interests in the share capital of any other company.

   Neither the Company nor any of the Directors is or has been
   the subject of an Inland Revenue or Customs & Excise
   investigation and, so far as the Company and the Director are
   aware, no such investigation is pending or threatened against
   any of them.

   Intellectual Property

          The Company [and the Target] own outright all the
             intellectual property rights they need for their
             current or proposed business, and insofar as such
             intellectual   property    rights   are    capable  of
             protection, they have been appropriately protected.

   Subsidiaries

          The    Company   has    no   subsidiaries   [except  for
             [                         ] which [are all] [is a]
             wholly-owned subsidiar[y][ies] (within the meaning of
             Section 736 of the Companies Act 1985).]

   Information Supplied

          The written information supplied to Investor Co by the
             Directors in connection with Investor Co ‟s investment
             was when given accurate in all material respects and
             remains accurate in all material respects

          The Directors do not know of anything which makes the
             written information given to Investor Co misleading.

          The Directors know nothing which materially adversely
             affects the financial or trading prospects of the
             Company [or Target.]

          [So far as the Directors are aware there are no matters
             which would allow any claim to be made under the
             warranties contained in the Acquisition Agreement.]

   Directors‟ Personal Interests
Handbook of Venture Capital Documentation                      Page   145


      Each of the Directors warrants, on his own account only,
 that he:

               has no business interests except for shareholdings in
                  the Company or in companies quoted on the Stock
                  Exchange;

          has never been:

                 convicted of a criminal offence (except any road
                    traffic offence not punished by a custodial
                    sentence);

                 disqualified from being a company director.


          Each of the Directors warrants, on his own account only,
             that neither he nor anyone with whom he is Connected
             has any contract with the Company [or the Target], nor
             owns any property used by the Company [or the Target

          Each of the directors warrants, on his own account only,
             that the information contained within the director‟s
             information form submitted by him to Investor Co is
             true and accurate.]

          The warranties in this Clause [15] shall be deemed to be
             given immediately before the subscription by Investor
             Co in the Company.

   WARRANTY LIMITATIONS
      ALT 1: Start up/MBI

          Each Director‟s liability for all claims for breach of
             the warranties is limited as follows:
              Director                  Limit (£)
              [                    ]    [3x salary]

          Investor Co may not claim for breach of the warranties
             unless the total amount of all claims exceeds £[2,000]
             but may then claim the whole amount and not just the
             excess over £[2,000]

          In    order to      make a valid claim for breach of the
               warranties,    Investor Co must have intimated the claim
               in writing    to the relevant Director giving reasonable
               details of    the claim (on the basis of the facts then
Handbook of Venture Capital Documentation                    Page   146


               known to Investor Co ) within 6 months of the delivery
               to Investor Co of the signed audited accounts of the
               Company,   and,    where  appropriate,   the   audited
               consolidated   accounts  of   the   Company  and   its
               subsidiaries, for the year ending or current on
               [          ].

          None of the above restrictions on liability shall apply
             to any claim which (or delay in the discovery of
             which) is the consequence of fraud, wilful misconduct
             or wilful concealment by the Directors.

        ALT 2:      Existing Business

          The total liability of the Company and the Directors in
             respect of all claims under the above warranties shall
             be limited to £[total Investor Co investment] [plus a
             sum equal to the aggregate of [all arrears and
             accruals of dividend] [and] [interest] and the
             reasonable costs and liabilities incurred by Investor
             Co in pursuing its claim.

          Investor Co may not claim for breach of the warranties
             unless the total amount of all claims exceeds £[2,000]
             but may then claim the whole amount and not just the
             excess over £[2,000].

          In    order to make a valid claim for breach of the
               warranties, Investor Co must have intimated the claim
               in writing to the Company or the relevant Director, as
               the case may be, giving reasonable details of the
               claim (on the basis of the facts then known to
               Investor Co ) within 6 months of the delivery to
               Investor Co of the signed audited accounts of the
               Company,   and,    where  appropriate,   the   audited
               consolidated   accounts  of   the   Company  and   its
               subsidiaries, for the year ending or current on
               [should see two audits].

          None of the above restrictions on liability shall apply
             to any claim which (or delay in the discovery of
             which) is the consequence of fraud, wilful misconduct
             or wilful concealment by the Company or the Directors.

   INFORMATION AND PUBLICITY
Handbook of Venture Capital Documentation                   Page   147


          Investor Co may disclose information about the Company
             and its subsidiaries and Investor Co ‟s investment in
             the Company to:

                 any investor, lender or shareholder in the Company
                    or its subsidiaries;
                 as required by law or by the Stock Exchange or by
                    any regulatory authority to which it is subject;
                 the directors and members of Investor Co from time
                    to time.

          With the Company‟s consent Investor Co may disclose
             information about the Company and its subsidiaries and
             Investor Co ‟s investment in the Company to any
             potential investor in, or potential lender to, the
             Company or its subsidiaries.

          No press release or other public intimation of this offer
            or of the investment to follow herein shall be made
            without the prior written consent of Investor Co .

   ASSIGNATION

          Investor Co shall be entitled to assign and transfer the
             benefit of any agreement to follow hereon (whether
             constituted by acceptance of this offer or otherwise)
             between the Company and Investor Co to any or all of
             the members of Investor Co from time to time or to any
             body of persons which shall have acquired the whole or
             any part of the undertaking of Investor Co or to any
             holding company or subsidiary or subsidiary of any
             holding company of any of the foregoing.

   FEES

          The Company will pay to Investor Co :

          a negotiation fee of £[           ] on acceptance of this
            offer;

          Investor Co ‟s solicitors‟ fees and expenses in
             connection with this letter and the preparation of new
             articles of association of the Company, payable on
             Completion [provided that the Company shall pay such
             of Investor Co ‟s solicitor‟s fees and expenses as
             have been incurred if matters do not progress to
             Completion];
Handbook of Venture Capital Documentation                           Page   148




          [an annual monitoring fee of        £[                    ]   [plus
             VAT], payable [monthly] on [                    ].

          The Company shall make all payments of fees, capital and
             interest by direct debit or in such other manner as
             Investor Co may require.

          Any certificate issued by Investor Co stating the amount
             owing to Investor Co by the Company will, in the
             absence of manifest error, conclusively determine the
             amount owing to Investor Co by the Company.

   DEFINITIONS

          The following definitions apply in this letter

          Acquisition Agreement means the agreement made between
             the Company and [               ] Limited whereby the
             Company shall purchase the whole of the issued share
             capital of Target;

          Benefits means all salary and emoluments including

                 fees and percentages

                 sums paid by way of expenses allowance (if taxable);

                 pension contributions; and

                 benefits in kind

          (Note:    all these sums need       to   be   disclosed    in    the
             Company‟s audited accounts);

          Business Day means a day on which the London Interbank
             Sterling   Market   is  open for  dealings  between
             commercial banks generally;

          Complete, Completion means when Investor Co [subscribe
             for shares in] [and] [or] [makes the Loan to] the
             Company;

          Connected Persons and person connected shall mean any
             person or persons connected with another person within
             the definition of connected persons contained in
Handbook of Venture Capital Documentation                 Page   149


             Section 839 of the Income and Corporation Taxes Act
             1988;


          Control has the meaning attributed to it in Section 840
             of the Income and Corporation Taxes Act 1988;

          [LIBOR means [the rate at which Investor Co certify to
             the Company as being the rate at which Investor Co is
             then able to borrow in London sterling funds equal to
             the Loan then outstanding for repayment on the next
             Interest Payment Date];]

          Target means [                    ] and its subsidiaries
             (if any);

          Index Linked means adjusted annually each [            ]
             starting on 1 [                ].   The amount of the
             increase shall be the percentage increase in the
             retail price index for the preceding 12 months except
             for the first increase which shall be made by
             reference to the period from the first day of the
             month   in    which   Completion   takes   place   to
             [               ];

          Quoted Company means a company any of whose shares are
             listed or dealt in on a Recognised Investment
             Exchange; and

          Recognised   Investment   Exchange means  a   recognised
             investment exchange as defined by Section 207 of the
             Financial Services Act 1986 or the Alternative
             Investment Market or OFEX.

   PERIOD OF OFFER

   WE MAY REVISE OR WITHDRAW THIS OFFER UNLESS THE ACCEPTANCE
     HAS BEEN RECEIVED ON OR BEFORE (                 ) AND THE
     OFFER WILL LAPSE IF COMPLETION OF THE LEGAL DOCUMENTATION
     HAS NOT BEEN ACHIEVED WITHIN (     ) WEEKS OF THE DATE OF
     ACCEPTANCE.
Handbook of Venture Capital Documentation                 Page   150


   PROCEDURE FOR ACCEPTANCE

   IF YOU WISH TO ACCEPT THIS OFFER, PLEASE SIGN, DATE AND RETURN
      THE ENCLOSED COPY TOGETHER WITH YOUR CHEQUE FOR £

   PLEASE NOTE THAT INVESTOR CO DOES NOT PROVIDE PERSONAL
     INVESTMENT ADVICE. IF YOU ARE IN ANY DOUBT ABOUT THE TERMS OF
     THE OFFER OR ABOUT THE ACTION YOU SHOULD TAKE, YOU SHOULD
     CONSULT YOUR INDEPENDENT FINANCIAL ADVISER AUTHORISED
     UNDER THE FINANCIAL SERVICE ACT 1986.

Yours sincerely




[                    ]
For and on behalf of
Investor Co

We,   [               ]   Limited   and  [               ]   and
[               ], the Directors of [                 ] Limited
hereby accept the foregoing offer of finance from Investor Co on
the terms and conditions stated above and enclose our cheque in
the amount of £[                ] in payment of Investor Co ‟s
negotiation fee.


For and on behalf of
[               ] Limited
Handbook of Venture Capital Documentation                            Page    151




Director                                    Date
..............................                   .........................
.............................               ..............................
                                            ....


Director                                    Witness
..............................                   .........................
.............................               ............................

                                            Name         of         Witness
                                                      ....................
                                            ...........................

                                            Address
                                                 .........................
                                            ............................

                                            ..............................
                                            .......................

                                            Occupation
                                                 .........................
                                            ............................
Handbook of Venture Capital Documentation                               Page   152




This is the Schedule in two parts referred to in the foregoing
letter from Investor Co to [insert Company name] Limited and
[insert names of directors].

                                    THE SCHEDULE
        Part 1

             Conditions Precedent to Investor Co Investment

        Investor Co ‟s investment will only be made available when


1       Investor Co is satisfied with:-

1.1     the Memorandum and Articles of the Company including the
        incorporation of the rights attaching to the „A‟ Ordinary
        Shares and Preference Shares;

1.2     the result of a Companies Registry Search against the
        Company and each of its subsidiaries immediately before
        Completion;

1.3     the warranties and any disclosures by [the Company and] the
        Directors;

1.4     the terms of the [Accountants Report] to be prepared by
        [                  ];

1.5     the financial position of the Company immediately before
        Completion and the Company‟s procedures for producing
        management accounting information;

1.6     the terms and conditions of loan and overdraft facilities
        from [              ];

1.7     the insurance cover of the Company;

1.8     the terms       of   the    Company‟s   occupation   of   its   trading
        premises;

1.9     an unqualified acceptance of this offer by the Company and
        the Directors;

1.10    a certificate from the Company‟s solicitors confirming the
        status of the Company;
Handbook of Venture Capital Documentation                 Page   153


1.11    the terms and conditions of any service agreements between
        the Company and its directors (including the Directors);

1.12    an agreement between all shareholders of the Company
        agreeing to implement and be bound by the terms hereof.
Handbook of Venture Capital Documentation                             Page   154




                                      Part 2
                             Summary of Share Rights

2       DIVIDENDS

      [Preference Shares

2.1     Fixed Dividend

        2.1.1 Amount:             [         ] pence per share per annum;

        2.1.2 Payment: accrues from [date of subscription] and is
              payable    half   yearly   on  [               ]  and
              [                ] each year, the first payment to be
              made on [                ].

2.2     Participating Dividend

        2.2.1 Amount: such sum which when added to the Fixed
              Dividend   payable  in   that  year  is   equal  to
              [               ] per cent of the Net Profit earned
              in that year;

        2.2.2 Payment: accrues from [date of subscription] and is
              payable not more than 14 days after general meeting
              at which audited accounts presented.]

      „A‟ Ordinary Shares

2.3     Fixed Dividend

        2.3.1 Amount:             [         ] pence per share per annum;

        2.3.2 Payment: accrues from [date of subscription] and is
              payable    half   yearly   on  [               ]  and
              [                ] each year, the first payment to be
              made on [                ].

2.4     Participating Dividend

        2.4.1 Amount: such sum which when added to the Fixed
              Dividend   payable  in   that  year  is   equal  to
              [               ] per cent of the Net Profit earned
              in that year;
Handbook of Venture Capital Documentation                          Page   155


        2.4.2 Payment: accrues from [date of subscription] and is
              payable not more than 14 days after general meeting
              at which audited accounts presented.]


2.5     Net Profit means: net profit as shown in the audited
        consolidated profit and loss account of the Company and its
        subsidiaries for the relative financial year but:

        2.5.1 before any provision          is   made   for   dividends   or
              transfers to reserves;

        2.5.2 before deducting any tax;

        2.5.3 before deducting any sum in respect of Directors‟
              Benefits in excess of £[       ].


        Additional Dividend

2.6     [Both the holders of the Preference Shares and] the „A‟
        Ordinary Shares are entitled to an additional dividend if
        the total Benefits received by directors and former
        directors    and    their    Connected   Persons    exceed
        £[               ] per annum (“Excess Benefits”). This is
        a dividend on each share held by Investor Co of an amount
        equal to the Excess Benefits divided by the number of
        ordinary shares held by such directors and their Connected
        Persons.

        Ordinary Dividend

2.7     Once all of the above dividends have been paid and all
        Preference Shares which have fallen due for redemption have
        been redeemed, the ordinary shareholders are entitled to a
        dividend of an amount up to but not exceeding the aggregate
        of the fixed dividend and participating dividend paid on
        each „A‟ Ordinary Share for such year.

2.8     Any balance of profits remaining are distributed equally
        amongst the holders of the [Preference Shares and the] „A‟
        Ordinary Shares and the Ordinary Shares, pari passu as if
        the same constituted one class of share.

3       Capital
Handbook of Venture Capital Documentation                    Page   156


        On a return of assets the assets of the Company remaining
        after payment of its liabilities are to be applied as
        follows:

3.1     Holders of Preference Shares: £[      ] [such sum per share
        as would have been payable if such share had been redeemed
        on due date] plus any arrears or accruals of dividend;

3.2     Holders of „A‟ Ordinary Shares: £[       ] per share plus any
        arrears or accruals of dividend;

3.3     Holders of Ordinary Shares: £[       ] per share;

3.4     The balance of the assets is to be distributed amongst the
        holders of [Preference Shares and] „A‟ Ordinary Shares and
        Ordinary Shares pari passu as if the same constituted one
        class of share.

4       Voting Rights

4.1     Each „A‟ Ordinary Share and each Ordinary Share has one
        vote. The holders of Preference Shares shall be entitled
        to receive notice of and attend all general meetings but
        not to vote thereat [unless the dividends on the Preference
        Shares are in arrears or redemption of the Preference
        Shares is in arrears or the Company or the Directors commit
        a material breach of the terms of this letter, or any sum
        owed to a third party by the Company becomes due and
        payable before the original due date for payment].

5       Redemption of Preference Shares

5.1     The Preference Shares shall be redeemed by the Company in
        instalments of [          ] shares on [               ] at
        a price of £[          ] per share plus a sum equal to any
        arrears or accruals of the dividends payable on the
        Preference Shares.

5.2     The Preference Shares shall also become redeemable or must
        be purchased by a third party purchaser before any of the
        share capital of the Company shall be or become listed on
        any Stock Exchange or any other security market.]

6       Note:    The above is a short summary only of the rights
        attaching to the Preference and „A‟ Ordinary Shares and is
        not exhaustive. Reference must be made to the terms of the
Handbook of Venture Capital Documentation                  Page   157


        draft articles of association to be prepared by Investor Co
        ‟s solicitors.
Handbook of Venture Capital Documentation                               Page   158




DOCUMENT NUMBER                22
DOCUMENT TITLE                 ARTICLES OF ASSOCIATION
PURPOSE         OF             The „internal‟ constituency of New Co
DOCUMENT
EXAMPLE OF USE                 These are typical Articles characterised by issues
                               of control over expenditure and controls relating
                               to the investor‟s income stream (dividends) and
                               exist (redemption or share transfer/sale).
KEY SENSITIVITIES              Ratchets   are   often   a   sensitive  item   for
                               management.   This is the mechanism whereby share
                               ownership   (between   investors  and  management)
                               change as the capital worth of the company
                               increases resulting in share redemption or an
                               increased share value (and company PE) or capital
                               worth decreases resulting in loss of management
                               share options or compulsory transfers.



THE COMPANIES ACT 1985

COMPANY LIMITED BY SHARES

NEW ARTICLES OF ASSOCIATION

of
[                     ] LIMITED

Company number: [           ]
Adopted by special resolution on: [                                ]

1.   PRELIMINARY
1.1 In these Articles the undernoted expressions shall have the
meanings set
     opposite them below:

      the Act shall mean the Companies Act 1985 including any
      statutory modification or re-enactment for the time being
      in force;

      Benefits shall mean all salary, fees and emoluments
      including sums paid by way of expenses allowance (if
      taxable), pension contributions and the cash value of
      benefits in kind;

      Connected Persons shall have the meaning ascribed to it in
      Section 839 of the Income and Corporation Taxes Act 1988;
Handbook of Venture Capital Documentation                Page   159


      Excess Benefits shall while there are a total of [insert
      number of directors on date of adoption of articles]
      directors of the Company and its subsidiaries, mean
      Benefits in excess of EUR [          ] Index Linked in the
      aggregate payable in respect of the relevant financial year
      to the Relevant Directors and, in the event of there being
      a variation in the number of directors of the Company and
      its subsidiaries, shall mean Benefits in excess of such
      other figure as the holders of at least 75% of the
      Preference Shares and 75% of the „A„ ordinary shares may
      determine payable in respect of the relevant financial year
      to the Relevant Directors;

      Family Trust shall mean in relation to any member a trust
      which does not permit any of the settled property or the
      income therefrom to be applied otherwise than for the
      benefit of that member and/or a Privileged Relation of that
      member and under which no power of control is capable of
      being exercised over the votes of any shares which are the
      subject of the trust by any person other than the trustees
      or such member or his Privileged Relations;

      Flotation shall mean the becoming effective of a listing
      for any share capital of the Company on the Official List
      of The Stock Exchange or the granting of permission for any
      of the share capital of the Company to be dealt in on any
      recognised investment exchange (as defined by Section 207
      of the Financial Services Act 1986) and/or on the
      Alternative Investment Market and/or on OFEX;

      Index   Linked  shall  mean  adjusted  annually  on  [30]
      [November] each year commencing on [30] [November 199[ ]
      by a percentage equal to the percentage increase in the
      retail price index published by the Government to [31
      October] in the year in question from [31 October] in the
      previous year;

      [the Investment Offer shall mean the offer from Investor Co
      to and accepted by the Company of even date with the
      adoption of these Articles;]

      Privileged Relations shall mean in relation to a member the
      spouse or widow or widower of the member and the member‟s
      children and grandchildren (including step and adopted
      children and their issue) and step and adopted children of
      the member‟s children;
Handbook of Venture Capital Documentation                Page   160


      Relevant Directors shall mean the directors and former
      directors of the Company and its subsidiaries (excluding
      any director appointed pursuant to Article [12] hereof) and
      their Connected Persons;

      settlor shall mean a testator or an intestate in relation
      to a Family Trust arising respectively under a testamentary
      disposition or an intestacy of a deceased member;

      the Statutes shall mean the Act and any other statutory
      provisions from time to time affecting companies and
      applicable to the Company;

      Investor Co shall mean (name), a company limited by
      guarantee incorporated under the Companies Acts in Scotland
      with   registered  number   [         ]   and   having  its
      registered office at (Place)

      the Investor Co Group shall mean (name), any subsidiary or
      holding company or member for the time being of (name), or
      any body of persons which shall have acquired the whole or
      substantially the whole of the undertaking of any of these
      companies whatsoever and the expression “member of the
      Investor Co Group” shall be construed accordingly;

      [the Investor Co Option shall mean the option granted to
      Investor Co to subscribe for [„A‟] Ordinary Shares of EUR
      [1] each of the Company in terms of [the Investment Offer]
      [an Option Agreement executed by the Company of even date
      with the adoption of these Articles.]

1.2   The Regulations contained in Table A in the Schedule to the
      Companies (Tables A to F) Regulations 1985 as amended by
      the Companies (Tables A to F) (Amendment) Regulations 1985
      (such Table being hereinafter called “Table A”) shall apply
      to the Company save in so far as they are excluded or
      varied hereby and such Regulations (save as so excluded or
      varied) and the Articles hereinafter contained shall be the
      regulations of the Company.

1.3   Regulations   54,   73-80   (inclusive),  85,   86,   94-98
      (inclusive) and 118 of Table A shall not apply to the
      Company. Regulation 6 of Table A shall be amended by the
      deletion of the words “shall be sealed with the seal” where
      they appear on the sixth line thereof.
Handbook of Venture Capital Documentation                    Page   161


2.    SHARE CAPITAL
2.1   The share capital of the Company at the date of the
      adoption of these Articles is EUR [        ] divided into
      [     ] Preference Shares of EUR 1 each (in these Articles
      referred to as “Preference Shares”), [              ] „A‟
      Ordinary Shares of EUR 1 each (in these Articles referred
      to as “„A‟ Ordinary Shares”) and [    ] Ordinary Shares of
      EUR 1 each (in these Articles referred to as “Ordinary
      Shares”).

2.2   The rights attaching to the respective classes of shares
      shall be as follows:-
      2.2.1      Income
            The profits of the Company in respect of any financial
            year shall be applied:-
            2.2.1.1   First in paying to the holders of the
                 Preference Shares a fixed cumulative preferential
                 net cash dividend (hereinafter in these Articles
                 referred to as “the Preference Dividend”) of
                 [      ] pence per annum per share on the
                 Preference Shares held by them respectively to be
                 payable half yearly on [       ] and [      ] in
                 each year, provided always that the first
                 dividend shall be payable on [      ] in respect
                 of the period from the date of allotment of the
                 Preference Shares to [              ];

             2.2.1.2   Second, [but only if there are no „A‟
                  Ordinary Shares in issue,] in paying to the
                  holders of the Preference Shares a cumulative net
                  cash dividend (hereinafter in these Articles
                  referred to as “the Participating Preference
                  Dividend”) of a sum equal to the amount if any,
                  (exclusive of tax credit) by which [        ] per
                  cent of the net profit for the relative financial
                  year exceeds the aggregate of the Preference
                  Dividend paid in and for that financial year.

                    The Participating Preference Dividend (if any)
                    shall be payable not more than 14 days after the
                    General Meeting at which the audited accounts of
                    the Company for the relative financial year are
                    presented provided in the event that the audited
                    accounts of the Company for any financial year
                    have not been presented at a General Meeting of
                    the Company on the date (hereinafter called “the
                    relevant date”) four months after the end of such
Handbook of Venture Capital Documentation                    Page   162


                    financial year then an interim dividend on
                    account of the Participating Preference Dividend
                    will be paid within fourteen days of the relevant
                    date and will be the same amount as the
                    equivalent Participating Preference Dividend in
                    the immediately preceding financial year. If
                    following   the  presentation   of  the   audited
                    accounts of the Company for the said period an
                    overpayment or underpayment of the Participating
                    Preference Dividend shall be proved to have been
                    made the directors shall (in the case of an
                    underpayment) within 30 days of presentation of
                    the relevant audited accounts, declare and pay a
                    final dividend of an amount equal to any
                    shortfall and (in the case of an overpayment) the
                    amount of any overpayment shall be treated as
                    discharging pro tanto the liability of the
                    Company in respect of the next succeeding payment
                    or payments of the Participating Preference
                    Dividend.

                    For the purposes of this Article the expression
                    “net profit” shall mean the net profit of the
                    Company and its subsidiaries calculated on the
                    historical cost accounting basis as shown in the
                    audited consolidated profit and loss account of
                    the Company and its subsidiaries for the relative
                    financial year (to the nearest EUR 1) but:-

                    2.2.1.2.1 before any provision is made for any
                              dividend on any share in the capital of
                              the Company or any of its subsidiaries
                              or for any other distribution or for
                              the transfer of any sum to reserve;

                    2.2.1.2.2 before deducting any corporation tax
                              (or any other tax levied upon or
                              measured by profits and gains) on the
                              profits earned and gains realised by
                              the Company and its subsidiaries;

                    2.2.1.2.3 before deducting any sum in respect of
                              Excess Benefits;

             2.2.1.3   Third, in paying to the holders of the „A‟
                  Ordinary Shares a fixed preferential net cash
                  dividend (hereinafter referred to as “the Fixed
Handbook of Venture Capital Documentation                    Page   163


                    Dividend”) of [     ] pence per annum per share
                    on   the  „A‟  Ordinary  Shares   held  by  them
                    respectively to be payable half yearly on
                    [          ]  and   [          ]in   each  year,
                    provided always that the first such dividend
                    shall be payable on such half yearly date which
                    follows the date of subscription for the „A‟
                    Ordinary Shares, in respect of the period from
                    the date of subscription to such half yearly
                    date.

             2.2.1.4   Fourth, in paying to the holders of the „A‟
                  Ordinary Shares a cumulative net cash dividend
                  (hereinafter referred to as “the Participating
                  „A‟ Ordinary Dividend”) of a sum equal to the
                  amount, if any, (exclusive of tax credit) by
                  which [     ] per cent of the net profit for the
                  relative financial year exceeds the aggregate of
                  the Fixed Dividend paid in and for that financial
                  year, such Participating „A‟ Ordinary Dividend to
                  be calculated in accordance with the provisions
                  of Article 2.2.1.2, on the same basis as the
                  Participating Preference Dividend.

             2.2.1.5   Fifth, in paying to the holders of the
                  Preference Shares and the holders of the „A‟
                  Ordinary Shares in respect of each financial year
                  of the Company a cumulative preferential      net
                  cash    dividend (hereinafter in these Articles
                  referred to as “the Additional Dividend‟) on each
                  share held by them of an amount equal to the
                  Excess Benefits divided by the number of Ordinary
                  Shares held by Relevant Directors on the last day
                  of the relevant financial year.

                    The Additional Dividend (if any) shall be paid on
                    the due date for payment of the Participating
                    Preference or Participating „A‟ Ordinary Dividend
                    as appropriate.

                    No dividend shall be declared or paid to the
                    holders of Ordinary Shares in respect of any
                    financial year of the Company unless and until:-

                    2.2.1.6.1 the Preference Dividend and the Fixed
                              Dividend    and    the   Participating
                              Preference Dividend (if any) and the
Handbook of Venture Capital Documentation                           Page    164


                                  Participating „A‟ Ordinary Dividend (if
                                  any) have been paid in full in respect
                                  of that financial year and in respect
                                  of all previous financial years of the
                                  Company;

                    2.2.1.6.2 any Additional      Dividend   due   has     been
                              paid in full;

                    2.2.1.6.3 all Preference Shares which have fallen
                              due for redemption have been redeemed;

                    Subject to the terms of Article 2.2.1.6 above
                    being fulfilled, the profits which the Company
                    may determine to distribute in respect of any
                    financial year shall be applied: -

                    2.2.1.7.1 First in paying to the holders of the
                              Ordinary   Shares   a   dividend  („the
                              Initial Ordinary Dividend‟) on each
                              share of an amount up to but not
                              exceeding the aggregate of the Fixed
                              Dividend and the Participating „A‟
                              Ordinary Dividend paid on each „A‟
                              Ordinary Share for such year; and

                    2.2.1.7.2 Second with the prior written consent
                              of   [the   holders  of  75%   of  the
                              Preference Shares, and] the holders of
                              75% of the „A‟ Ordinary Shares in
                              distributing   the  balance  of   such
                              profits amongst the holders of the
                              Preference Shares and the „A‟ Ordinary
                              Shares and the Ordinary Shares (pari
                              passu as if the same constituted one
                              class of share).

             2.2.1.8   Every dividend shall be distributed to the
                  appropriate shareholders pro rata according to
                  the number of fully paid up shares of the
                  appropriate class held by them respectively and
                  shall accrue on a daily basis.

             2.2.1.9   Unless the Company has insufficient profits
                  available for distribution and the Company is
                  thereby prohibited from paying dividends by the
                  Statutes   the  Preference   Dividend  and   the
Handbook of Venture Capital Documentation                   Page   165


                    Participating Preference Dividend and the Fixed
                    Dividend and the Participating „A‟ Ordinary
                    Dividend and the    Additional    Dividend shall
                    (notwithstanding regulations 102 to 108 of Table
                    A or any other provisions of these Articles and
                    in particular notwithstanding that there has not
                    been a recommendation of the directors or
                    resolution of the Company in general meeting) be
                    paid immediately on the due date and if not then
                    paid shall be a debt due by the Company and be
                    payable in priority to any other dividend.

              2.2.1.10 The Company shall procure that each of its
                   subsidiaries which has profits available for
                   distribution shall from time to time declare and
                   pay to the Company such dividends as are
                   necessary to permit lawful and prompt payment by
                   the Company of the Preference Dividend, the
                   Participating Preference Dividend, the Fixed
                   Dividend, the Participating „A‟ Ordinary Dividend
                   and the Additional Dividend.

      2.2.2        Conversion of the „A‟ Ordinary Shares
              The holders of „A‟ Ordinary Shares shall be entitled
              at any time to convert all (but not some only) of the
              „A‟ Ordinary Shares held by them into Ordinary Shares
              and the following provisions shall have effect: -

              2.2.2.1   the basis of such conversion shall be one
                   Ordinary Share of EUR 1 for each „A‟ Ordinary
                   Share held;

              2.2.2.2   such conversion shall be effected by notice
                   in writing (“the Conversion Notice”) signed by
                   the holder given to the Company at its Registered
                   Office for the time being;

              2.2.2.3   such    conversion shall      take   effect
                   immediately upon delivery of      the Conversion
                   Notice to the Company;

              2.2.2.4   the „A‟ Ordinary Shares so converted shall
                   rank for an apportioned part of the dividends on
                   the „A‟ Ordinary Shares in respect of the
                   financial year current at the date of conversion
                   and the Ordinary Shares resulting from such
                   conversion shall rank for dividend in respect of
Handbook of Venture Capital Documentation                   Page   166


                    the financial year of the Company current at the
                    date of conversion only to the extent that the
                    amount of dividend per share declared or paid on
                    the Ordinary Shares in respect of that financial
                    year exceeds the aggregate amount per share by
                    way of dividends paid on the „A‟ Ordinary Shares
                    so converted in respect of the period of that
                    financial year up to and including the date of
                    conversion;

              2.2.2.5   subject to the provisions of Article 2.2.2.4
                   the   Ordinary   Shares    resulting  from   such
                   conversion shall for all purposes rank pari passu
                   with the Ordinary Shares issued prior to the date
                   of such conversion and such Ordinary Shares so
                   resulting and those so issued shall together
                   constitute one class of share;

              2.2.2.6   forthwith after conversion the holders of
                   the Ordinary Shares resulting from the conversion
                   shall send to the Company the Certificates in
                   respect of their holding of „A‟ Ordinary Shares
                   and the Company shall issue to such holders
                   Certificates for the Ordinary Shares resulting
                   from the conversion;

              2.2.2.7   there shall be paid on each of the „A‟
                   Ordinary Shares so converted a sum equal to any
                   arrears, deficiency or accruals of the dividends
                   thereon to be calculated down to the date of
                   conversion whether such dividends have been
                   declared or earned or not.

      2.2.3        CAPITAL
              On a return of assets on liquidation or otherwise, the
              assets of the Company remaining after the payment of
              its liabilities shall be applied:-
              2.2.3.1   First, in paying to the holders of the
                   Preference Shares [the various sums per share
                   that would have been payable to the Preference
                   Shareholders if all such Preference Shares had
                   been redeemed as scheduled in Article [2.2.4.1]
                   before   such  return   of  assets]  [          ]
                   together with a sum equal to any arrears and
                   accruals of the dividends on such shares to be
                   calculated down to the date of the return of
Handbook of Venture Capital Documentation                     Page   167


                    capital and payable irrespective of whether such
                    dividends have been declared or earned or not;

              2.2.3.2   Second, in paying to the holders of the „A‟
                   Ordinary Shares EUR [1] per share together with a
                   sum equal to any arrears and accruals of the
                   dividends on the „A‟ Ordinary Shares calculated
                   down to the date of the return on capital and
                   payable irrespective of whether such dividends
                   have been declared or earned or not;

              2.2.3.3   Third, in paying to the holders       of     the
                   Ordinary Shares EUR [1] per share;

              2.2.3.3   Fourth, the balance of such assets shall be
                   distributed among the holders of [the Preference
                   Shares and] the „A‟ Ordinary Shares and Ordinary
                   Shares pan passu as if the same constituted one
                   class of share and that pro rata according to the
                   number of fully paid shares held by them
                   respectively.

      2.2.4        Redemption of the Preference Shares
              2.2.4.1   Subject to the provisions of the Act the
                   Preference Shares shall be redeemed by the
                   Company in the proportions and on the dates set
                   out below:-
                   Number of Shares         Date of Redemption
                   [

                                                          ]

              2.2.4.2   The Company shall (unless the holders of at
                   least 75% of the Preference Shares give notice in
                   writing to the Company to the contrary), before
                   any of its share capital shall be or become
                   listed on any stock exchange or other securities
                   market or permission is granted for any of its
                   share capital to be dealt in on any recognised
                   investment exchange (as defined by Section 207 of
                   the Financial Services Act 1986) or any of its
                   share capital shall be subject to any other
                   marketing arrangement, redeem in accordance with
                   the provisions of this Article 2.2.4, or procure
                   the purchase by a third party of, all the
                   Preference Shares then in issue. Any such
                   redemption or purchase shall be at a price per
Handbook of Venture Capital Documentation                   Page   168


                    share equal to the aggregate of EUR [    ] and a
                    sum equal to any arrears or accruals of the
                    dividends payable on that share to be calculated
                    down to the date of redemption or purchase and
                    whether any such dividends have been declared or
                    earned or not together with all tax credits
                    relating thereto [and to the cash premium of
                    [     ]p paid over the nominal value];

                    If on any of the dates set out in Articles
                    2.2.4.1 and 2.2.4.2, the Company cannot comply
                    with the provisions of the Statutes and of the
                    provisions contained herein relating to the
                    redemption to be made on such dates, redemption
                    shall take place on such later date on which the
                    Company shall first be able so to comply;

             2.2.4.3   There will be paid on each of the Preference
                  Shares redeemed in terms of Article 2.2.4.1 [the
                  sum of EUR [       ] per share (including a cash
                  premium of EUR [      ]) in respect of Preference
                  Shares due for redemption on [     ], EUR [     ]
                  per share (including a cash premium of EUR
                  [     ]) in respect of Preference Shares due for
                  redemption on [      ] and EUR [     ] per share
                  (including a cash premium of EUR [          ]) in
                  respect of Preference Shares due for redemption
                  on [                ]][     ] together with [in
                  each case] (i) a sum equal to all arrears and
                  accruals of the dividends payable on that share
                  to be calculated down to the date of redemption
                  whether any such dividend has been earned or
                  declared or not together with all tax credits
                  relating thereto [and to the cash premium paid
                  over the nominal value];

             2.2.4.4   The Preference Shares to be redeemed in
                  accordance with the foregoing provisions of this
                  Article 2.2.4 shall be redeemed by the Company at
                  the Registered Office of the Company;

             2.2.4.5   At the time specified in Articles 2.2.4.1
                  and 2.2.4.2 above and at the place specified in
                  Article 2.2.4.4 above, each registered holder of
                  the Preference Shares shall be bound to surrender
                  to the Company the certificate for the shares
                  which are redeemed in order that the same may be
Handbook of Venture Capital Documentation                    Page   169


                    cancelled, and upon such surrender, the Company
                    shall pay such registered holder the amount
                    payable in respect of such redemption provided
                    that if any certificate so surrendered to the
                    Company includes any shares not redeemable on the
                    occasion on which it is to be so surrendered, a
                    fresh certificate for the balance of the shares
                    not redeemable on that occasion shall be issued
                    to the holder surrendering such certificate to
                    the Company;

             2.4.4.6   In the case of the redemption of less than
                  all of the Preference Shares for the time being
                  in issue, the Company shall be bound to redeem
                  such a proportion of the Preference Shares of
                  each holder thereof as the aggregate of the
                  Preference Shares to be redeemed bears to the
                  aggregate of the     Preference Shares in issue
                  immediately prior to the date on which redemption
                  is to take place;

             [2.4.4.7 Any premium arising on redemption shall be
                  treated as a distribution for tax purposes and
                  the Company will make no application under S.225
                  Income and Corporation Taxes Act 1988 in respect
                  of it.]

3.    ISSUE OF SHARES
3.1   Notwithstanding any other provisions of these Articles the
      directors shall be bound to offer to any member of the
      Investor Co Group for the time being holding shares in the
      capital of the Company such a proportion of any shares
      forming part of the share capital of the Company which the
      directors determine to issue as the aggregate nominal value
      of shares in the share capital of the Company for the time
      being held by such member of the Investor Co Group bears to
      the total issued share capital of the Company immediately
      prior to the issue of the shares. Any shares issued to a
      member of the Investor Co Group pursuant to such offer
      shall be issued upon terms and conditions that are no less
      beneficial as to payment and otherwise than those made
      available to other shareholders or such other terms as
      Investor Co shall agree and so that such shares shall at
      the request of Investor Co be registered in the name or
      names of any one or more members of the Investor Co Group.
Handbook of Venture Capital Documentation                   Page   170


4.    CLASS RIGHTS
4.1   Whenever the capital of the Company is divided into
      different classes of shares the special rights attached to
      any class may be varied or abrogated either whilst the
      Company is a going concern or during or in contemplation of
      a winding up, with the consent in writing of the holders of
      75% of the issued shares of that class. Without prejudice
      to the generality of this Article, the special rights
      attached to the Preference Shares and the „A‟ Ordinary
      Shares shall be deemed to be varied:-
      4.1.1      by the grant of any option or other right to
            subscribe for shares and by any alteration or increase
            or reduction or sub-division or consolidation of the
            authorised or issued capital of the Company or of any
            of its subsidiaries, or any variation of the rights
            attached to any of the shares for the time being in
            the capital of the Company or of any of its
            subsidiaries; or

      4.1.2        by the disposal of the undertaking of the Company
              or of any of its subsidiaries or any substantial part
              thereof or by the disposal of any share in the capital
              of any subsidiary of the Company; or

      4.1.3        by the acquisition of any interest in any share
              in the capital of any company by the Company or any of
              its subsidiaries; or

      4.1.4        by the application by way of capitalisation of
              any sum in or towards paying up any debenture or
              debenture stock of the Company; or

      4.1.5        by any alteration of the restrictions on the
              powers of the directors of the Company and its
              subsidiaries to borrow, give guarantees or create
              charges; or

      4.1.6         by the winding up of the Company; or

      4.1.7        the redemption of any of the Company‟s shares
              (otherwise than pursuant to these articles) or by the
              entering into of a contract by the Company to purchase
              any of its shares; or

      4.1.8        by any alteration of the Company‟s memorandum or
              articles of association; or
Handbook of Venture Capital Documentation                            Page   171


      4.1.9        by any alteration        of   the   Company‟s   accounting
              reference date; or

      4.1.10    by the entering into of a written service
           agreement with any director or Connected Person of
           such director or the material variation of any such
           existing service agreement with any such person; or

      4.1.11    by the calling of a meeting of the Company to
           effect or approve any matter which would by virtue of
           this article be a variation of the class rights of the
           „A‟ Ordinary and Preference Shares.

5.    TRANSFER OF Investor Co SHARES
      Notwithstanding any other provisions of these Articles a
      transfer of shares in the Company held by any member of the
      Investor Co Group may be made between the member of the
      Investor Co Group holding such shares and any other member
      of the Investor Co Group without restriction as to price or
      otherwise and the directors shall register any such
      transfer.

6.    TRANSFER OF SHARES - GENERAL
      The directors shall refuse to register any transfer of
      shares made in contravention of the provisions of these
      Articles but (subject to Regulation 24 of Table A) shall
      not otherwise be entitled to refuse to register (and shall
      register) any transfer of shares. For the purpose of
      ensuring that a particular transfer of shares is permitted
      under the provisions of these Articles, the directors may
      request the transferor, or the person named as the
      transferee in any transfer lodged for registration to
      furnish the Company with such information and evidence as
      the directors may reasonably think necessary or relevant.
      Failing such information or evidence being furnished to the
      satisfaction of the directors within a period of 28 days
      after such request the directors shall be entitled to
      refuse to register the transfer in question.

7     TRANSFERS TO PRIVILEGED RELATIONS AND FAMILY TRUSTS

7.1   Notwithstanding any other provision in these Articles any
      member may at any time transfer (or by will bequeath or
      otherwise dispose of on death) all or any shares held by
      him to a Privileged Relation, or to trustees to be held
      upon a Family Trust provided that any transfer of shares to
      trustees to be held upon a Family Trust made during the
Handbook of Venture Capital Documentation                     Page   172


      lifetime of such member may only be made with the consent
      in writing of the holders of 75% of the Preference Shares
      and the holders of 75% of the „A‟ Ordinary Shares, such
      consent not to be unreasonably withheld or delayed.

7.2   Where the consent of the holders of Preference Shares and
      „A‟ Ordinary Shares is requested to a transfer to a Family
      Trust such consent shall be given when the holders of such
      shares acting reasonably are satisfied:-
      7.2.1      with the terms of the trust instrument and in
            particular with the powers of the trustees;

      7.2.2         with the identity of the proposed trustees;

      7.2.3        that the proposed transfer will not result in 50%
              or more in the aggregate of the Company‟s equity share
              capital (as defined in S744 of the Act) being held by
              trustees of that and any other trusts; and

      7.2.4        that no costs incurred in connection with the
              setting up or administration of the Family Trust in
              question are to be paid by the Company.

7.3   Where any shares are held by trustees upon a Family Trust:-
      7.3.1      on any change of trustees such shares may be
            transferred to the new trustees of that Family Trust;

      7.3.2        such shares may be transferred at any time to the
              settlor or to another Family Trust of the settlor or
              to any Privileged Relation of the settlor;

      7.3.3        if and whenever any such shares cease to be held
              upon a Family Trust (otherwise than in consequence of
              a transfer to the settlor or to another Family Trust
              of the settlor or to any Privileged Relation of the
              settlor) a Transfer Notice (as hereinafter defined)
              shall be deemed to have been given in respect of the
              relevant shares (as hereinafter defined) and such
              shares may not otherwise be transferred); and

      7.3.4        for the purposes of this Article 7.3 the
              expression „relevant shares‟ means and includes the
              shares originally transferred to the trustees and any
              additional   shares issued or transferred to the
              trustees by virtue of the holding of those shares or
              any of them.
Handbook of Venture Capital Documentation                Page   173


   TRANSFERS BY EMPLOYEE MEMBERS

8.1   If any person holding shares in the capital of the Company
      and being an employee or director of the Company or its
      subsidiaries (an „Employee Member‟) ceases to be an
      employee or director of the Company or its subsidiaries,
      and does not forthwith become or continue to be an employee
      or director of any of the Company or its subsidiaries a
      Transfer Notice (as hereinafter defined) shall be deemed to
      have been served (hereinafter referred to as a “deemed
      Transfer Notice”) forthwith upon such cessation in respect
      of:-
      8.1.1     all shares held by the Employee Member; and

      8.1.2        all shares held by his Privileged Relations
              and/or Family Trusts at the time of such cessation.

   TRANSFER PROVISIONS

9.1   Save as otherwise provided in these Articles every member
      who desires to transfer any shares (hereinafter called „the
      Vendor‟) shall give to the Company notice in writing of
      such desire (hereinafter called a „Transfer Notice‟).
      Subject as hereinafter mentioned a Transfer Notice shall
      constitute the Company the Vendor‟s agent for the sale of
      the shares specified therein (hereinafter called „the Sale
      Shares‟) in one or more lots at the discretion of the
      directors to all the holders of „A‟ Ordinary and Ordinary
      Shares in the Company (such shares being hereinafter in
      this Article 9 referred to as „Equity Shares‟) other than
      the Vendor at the Sale Price. The Sale Price shall be the
      price agreed by the Vendor and the directors or if the
      Vendor and the directors are unable to agree a price within
      28 days of the Transfer Notice being given or if the
      Transfer Notice is a deemed Transfer Notice the price which
      a chartered accountant (acting as an expert and not as an
      arbiter) nominated by agreement between the Vendor and the
      Company or in default of such agreement by the President
      for the time being of the Institute of Chartered
      Accountants of Scotland shall by writing under his hand
      certify to be in his opinion a fair value thereof on a
      going concern basis as between a willing seller and a
      willing buyer ignoring any reduction in value which may be
      ascribed to the Sale Shares by virtue of the fact that they
      represent a minority interest and on the assumption that
      the   Sale   Shares  are   capable   of  transfer   without
      restriction. Save for shares sold pursuant to a deemed
Handbook of Venture Capital Documentation                Page   174


      Transfer Notice the Transfer Notice may contain a provision
      that unless all the shares comprised therein are sold by
      the Company pursuant to this Article 9 none shall be sold
      and any such provision shall be binding on the Company.

9.2   If a chartered accountant is asked to certify the fair
      value as aforesaid his certificate shall be delivered to
      the Company and as soon as the Company receives the
      certificate it shall furnish a certified copy thereof to
      the Vendor and save for shares sold pursuant to a deemed
      Transfer Notice the Vendor shall be entitled by notice in
      writing given to the Company within ten days of the service
      upon him of the certified copy to cancel the Company‟s
      authority to sell the Sale Shares. The cost of obtaining
      the certificate shall be borne by the Company unless the
      Vendor shall give notice of cancellation as aforesaid in
      which case the Vendor shall bear the cost.

9.3   Upon the price being fixed as aforesaid and provided the
      Vendor shall not give a valid notice of cancellation the
      Company shall forthwith offer the Sale Shares to all
      holders of Equity Shares (other than the Vendor) pro rata
      as nearly as may be in proportion to the existing numbers
      of Equity Shares held by such members giving details of the
      number and the Sale Price of such Sale Shares. The Company
      shall invite each such member as aforesaid to state in
      writing within twenty-one days from the date of the notice
      whether he is willing to purchase any of the Sale Shares so
      offered to him and if so the maximum thereof which he is
      willing to purchase. If at the expiration of the said
      period of twenty-one days there are any Sale Shares offered
      which any of the members hereinbefore mentioned have not so
      stated their willingness to purchase the Company shall
      offer such shares to such members as have stated in writing
      their willingness to purchase all the shares previously
      offered to them. Such remaining shares shall be offered pro
      rata as nearly as may be in proportion to existing numbers
      of Equity Shares then held by such members which offer
      shall remain open for a further period of twenty-one days.

9.4   If the Company shall pursuant to the above provisions of
      this Article 9 find a member or members of the Company
      willing to purchase all or any of the Sale Shares the
      Vendor shall be bound upon receipt of the Sale Price to
      transfer the Sale Shares (or such of the same for which the
      Company shall have found a purchaser or purchasers) to such
      persons. If the Vendor shall make default in so doing the
Handbook of Venture Capital Documentation                  Page   175


      Company shall if so required by the person or persons
      willing to purchase such Sale Shares receive and give a
      good discharge for the purchase money on behalf of the
      Vendor and shall authorise some person to execute transfers
      of the Sale Shares in favour of the purchasers and shall
      enter the names of the purchasers in the Register of
      Members as the holders of such of the Sale Shares as shall
      have been transferred to them as aforesaid.

9.5   If the directors shall not have found a member or members
      of the Company willing to purchase all of the Sale Shares
      pursuant to the foregoing provisions of this Article 9 the
      Vendor shall at any time within six months after the final
      offer by the Company to its members be at liberty to sell
      and transfer such of the Sale Shares as have not been so
      sold to any person at a price being no less than the Sale
      Price.

9.6   If a member being a company ceases to be within the Control
      (as „Control‟ is defined by Section 840 of the Income and
      Corporation Taxes Act 1988) of the person(s) who controlled
      such company on the date on which it became a member of the
      Company or on the date of adoption of these Articles
      (whichever shall be the later) it shall be deemed to have
      immediately given a Transfer Notice in respect of all the
      shares as shall then be registered in its name; provided
      that this Article 9.6 shall have no application to Investor
      Co or to any member of the Investor Co Group.

9.7   The foregoing provisions of this Article 9 shall not apply
      to a transfer if the holders of 75% of the Ordinary Shares
      and the holders of 75% of the Preference Shares and the
      holders of 75% of the „A‟ Ordinary Shares so direct in
      writing and the directors shall be obliged to register any
      such transfer.

9.8   A Transfer Notice shall be deemed to have been given to the
      Company by any member who purports to transfer any shares
      other than in accordance with these Articles without giving
      a   Transfer   Notice   to   the   Company  and,  in  those
      circumstances, the deemed Transfer Notice shall:-
      9.8.1      be deemed to apply to the number and class of
            shares purported to have been transferred;

      9.8.2        entitle the Company to require delivery to it of
              the certificate for the shares purported to have been
              transferred
Handbook of Venture Capital Documentation                 Page   176




      and, where the context admits, references in these Articles
      to a Transfer Notice shall include a deemed Transfer Notice
      and references in these Articles to a Vendor shall include
      a member deemed to have served a Transfer Notice.

   LIMITATION ON TRANSFER

   Notwithstanding any other provision of these Articles to the
    contrary, no sale or transfer of the legal or beneficial
    interest in any shares in the share capital of the Company
    shall be made or registered if as a result of such sale or
    transfer and registration thereof Control (as hereinbefore
    defined) would be obtained in the Company by a company or by a
    person or persons not in Control of the Company on the date of
    adoption of these Articles without the previous written
    consent of [the holders of the Preference Shares and] the
    holders of the „A‟ Ordinary Shares and unless:-

      10.1.1    Investor Co has received prior written notice of
           such sale or transfer [and has not less than twenty-
           one days to exercise the Investor Co Option (if not
           already exercised)]; and

      10.1.2    [after the expiry of such twenty-one day period
           and] before the transfer is lodged for registration
           the proposed transferee or transferees or his or their
           nominees has or have offered to purchase (i) all the
           Preference Shares at a price per share of EUR [ ]
           [plus a cash premium of [ ]p] and all arrears and
           accruals of the dividends payable on such shares
           calculated down to the date of sale or transfer and
           the tax credits (if any) that relate to such dividends
           [and the cash premium] and (ii) all the „A‟ Ordinary
           Shares   at  the   Specified   Price  (as   hereinafter
           defined), and such offer shall have remained open for
           acceptance for a period of at least twenty-one days.

10.2 The expression “the Specified Price” shall mean the higher
     of:- (i) a price per share of EUR 1.00 plus (a) a sum equal
     to any arrears, deficiency and accruals of the dividends
     payable on such share calculated down to the date of sale
     or transfer and (b) all the tax credits that would have
     related to such dividends if such dividends had been paid;
     and (ii) a price per share at least equal to that offered
     or paid or payable by the proposed transferee or
     transferees or his or their nominees for any other shares
Handbook of Venture Capital Documentation                Page   177


      in the capital of the Company plus an amount equal to the
      relevant proportion of any other consideration (in cash or
      otherwise) received or receivable by the holders of such
      shares which having regard to the substance of the
      transaction as a whole can reasonably be regarded as an
      addition to the price paid or payable for such shares,
      provided that if any part of the price per share is payable
      otherwise than by cash the transferor may at its option
      elect to take a price per share of such cash sum as may be
      agreed by it having regard to the substance of the
      transaction as a whole.    In the event of disagreement the
      calculation of the Specified Price shall be referred to an
      umpire, who shall act as an expert and not as an arbiter
      and shall be nominated by the parties concerned or failing
      agreement as to such nomination shall be appointed by the
      President for the time being of the Institute of Chartered
      Accountants of Scotland and the decision of such umpire
      shall be final and binding.

10.3 All other regulations of the Company relating to the
     transfer of shares and the right to registration of
     transfers shall be read subject to the provisions of this
     Article 10.

   VOTING RIGHTS

      Subject to any special rights or restrictions as to voting
      attached to any shares by or in accordance with these
      Articles, on a show of hands every member who (being an
      individual) is present in person or (being a corporation)
      is present by a representative not being himself a member,
      shall have one vote, and on a poll every member who is
      present in person or by proxy or (being a corporation) is
      present by a representative shall have one vote for every
      share in the capital of the Company of which he is the
      holder; Provided that the holders of Preference Shares
      shall be entitled to receive copies of circulars to
      shareholders and debenture holders and to receive notice of
      and to attend all General Meetings of the Company [but not
      to vote thereat] [but only to vote in respect of such
      Preference Shares if the Preference or Participating
      Preference Dividends are in arrears or if the redemption of
      Preference Shares is in arrears or if the Company or the
      directors of the Company shall have committed a material
      breach of [the Investment Offer] or if any sum owed to a
      third party shall have become due and payable before the
      original due date for payment.]
Handbook of Venture Capital Documentation                Page   178




   SPECIAL DIRECTOR

12.1 Notwithstanding any limitation on the number of directors
     imposed by these Articles from time to time so long as any
     member of the Investor Co Group is the holder of any share
     in the capital of the Company, Investor Co shall be
     entitled to appoint as a director of the Company any person
     who shall, if Investor Co so require be Chairman of the
     Board of Directors and to remove from office any person so
     appointed and to appoint another person in his place. Any
     appointment or removal in terms of this paragraph shall be
     effected by notice in writing signed by Investor Co and
     delivered to the registered office of the Company. The
     director appointed in terms of this Article shall not be
     required to hold any share qualification nor shall he be
     subject to retirement by rotation and the remuneration to
     be paid to him shall be payable by the Company and shall be
     such sum as shall for the time being be agreed for that
     purpose between the Company and him or failing such
     agreement such reasonable sum as shall be fixed by WLVF.
     Upon request by Investor Co the Company shall also procure
     that a director appointed in terms of this paragraph be
     appointed a director to any subsidiary of the Company.
     Regulation 91 of Table A shall be modified accordingly.

   APPOINTMENT OF DIRECTORS

13.1 The maximum number of directors at any one time holding
     office shall be [            ] and the minimum number
     [         ].

13.2 The directors may appoint a person who is willing to act to
     be a director, either to fill a vacancy or as an additional
     director. In addition, the holders of shares representing
     more than half of the shares which carry the right to
     attend and vote at general meetings of the Company may by
     notice to the Company together appoint a person who is
     willing to act to be a director either to fill a vacancy or
     as an additional director.

   PROCEEDINGS OF DIRECTORS

      Notice of every meeting of the directors shall be given to
      each director at any address supplied by him to the Company
      for that purpose whether or not he be present in the United
      Kingdom provided that any director may waive notice of any
Handbook of Venture Capital Documentation                Page   179


      meeting either prospectively or retrospectively and if he
      shall do so it shall be no objection to the validity of
      such meeting that notice was not given to him.

   DIRECTORS INTERESTS

15.1 Subject to the provisions of the Act and provided that he
     has disclosed to the directors the nature and extent of any
     material interest of his, a director notwithstanding his
     office:-
     15.1.1    may be a party to or otherwise interested in any
          transaction or arrangement with the Company or in
          which the Company is in any way interested;

      15.1.2    may be a director or other officer of or employed
           by or be a party to any transaction or arrangement
           with or otherwise interested in any body corporate
           promoted by the Company or in which the Company is in
           any way interested;

      15.1.3    may (and any firm or company of which he is a
           partner or member or director may) act in a
           professional capacity for the Company or any body
           corporate in which the Company is in any way
           interested;

      15.1.4    shall not by reason of his office be accountable
           to the Company for any benefit which he derives from
           such office, service or employment or from any such
           transaction or arrangement or from any interest in any
           such body corporate and no such transaction or
           arrangement shall be liable to be avoided on the
           ground of any such interest or benefit; and

      15.1.5    shall be entitled to vote and be counted in the
           quorum   on  any   matter   concerning the  foregoing
           paragraphs of this article.

15.2 For the purpose of this article:
     15.2.1    a general notice to the directors that a director
          is to be regarded as having an interest of the nature
          and extent specified in the notice in any transaction
          or arrangement in which a specified person or class of
          persons is interested shall be deemed to be a
          disclosure that the director has an interest in any
          such   transaction  of   the  nature  and   extent  so
          specified;
Handbook of Venture Capital Documentation                Page   180




      15.2.2    an interest of which a director has no knowledge
           and of which it is unreasonable to expect him to have
           knowledge shall not be treated as an interest of his;
           and

      15.2.3    an interest of a person who is for any purpose of
           the Act (excluding any statutory modification not in
           force when these Articles were adopted) connected with
           a director shall be treated as an interest of the
           director and in relation to an alternate director an
           interest of his appointor shall be treated as an
           interest of the alternate director without prejudice
           to any interest which the alternate director has
           otherwise.

   DIRECTORS‟ BORROWING POWERS

16.1 Subject as hereinafter provided the directors may exercise
     all the powers of the Company (whether express or
     implied):-
     16.1.1     of borrowing or securing the payment of money;

      16.1.2    of guaranteeing the payment of money and the
           fulfilment of obligations and the performance of
           contracts; and

      16.1.3    of mortgaging or charging the property assets and
           uncalled capital of the Company and (subject to
           section 80 of the Act) of issuing debentures

      but so that:-
      16.1.4    the directors of the Company shall procure that
           the aggregate amounts for the time being remaining
           undischarged by virtue of any of the foregoing
           operations by the Company and all subsidiaries of the
           Company and by virtue of any like operations by the
           Company and all subsidiaries of the Company (including
           any liability (whether ascertained or contingent)
           under any guarantee for the time being in force and
           including amounts due under any hire purchase, credit
           sale, conditional sale or leasing agreements (other
           than leases of real or heritable property) which can
           in accordance with current accounting practice be
           attributed to capital but excluding inter-company
           loans, mortgages and charges) shall not without the
           previous sanction of the „A‟ Ordinary Shareholders and
Handbook of Venture Capital Documentation                  Page   181


             the Preference Shareholders exceed a sum which is [the
             greater   of  EUR   [          ]or   [         ]   the
             aggregate of the nominal amount of the share capital
             of the Company for the time being issued and paid up
             or credited as paid up and the amounts for the time
             being standing to the credit of the capital and
             revenue reserves and the share premium account of the
             Company and all its subsidiaries (excluding any
             amounts arising from the writing up of the book values
             of any capital assets, any amounts attributable to
             goodwill, and minority interests and any amounts set
             aside for future taxation) all as shown by the then
             latest audited consolidated balance sheet of the
             Company];

      16.1.5    no such sanction shall be required to the
           borrowing of any sum of money intended to be applied
           in the repayment (with or without premium) of any
           moneys   then   already   borrowed  and   outstanding,
           notwithstanding that the same may result in such limit
           being exceeded;

      16.1.6    no lender or other person dealing with the
           Company shall be concerned to see or enquire whether
           the limit imposed by this Article 16 is observed and
           no debt or liability incurred in excess of such limit
           shall be invalid and no security given for the same
           shall be invalid or ineffectual except in the case of
           express notice to the lender or recipient of the
           security or person to whom the liability is incurred
           at the time when the debt or liability was incurred or
           the security given that the limit hereby imposed has
           been or was thereby exceeded;

      16.1.7    except with the previous sanction of the holders
           of 75% of the „A‟ Ordinary Shares and the holders of
           75% of the Preference Shares no mortgage or charge
           shall be created on any part of the undertaking,
           property or assets of the Company or any subsidiary of
           the Company except for the purpose of securing moneys
           borrowed from any member of the Investor Co Group with
           interest thereon and from bankers with interest
           thereon and bank charges.
Handbook of Venture Capital Documentation                              Page   182


   INDEMNITY

      Subject to the provisions of the Act but without prejudice
      to any indemnity to which a director may otherwise be
      entitled, every director or other officer or auditor of the
      Company shall be indemnified out of the assets of the
      Company against all costs, charges, losses, expenses and
      liabilities incurred by him in the execution of his duties
      or in relation thereto including any liability incurred by
      him in defending any proceedings, whether civil or
      criminal, in which judgement is given in his favour or in
      which he is acquitted or the proceedings are otherwise
      disposed of without any finding or admission of any
      material breach of duty on his part or in connection with
      any application in which relief is granted to him by the
      court from liability for negligence, default, breach of
      duty or breach of trust in relation to the affairs of the
      Company.

                             THE COMPANIES ACT 1985

                           COMPANY LIMITED BY SHARES

                          NEW ARTICLES OF ASSOCIATION
                                           of
                           [                    ] LIMITED
                   Solicitor Co (place) [Investor Co Style Articles]
Handbook of Venture Capital Documentation                                            Page    183




DOCUMENT NUMBER              23
DOCUMENT TITLE               EASY-LOAN AGREEMENT
PURPOSE OF                   An example of low transaction cost loans provided by venture firms
DOCUMENT                     often in association with development agencies or councils to early
                             stage companies or for proof of concept. Sometimes instead of or in
                             addition to repayment there is an option or conversion of loan to
                             equity clause.



                                            LOAN AGREEMENT

                                            between

                              Investor Co incorporated under the
Companies Acts    registered   number xxxxxxx  and having its
Registered Office at ……. a place …….(hereinafter referred to as
'the Lender') OF THE FIRST PART

                                            and

                                            (hereinafter referred to as 'the
Borrowers') OF THE SECOND PART

                                            ____________________________

WHEREAS the Lender has agreed to lend to the Borrowers the sum of
( EUR       ) STERLING on the terms and conditions hereinafter
provided NOW THEREFORE IT IS AGREED BETWEEN THE PARTIES AS
FOLLOWS:-

ONE   DEFINITIONS

     'the Loan' shall mean the said sum of (          ) Pounds
Sterling to be lent by the Lender to the Borrowers in terms of
this Agreement;

     The headings in this Agreement are inserted for convenience
only and shall be disregarded for the purposes of construing this
Agreement. Words importing the singular shall include the plural
and vice versa and words in the masculine shall include the
feminine and neuter; References to persons shall include
individuals, firms and corporations.
Handbook of Venture Capital Documentation                Page   184


TWO   THE LOAN

     As at the date of execution hereof, the Lender shall advance
the sum of EUR 5,000 to the Borrowers by way of cheque in favour
of the Borrowers, which cheque shall be used for the sole purpose
of working capital for the business.


THREE INTEREST

     Interest on the average amount of the Loan outstanding
during each quarter year following the date hereof shall be paid
quarter-yearly in arrears by the Borrowers to the Lender at the
annual rate of three per centum per annum above the base rate
from time to time of the Bank Co. Interest as aforesaid shall be
calculated on a daily basis. Interest shall accrue as aforesaid
on any amount of interest on the Loan not paid within seven days
of the relevant quarterly date as hereinbefore provided.        A
statement of the Lender as to the amount of interest payable
pursuant to this clause shall in the absence of manifest error be
conclusive and binding on the parties.

FOUR REPAYMENT

     The Loan together with accrued interest shall be repayable
by the Borrowers to the Lender upon demand from the Lender by
notice in writing specifying the date of repayment (being no
earlier than 24 hours after the date of the notice).


FIVE REPRESENTATIONS AND WARRANTIES

     The Borrowers hereby represent and warrant to the Lender
that neither the execution and delivery of this Agreement by the
Borrowers nor the performance or observance of any of its
obligations under this Agreement will conflict with or result in
any breach of any law, statutory regulation debenture, mortgage,
trust deed or other instrument, arrangement, obligation or duty
by which the Borrowers are bound.


SIX   PAYMENT

     All sums payable by the Borrowers under this Agreement shall
be paid in full without any set off or claim and (save insofar as
required by law to the contrary) free and clear of and without
any deduction or withholding whatsoever. If the Borrowers are at
Handbook of Venture Capital Documentation                   Page   185


any time required by law to make any deduction or withholding of
any payment to the Lender then the Borrowers will immediately pay
to the Lender such additional amounts as will result in the
Lender receiving the full amount it would have received had no
such   deduction   or   withholding   been  required   and   will
simultaneously provide the Lender with a certificate of deduction
or withholding in respect of the amount deducted or withheld
together with evidence satisfactory to the Lender that the amount
to be deducted or withheld has been paid over to the relevant
authorities when and as due.


SEVEN ASSIGNATION

     The Lender shall be entitled to assign this Agreement and
its rights thereunder. The Borrowers may not assign or transfer
any of its rights or obligations under this Agreement without the
prior written consent of the Lender.


EIGHT REGISTRATION

     The Lender and the Borrowers consent to the registration of
this agreement for preservation and execution.

NINE    GOVERNING LAW

     This Agreement shall be governed by and construed in all
respects in accordance with the Law of Scotland:    IN WITNESS
WHEREOF:

     ..........................................                Date
............................
     (COMPANY)

       ..........................................
       Date ............................
       (DIRECTOR)

     ..........................................                Date
............................
     (DIRECTOR)

       ..........................................DIRECTOR
       Date ............................
       Investor Co LIMITED
Handbook of Venture Capital Documentation                               Page   186




DOCUMENT NUMBER              24
DOCUMENT TITLE               FAST TRACK LOAN
PURPOSE           OF         SEE DOCUMENT 23
DOCUMENT
EXAMPLE OF USE               STANDARD DOCUMENT
KEY SENSITIVITIES            WHERE SMALL START-UP LOANS ARE MADE BY VCS, THESE
                             ARE OFTEN PART OF A PUBLICLY SUBSIDISED ECONOMIC
                             DEVELOPMENT PROGRAMME. VCS PREFER EQUITY WHERE
                             THERE IS SOME CHANCE OF AN UPSIDE, IF THE INVESTMENT
                             TAKES OFF.

                                            LOAN AGREEMENT

                                            between

                                            Investor Co, incorporated under the
                                            Companies Acts registered number
                                            xxxxxxx and having its Registered
                                            Office   at  (place)   (hereinafter
                                            referred to as 'the Lender') OF THE
                                            FIRST PART

                                            and

                                             (hereinafter referred to as 'the
                                            Borrower') OF THE SECOND PART

                                            ____________________________

WHEREAS the Lender has agreed to lend to the Borrower the sum of
five thousand pounds     (£ 5,000 ) STERLING on the terms and
conditions hereinafter provided NOW THEREFORE IT IS AGREED
BETWEEN THE PARTIES AS FOLLOWS:-

ONE   DEFINITIONS

      'the Loan' shall mean the said sum of five thousand pounds
      sterling (£5,000) to be lent by the Lender to the Borrower
      in terms of this Agreement;

TWO   THE LOAN

      At the date of execution hereof, the Lender shall advance
      the sum of five thousand pounds (£5,000) to the Borrower by
      way of cheque in favour of the Borrower, which cheque shall
      be used for the sole purpose of working capital for the
      business.
Handbook of Venture Capital Documentation                                     Page    187




THREE INTEREST

      Interest on the average amount of the Loan outstanding
      during each quarter year following the date hereof shall be
      paid by the Borrower to the Lender in arrears on 31 March,
      30 June, 30 September and 31 December at the annual rate of
      eight per cent per annum.   Interest as aforesaid shall be
      calculated on a daily basis.      Interest shall accrue as
      aforesaid on any amount of interest on the Loan not paid
      within seven days of the relevant quarterly date as
      hereinbefore provided. A statement of the Lender as to the
      amount of interest payable pursuant to this clause shall in
      the absence of manifest error be conclusive and binding on
      the parties.

      The Borrower shall pay interest net of tax in accordance
      with Section 349 (2) of the Income and Corporation Taxes Act
      1988 and shall provide the Lender with a certificate of tax
      in accordance with Section 352 of that Act


FOUR REPAYMENT


      The Borrower undertakes to repay the Loan to the Lender or
      to their successors or assignees whomsoever by one monthly
      payment of two hundred and sixteen pounds sterling (£216)
      followed by twenty three monthly payments of two hundred and
      eight pounds sterling (£208) commencing on the first day of
      (             ).  All repayments shall be made by Banker‟s
      Standing Order.

      The outstanding balance of the Loan together with any
      accrued interest shall immediately become due and payable by
      the Borrower to the Lender in the event that

      1.    the Borrower        defaults          on   any   Repayment   or   Interest
            payments

      2.    the Loan       is   used        for   any   other   purpose   than       that
            specified

      3.    the Borrower is unable to pay its debts as they fall due
Handbook of Venture Capital Documentation                                 Page   188


      4.    the Borrower ceases to trade or an order is made or an
            effective resolution is passed for winding up of the
            Borrower

      5.    the Borrower ceases to trade from premises with West
            Lothian

      No failure on the part of the Lender to exercise or delay on
      the part of the Lender in exercising any right to repayment
      shall operate as a waiver thereof

      All sums payable by the Borrower under this Agreement shall
      be paid in full without any set off or claim and (save
      insofar as required by law to the contrary) free and clear
      of and without any deduction or withholding whatsoever..

FIVE REPRESENTATIONS AND WARRANTIES

      The Borrower hereby represents and warrants to the Lender
      that neither the execution and delivery of this Agreement by
      the Borrower nor the performance or observance of any of its
      obligations under this Agreement will conflict with or
      result in any breach of any law, statutory regulation,
      debenture, mortgage, trust deed or other instrument,
      arrangement, obligation or duty by which the Borrower is
      bound.

SIX   INFORMATION

      While any part of the Loan or Interest payment remains outstanding, the
      Borrower will give to the Borrower within four weeks of each month end, copies
      of its monthly management accounts and within four months of each financial
      year end, copies of its audited financial statements.

SEVEN ASSIGNATION

      The Lender shall be entitled to assign this Agreement and
      its rights thereunder.     The Borrower may not assign or
      transfer any of its rights or obligations under this
      Agreement without the prior written consent of the Lender.


EIGHT REGISTRATION

      The Lender and the Borrower consent to the registration of
      this agreement for preservation and execution.
Handbook of Venture Capital Documentation                                     Page   189


NINE    GOVERNING LAW

       This Agreement shall be governed by and construed in all
       respects in accordance with the Law of Scotland: IN WITNESS
       WHEREOF:


For    and    on    behalf     of           (
)




Director…………………………………………                        Witness ……………………………..

                                                Name

                                                ......................................
                                                ...............
Director …………………………………………..                     Address
                                                ……………………………………….

                                                ……………………………………….


                                                Occupation………………………….

For and behalf of Investor Co                   Witness

                                                ......................................
                                                .........
Director……………………………………………                       Name

                                                …………………………………
                                                Address

                                                ......................................
                                                ...............
                                                Occupation…………………………..

                                                ......................................
                                                ...............
  Handbook of Venture Capital Documentation                                            Page    190




  DOCUMENT NUMBER                 25
  DOCUMENT TITLE                  FLOATING CHARGE
  PURPOSE         OF              This is a security instrument arranging preference over ordinary
  DOCUMENT                        creditors in the event of insolvency of New Co
  EXAMPLE OF USE                  Almost always used in conjunction with a loan




                                BOND AND FLOATING CHARGE

                                         in favour of

                                          INVESTOR CO

                                                 by

              (                                                                       )


  PAYMENT OBLIGATION

WE, (                                ) having our registered office at (                        )
        and our registered number being (                              ) (hereinafter called „the
        Company‟) hereby undertake that we will on such date or dates as provided by
        Clause 2 hereof pay and discharge to Investor Co whose registered office is at (…..
        address….) (hereinafter called „Investor Co‟ which expression shall include
        assignees of Investor Co) all moneys and liabilities which are now or which at any
        time or times hereafter may become due or owing or incurred to Investor Co by the
        Company in any manner whatever whether actually or contingently and whether as
        principle or cautioner or guarantor or surety or otherwise howsoever including
        without prejudice to the foregoing generality all interest thereon at such rate as may
        be agreed in writing from time to time between the Company and Investor Co
        whether before or after the execution hereof and together also with all charges costs
        and expenses payable in connection with enforcing or obtaining payment of the
        moneys hereby secured.

  PAYMENT DATE

  ALL or any moneys and liabilities due or owing or incurred by the Company to Investor
      Co shall be repaid or discharged by the Company on demand unless otherwise
      agreed in writing from time to time between the Company and Investor Co whether
      before or after the execution hereof (such agreement or agreements in writing
      being hereinafter together referred to as „the Agreement‟)
Handbook of Venture Capital Documentation                                    Page   191


CHARGING CLAUSE

THE Company hereby in security of the payment and discharge to Investor Co of all
    moneys and liabilities hereby undertaken to be paid and discharged to Investor Co
    and all other sums intended to be hereby secured grants in favour of Investor Co a
    floating charge over the whole of the property (including uncalled capital) which is
    or may be from time to time while these presents are in force comprised in the
    property and undertaking of the Company (such property and undertaking hereby
    charged being hereinafter referred to as „the Property‟)

PRIORITY

THE charge created hereby shall (unless otherwise agreed in writing by Investor Co
    either before or after the date hereof) be a first charge and the Company shall not
    (without the previous written consent of Investor Co) [and subject to the ranking
    agreement (“the Ranking Agreement”) to be executed by the Company
    contemporaneously herewith] create subsequent to the date hereof any fixed
    security or any other floating charge (as defined by the Companies Act 1985)
    having priority over or ranking pari passu with the floating charge hereby created
    excepting any standard security or other fixed security which may be subsequent
    to the date of these presents be granted by the Company in favour of Investor Co
    which shall have priority over the floating charge hereby created.

CERTIFICATE OF AMOUNT DUE

ANY account or certificate signed by an authorised signatory of Investor Co shall in the
    absence of manifest error conclusively determine the amount from time to time
    secured hereby.


OBLIGATIONS OF THE COMPANY TO INSURE

THE Company shall:

insure and keep insured such of the Property as is of an
    insurable nature against loss or damage by normal commercial
    risks (and such other risks as may reasonably be required by
    Investor Co) for such sum and in such manner as shall from
    time to time be approved in writing by Investor Co and such
    insurance shall be effected in such office and generally in
    such manner as Investor Co shall approve and the Company
    shall cause notice of the interest of Investor Co to be noted
    on the policies and the Company shall duly pay the premiums
    and other sums of money payable in respect of any such
    insurance and immediately after every such payment produce to
    Investor Co on demand the receipt for the same and all moneys
    which may at any time hereafter be received or receivable
Handbook of Venture Capital Documentation                                    Page   192


     under any insurance in respect of the Property whether or not
     effected pursuant to the foregoing provision shall be applied
     in replacing restoring or reinstating the property destroyed
     or damaged or in such other manner as Investor Co shall
     direct; and

effect and maintain or cause to be effected and maintained such
    other insurances as are normally maintained by prudent
    companies carrying on comparable businesses.

RIGHT TO SERVE A DEMAND FOR REPAYMENT

IN respect of any moneys or liabilities due owing or incurred by the Company to Investor
     Co which by virtue of the Agreement are to be discharged otherwise than on
     demand Investor Co shall nevertheless be entitled by notice to the Company to
     demand the payment and discharge thereof (or any part thereof) together with all
     interest and any other sums forthwith (or otherwise as Investor Co may require) at
     any time after the happening of any of the following events:-

if the Company makes default in the payment on the due date of
    any money which may have become due hereunder or under the
    Agreement or any deed or document supplemented hereto or
    thereto; or

if   any inhibition arrestment (other than an inhibition or
     arrestment on the dependence of an action or an arrestment to
     found jurisdiction) charge or other process is threatened
     placed or enforced against all or any of the property of the
     Company or any company or individual who has guaranteed or
     become surety for repayment of all or any part of the moneys
     and liabilities hereby secured (hereinafter referred to as „a
     Guarantor‟) or Investor Co is of the opinion that such
     property is otherwise in jeopardy; or

if the Company or a Guarantor is unable to pay its debts within
    the meaning of section 123 on the Insolvency Act 1986 or
    certifies that it is unable to pay its debts as and when they
    fall due or if an order is made or an effective resolution
    passed for winding up the Company or a Guarantor; or

if a meeting of the Company or a Guarantor is convened for the
    purpose of considering a resolution for the winding up of the
    Company or of a Guarantor; or

if an application is made to the Court for an order for the
   winding up of the Company or a Guarantor; or
Handbook of Venture Capital Documentation                                   Page   193


if the Company or a Guarantor ceases to carry on its business or
    substantially the whole of its business or threatens to cease
    to carry on the same or substantially changes the nature of
    its business; or

if the holder of any security over the property or assets of the
    Company or a Guarantor takes possession of or a receiver is
    appointed over all or any property or assets of the Company
    or a Guarantor; or

if a proposal is made to the Company and its creditors or a
   Guarantor and its creditors for a voluntary arrangement
   pursuant to section 1 of the Insolvency Act 1986; or

if a petition is presented for an administration order to be
   made in relation to the Company or a Guarantor pursuant to
   the Insolvency Act 1986; or

if the Company or a Guarantor fails to comply with any of the
    obligations conditions or provisions contained herein or in
    the Agreement or in any deed or document supplemental hereto
    or thereto or if any warranty given to Investor Co by the
    Company or by the directors of the Company or by a Guarantor
    proves to be materially incorrect or inaccurate; or

if the Company or a Guarantor fails to comply with any of the
    obligations conditions or provision contained herein or in
    the Agreement or in any deed or document supplemental hereto
    or thereto or if any warranty given to Investor Co by the
    Company or by the directors of the Company or by a Guarantor
    proves to be materially incorrect or inaccurate; or

if a Guarantor (being an individual) become apparently insolvent
    (within the meaning of the Bankruptcy (Scotland) Act 1985),
    or makes a composition contract or arrangement with his
    creditors, or if a judicial factor is appointed to his
    estate.

Upon any demand being made for payment of any moneys such moneys shall become
    payable immediately and all rights of the Company to deal for any purpose
    whatsoever with the Property or any part thereof shall forthwith cease and Investor
    Co shall be relieved of any obligations to advance any moneys to the Company.

WAIVERS

NO delay by Investor Co in enforcing any of the terms and conditions of this charge nor
    the granting of any time or indulgence by Investor Co to the Company shall
Handbook of Venture Capital Documentation                                         Page   194


     discharge or impair any of the rights and remedies of Investor Co hereunder nor
     shall any waiver granted by Investor Co in respect of any breach of this charge
     operate as a waiver or any subsequent breach thereof.

APPOINTMENT OF RECEIVER

AT anytime after the moneys hereby secured shall have become payable or at the
    request of the Company Investor Co shall be entitled at any time thereafter without
    further notice to the Company to appoint a receiver or receivers of the Property in
    terms of the Insolvency Act 1986; and, in addition, but without prejudice to the
    foregoing provisions of this clause, in the event that any person appointed in
    pursuance thereof to be a receiver as aforesaid shall be removed by the Court or
    shall otherwise cease to act as such Investor Co shall be entitled so to appoint in
    his place another person as receiver of the Property.

POWERS OF RECEIVER

A receiver so appointed shall have and be entitled to exercise all the powers conferred
     upon a receiver by the Insolvency Act 1986.

COSTS

THE Company shall be solely responsible for the acts and deeds of any receiver so
    shall have no liability or responsibility for or in respect of any act or default of such
    receiver or any such remuneration, costs, charges and expenses.

INDEMNITY

Investor Co and every receiver appointed by Investor Co hereunder shall be entitled to
     be indemnified by the Company in respect of all liabilities and expenses incurred
     by it or him in the execution or purported execution of any of the powers,
     authorities, or discretions vested in it or him in pursuance of the Insolvency Act
     1986 or these presents and against all actions, proceedings, costs, claims and
     demands in respect of any matter or thing done or omitted in any way in
     connection with or relating to the Property and Investor Co and any such receiver
     may retain and pay all sums in respect of the same out of the moneys received
     under the powers conferred by the Insolvency Act 1986.

NOTICES

WHERE a notice is to be given to any party hereto it may be served by leaving it at the
   registered office of last known address of that party or by sending it first class letter
   post to the registered office or last known address of that party when it shall be
   deemed to have been served at the expiration of forty-eight hours after it has been
   posted or by transmitting it by telex to that party when it shall be deemed to have
   been served upon the correct „Answerback‟ appearing at the end of the sender‟s
   copy of the telex.
Handbook of Venture Capital Documentation                                    Page   195




INTERPRETATION

ANY reference in these presents to a statute of a section of a statute shall be deemed
    to include a reference to any statutory modification or re-enactment thereof for the
    time being in force.

REGISTRATION

THE Company hereby consents to the registration hereof and of any certificate before
    mentioned for preservation and execution.

    IN WITNESS WHEREOF these presents are subscribed for an on
    behalf

of the Company at…………………………………………………………………………
on the…………………………………………..day of…………………………….1998 as
      follows:-
     …………………………………………………… Director

    …………………………………………………… Director/Secretary*
Handbook of Venture Capital Documentation                                            Page       196




DOCUMENT NUMBER                   26
DOCUMENT TITLE                    RANKING AGREEMENT
PURPOSE OF DOCUMENT               Prioritises the order in which securities rank in the event of
                                  insolvency of New Co
EXAMPLE OF USE                    Normally the first ranking security is the
                                  Bank
KEY SENSITIVITIES                 In the absence of a Ranking Agreement in the
                                  UK, securities rank in the order in which they
                                  are lodged at Companies House.



RANKING AGREEMENT

                                            among

   (                                               ) (No:                                   )
                      whose registered office is at (
                        )(hereinafter „the Borrower‟)

                                             and

         Investor Co      (No           ) whose registered office
                         is at …………… a place ……………………
                         (hereinafter „Investor Co ‟)

                                             and

    (                                                                         ) (No:
  ) whose registered office is at (                                       )(hereinafter
                            „the Bank‟)


WHEREAS:

(A) The Borrower has granted in favour of the Bank the Bank‟s
Floating Charge (as hereinafter defined);

(B) The Borrower has granted in favour of Investor Co                                       the
Investor Co Floating Charge (as hereinafter defined); and

(C) The parties hereto have agreed to regulate the priority to
be accorded to the Securities (as hereinafter defined).

NOW THEREFORE IT IS HEREBY AGREED among the parties hereto as
follows:
Handbook of Venture Capital Documentation                                  Page   197


1 (A)               In this agreement unless the context otherwise
requires:-

( i)      „Creditors‟ shall mean Investor Co , and the Bank and
„Creditor‟ shall mean either of the Creditors;

( ii) „the Bank‟s Floating Charge‟ shall mean the Floating Charge entered into by the
Borrower in favour of the Bank dated [             ] [of even date with the Borrower‟s
execution hereof] and [to be] registered with the Registrar of Companies in Edinburgh
[on[     ]];

(iii)     „the Bank‟s Priority Debt‟ shall mean (                                 )(
)together with one year‟s interest thereon and the                            costs,
charges and expenses of the Bank in relation thereto;

(iv) „the Investor Co Floating Charge‟ shall mean the Bond and
Floating Charge entered into by the Borrower in favour of
Investor Co   dated [        ][of even date with the Borrower‟s
execution hereof] and [to be] registered with the Registrar of
Companies in Edinburgh [on [        ]];

( v) „the   Investor  Co      Priority   Debt‟  shall   mean   (
)(                   ) together with one year‟s interest thereon
and the costs, charges and expenses of Investor Co in relation
thereto;

(vi) „Security‟ shall mean either of the Bank‟s Floating Charge
and the Investor Co       Floating Charge and a reference to
„Securities‟ shall mean a reference to more than one security.

(B) References in this Agreement to Investor Co  and the Bank
shall be deemed to include references to any assignees of and
successors to the Securities.

(C)    References in this Agreement to any statute or statutory provision shall be
deemed to include a reference to any statute or statutory provision which amends,
extends, consolidates or replaces the same or which has been amended, extended,
consolidated or replaced by the same and also to any order, regulation, instrument or
other subordinate legislation made thereunder.


2 Notwithstanding the terms of the Bank‟s Floating Charge and
Investor Co   Floating Charge or the order in which they have
been created or registered or any provisions as to ranking
contained therein or the provisions of any instrument of
alteration granted prior to the date hereof, the Securities
shall rank in the following order of priority:-
Handbook of Venture Capital Documentation                                       Page   198




FIRST          The Bank‟s Floating Charge to the extent of the
Bank‟s Priority Debt shall rank before and in preference to any
amount secured or to be secured by the Investor Co     Floating
Charge;

SECOND    The Investor Co             Floating Charge to the extent of the
Investor Co Priority Debt

THIRD     The Bank‟s Floating Charge in respect of all sums
secured thereby in excess of the Bank‟s Priority Debt pari passu
with the Investor Co    Floating Charge in respect of all sums
secured thereby in excess of the Investor Co Priority Debt.

3.      Subject to the foregoing provisions, neither these presents nor either of the
Securities shall in any way prejudice or affect the other Security for or in respect of any
sum or sums due or which may become due by the Borrower to either of the Creditors
and that notwithstanding the date or dates on which any sum or sums have been or
shall be advanced by the Creditors to the Borrower or shall be drawn out by or debited
to the Borrower all of which sums shall be as fully and effectually secured by the relative
Securities as if for the purposes of the Agreement all such sums had become due to
that Creditor before the granting of the other Security or these presents; and in
particular but without prejudice to the foregoing, neither of the Securities nor these
presents shall in any way prejudice or affect the security created by the Bank‟s Floating
Charge of the Borrower‟s obligation to the Bank for or in respect of any operations
which may hereafter take place on the Borrower‟s account or accounts with the Bank so
that all sums placed or to be placed to the debit of the said account or accounts shall,
subject to the above provisions as to ranking, be as fully and effectually secured by the
Bank‟s Floating Charge as if the Investor Co Floating Charge had not been granted.

4.    The Securities are hereby varied to the extent specified in Clause 2 hereof. This
Agreement, so far as affecting the Securities, shall be construed and receive effect as
an Instrument of Alteration within the meaning of Section 466 of the Companies Act
1985.

5.    (A) In the event that either of the Creditors wishes at
any time to appoint a Receiver, the Creditors shall consult
together with a view to agreeing upon a suitable person to be
appointed as such Receiver and such consultation and agreement
shall also precede the appointment of any successor in that
office and the removal of any such Receiver PROVIDED ALWAYS that
nothing in this sub clause (A) of this Clause 5 shall prevent
either of the Creditors from appointing a Receiver immediately
if such Creditor deems it necessary or desirable to make such
appointment.
Handbook of Venture Capital Documentation               Page   199


(B) In the event of the appointment of a Receiver pursuant to
the proviso to sub clause (A) of this Clause 5, the Creditor
appointing such Receiver shall, as soon as reasonably practical
after such appointment, advise the other Creditor in writing of
such appointment.

If, in the event of the appointment of a Receiver or in the
event of the liquidation of the Borrower, either of the
Creditors receives any preferential payment in pursuance of
Section 175 of the Insolvency Act 1986 such preferential payment
shall be counted towards repayment of the Bank‟s Priority Debt
or the Investor Co    Priority Debt (as the case may be) before
any other sums are counted towards payment of such debts.

The Creditors hereby agree that if, for any reason other than
the invalidity of either of the Securities, these presents are
regarded by a liquidator or administrator or a receiver or
receivers or any other manager for creditors of the Borrower as
failing to bind him or them in the distribution of the proceeds
of sale of the Borrower‟s assets, then effect shall be given
thereto between the Creditors mutually by adjustment and/or
appropriate payments made among them.

Notwithstanding the terms of the Securities, each Creditor
undertakes to the other Creditor that, so long as any debts
shall remain secured by the respective Security of such other
Creditor, neither Creditor shall, without the prior consent in
writing of the other Creditor, require the Borrower to grant any
further or other fixed security or securities whatsoever.

The Borrower agrees that the Creditors shall be a liberty from
time to time during the currency of either of the Securities to
disclose to each other information concerning the Borrower
(including, without prejudice to the foregoing generality, its
assets, business and/or financial position) in such manner and
to such extent as either Creditor shall from time to time
decide.

Each Creditor hereby consents to the subsistence and creation
and acknowledges intimation of the registration of the Security
of the other Creditor.

The construction, validity and performance of this Agreement
shall be governed by the Law of Scotland and the parties hereto
agree to submit to the jurisdiction of the Scottish Courts.
Handbook of Venture Capital Documentation               Page   200


Except as varied by the terms of this Agreement, the whole of
the Securities shall continue in full force and effect; these
presents operate in substitution for the provisions of any
Instrument of Alteration, Ranking Agreement and the like entered
into among the Creditors or any of them in so far as such
Instruments of Alteration, Ranking Agreements and the like are
inconsistent with the provisions hereof.

The Parties agree to registration hereof for preservation: IN
WITNESS WHEREOF these presents are subscribed:-

For and On Behalf of
INVESTOR CO

at……………………………………………………

on the………………………day of………………..19….by

………………………………………………………          Director

……………………………………………………….Director/Company Secretary

For and On Behalf of
the Bank Co

at……………………………………………………

on the………………………day of………………..19….by

………………………………………………………

……………………………………………………….

For and On Behalf of
the Borrower

at……………………………………………………

on the………………………day of………………..19….by

……………………………………………………… Director

……………………………………………………… Director/Company Secretary
Handbook of Venture Capital Documentation                                                                 Page   201


DOCUMENT NUMBER                     27
DOCUMENT TITLE                      OPTION AGREEMENT
PURPOSE         OF                  To identify share Optionholder in New Co
DOCUMENT
EXAMPLE OF USE                      This   fairly  standard   examples  lays  out   the
                                    circumstances, time and price at which share
                                    options can be exercised (or become invalidated) by
                                    management and investors.
KEY SENSITIVITIES                   The Option Agreement will seek to keep management
                                    incentivised and (from the investor viewpoint)
                                    focus upon their exit route.




1         DEFINITIONS AND INTERPRETATION..................................... 203

2         OPTION....................................................................................... 204

3         EXERCISE .................................................................................. 205

4         COMPLETION ............................................................................ 205

5         PAYMENT ................................................................................... 206

6         FINANCIAL INFORMATION ....................................................... 206

7         UNDERTAKINGS ....................................................................... 206

8         WARRANTIES ............................................................................ 208

9         NEW SHAREHOLDERS ............................................................. 209

10        TRANSFER AND ASSIGNATION .............................................. 209

11        NOTICES .................................................................................... 209

12        DISPOSAL OF OPTION SHARES ............................................. 210

13        DURATION AND LAW................................................................ 210

PART 1
PART 2
PART 3
Handbook of Venture Capital Documentation                    Page   202




                                                          Final Draft

                       _______________________________

                               OPTION AGREEMENT
                       _______________________________




                                        between




                                   NEW CO LIMITED



                                        BANK CO

                                            and


                     THE SHAREHOLDERS OF NEW CO LIMITED




                                     Solicitor Co
                                    (place, date)
      Handbook of Venture Capital Documentation                                     Page   203




      This OPTION AGREEMENT is made among:-

      1   NEW CO LIMITED (Company Number xxxxxxxx) and                          having     its
          registered office at (place) (the "Company");

      2   BANK CO PLC , a company incorporated under the Companies Acts
          (registered number xxxxxx) and having its registered office at
          (place) (the "Optionholder");

      3   THE SHAREHOLDERS in the Company listed in Schedule 1 (the
          "Shareholders");

      IT IS AGREED AS FOLLOWS:

      1       DEFINITIONS AND INTERPRETATION
1.1           In this Agreement the following terms shall have the following meanings:-
              "Act" means the Companies Act 1985 as amended from time to time;
              "Articles of Association" means the articles of association of the Company as at
              the date of this Agreement;
              "Barker Option" means the Option letter to be dated on or about the date or
              dates of this Agreement to (name) conferring an option over 12,605 Ordinary
              Shares of 10p each in the capital of the Company;
              "Change of Control" means control of the Company passing to any person or
              persons, other than a shareholder in the Company at the date of the Company's
              execution of this Agreement ("control" having the meaning given to it in relation
              to a body corporate by section 840 of the Income and Corporation Taxes Act
              1988);
              "Completion" means the performance by the Company and the Optionholder of
              the obligations assumed by them in Clause 4;
              "Conditional Option Notice" means a notice substantially in the form set out in
              Schedule Part 2 intimating an election by the Optionholder to exercise the
              Option in terms of Clause 3.2 conditionally upon a Listing or Change of Control
              taking place;
              "Employee Share Option Scheme" means the employee share option scheme
              established or to be established by the Company to confer options over 197,074
              ordinary shares of 10p each in the capital of the Company;
              "Listing" means the admission of the whole or any part of the Company's Equity
              Share Capital to The London Stock Exchange Ltd or the obtaining of permission
              for dealings in its share capital on the Alternative Investment Market or any
      Handbook of Venture Capital Documentation                                            Page      204


                  recognised investment exchange (as defined in Section 207 of the Financial
                  Services Act 1986);
                  "Option" means the subscription option granted to the Optionholder by this
                  Agreement;
                  "Option Notice" means a notice substantially in the form set out in Schedule
                  Part 3 intimating the Optionholder's election to exercise the Option in terms of
                  Clause 3.1;
                  "Option Period" means the period from the Company's execution of this
                  Agreement until:-
      (a)                 the date, if any, prior to the fifth anniversary of drawdown of the Loan
            (as defined in the loan Agreement) upon which any Listing or Change in Control
            occurs; or (if no such date)
      (b)                 the fifth anniversary of drawdown of the Loan (defined as aforesaid); or,
            if later
      (c)               the first date after such fifth anniversary upon which either the
            Optionholder ceases to make available any facilities to the Company or a Listing or
            Change of Control occurs;
                  "Option Price" means £50,000 in aggregate for the Option Shares;
                  "Option Shares" means 80,000 A Ordinary Shares of £0.10 each in the share
                  capital of the Company;
                  "Schedules" shall be construed as a reference to the schedules to this
                  Agreement;
                  "Loan Agreement" means the loan agreement dated on or about the date of this
                  Agreement between Bank Co plc and the Company;
1.2              References to this Agreement and to any provisions of it shall be construed as
            references to it in force for the time being and as amended, varied, supplemented,
            substituted or novated from time to time;
1.3              References to statutes, statutory provisions and other legislation shall include
            all amendments, modifications and re-enactments for the time being in force.
1.4               Words importing the singular are to include the plural and vice versa;
1.5             References to any person are to be construed to include that person's
            assignees or transferees or successors in title, whether direct or indirect;
1.6               Any term or phrase defined in the Companies Act 1985 (as amended from time
            to time) shall bear the same meaning in this Agreement;
1.7              Clause headings are for ease of reference only and are not to affect the
            interpretation of this Agreement.
      2           OPTION
2.1             The Company grants to the Optionholder an option to elect to subscribe for the
            Option Shares at the Option Price at any time during the Option Period.
        Handbook of Venture Capital Documentation                                        Page   205


2.2             In support of the Option, the Company shall deliver in a form and content
            acceptable to the Optionholder:-
2.2.1           an extract of its board resolution, certified by its secretary as true and complete,
            approving and authorising the execution of this Agreement;
2.2.2            an extract of an ordinary resolution of its shareholders dealing with the matters
            set out in sub-clause 8.3 below; and
2.2.3           an extract of the special resolution of its shareholders disapplying the
            shareholders' pre-emption rights in relation to the Option Shares as required
            pursuant to Section 95 of the Act.
        3       EXERCISE
3.1             The Option may be exercised by the Optionholder serving an Option Notice on
            the Company specifying the number of Option Shares to be allotted and a date for
            Completion (which shall be a business day not less than 7 days nor more than 21
            days after the date of service of the Option Notice).
3.2              The Option may be conditionally exercised following the advice or notice
            specified in Clause 6.2 being received by the Optionholder of a prospective Listing
            or Change of Control by the Optionholder serving on the Company a Conditional
            Option Notice specifying the number of Option Shares to be allotted. Completion (if
            it occurs) will then take place on or prior to the actual date of Listing or Change of
            Control provided that, if the Listing or Change of Control does not occur within 60
            days of the date of the Conditional Option Notice it shall be deemed to be withdrawn.
3.3             Where a Conditional Option Notice is deemed to be withdrawn, the Option will
            remain in force and will be available for subsequent exercise by the Optionholder at
            any time during the Option Period, in accordance with the provisions of this
            Agreement.
3.4              For the avoidance of doubt, a Conditional Option Notice may be superseded at
            any time by the Optionholder issuing an Option Notice or further Conditional Option
            Notice.
3.5              If, before the expiry of the Option Period, an order is made or an effective
            resolution is passed for the winding up of the Company then if the Option has not
            been exercised, the Option shall be treated as if it had been so exercised and the
            Optionholder shall be entitled to receive out of the assets otherwise available to the
            Company's shareholders the amount to which it would then have been entitled, less
            the Option Price of the unissued Option Shares. The Option shall lapse on the
            effective winding up of the Company. Nothing in this sub-clause 3.5 shall in any way
            prejudice or affect the rights of the Optionholder in respect of Option Shares which
            have previously been issued to it.
        4       COMPLETION
4.1             Completion will take place at the registered office of the Company (or as
            otherwise agreed) on the date determined for Completion in terms of Clause 3
            (which will not be later than the date of any Listing or Change of Control).
        Handbook of Venture Capital Documentation                                        Page   206


4.2             At Completion:-
4.2.1           the Optionholder will pay the Option Price to the Company;
4.2.2           the Company will allot and issue the Option Shares to the Optionholder (or its
            permitted nominee or assignee) and enter it as holder into its register of members;
            and
4.2.3           the Company will deliver to the Optionholder (or to its permitted nominee or
            assignee) an executed share certificate in respect of the Option Shares.
4.3              Upon allotment and issue of any of the Option Shares, the Company
            undertakes to immediately file all necessary returns with the Registrar of Companies
            and deliver copies of those filings to the Optionholder within 3 days of their being
            delivered to the Registrar of Companies.
4.4              All taxes and duties payable in respect of the issue of the Option Shares or
            relative filings shall be met by the Company unless it is prohibited by law from
            meeting those obligations.
        5       PAYMENT
5.1            Any payment made by or to any party in relation to this Agreement shall be
            made either by:-
5.1.1           bank cheque or draft (as the payee may require ); or
5.1.2            by telegraphic transfer of funds into an account within the U.K. or nominated by
            the payee.
5.2              Should no election be made as to the manner or destination of a payment within
            7 days, as the case may be, (a) after receipt by the Company of an Option Notice or
            (b) prior to Completion where a Conditional Option Notice is given, the payment shall
            be made by notice to the payee accompanied by a bankers draft.
        6       FINANCIAL INFORMATION
6.1              The Company agrees and undertakes that prior to full exercise of the Option it
            shall promptly send or procure to be sent to the Optionholder copies of each of its
            audited accounts and copies of every statement, circular or notice issued to its
            shareholders.
6.2             The Company agrees and undertakes that, at all times prior to exercise of the
            Option the Company will give not less than 28 days prior written notice to the
            Optionholder of any prospective or possible Listing or Change of Control and will
            advise the Optionholder (on a confidential basis unless otherwise agreed) of all
            material developments in connection with such Listing or Change of Control and will
            promptly provide the Optionholder with all relevant financial particulars in relation to
            such Listing or Change of Control.
        7       UNDERTAKINGS
7.1.1            The Company agrees and undertakes to procure that the Optionholder is given
            notice at the same time notice is given to the Shareholders, but in any event not less
            than 10 business days notice of any resolution to:
        Handbook of Venture Capital Documentation                                            Page   207


                  (a)      alter the rights attaching to the A Ordinary Shares in the capital of the
                           Company;
                  (b)      to amend the Articles of Association in a manner which would be
                           materially prejudicial to the interests of the Optionholder as holder of the
                           Option; or
                  (c)      to grant options, warrants or rights to subscribe for or be allotted shares
                           in the Company (other than the option conferred by the Barker Option or
                           to be conferred by the Employee Share Option Scheme)
7.1.2              The Shareholders agree and undertake that for so long as the Option subsists
              with respect to any resolution contemplated by Clause 7.1.1 the Optionholder shall
              be entitled to attend the relevant meeting and vote as if the Option had been
              exercised and the Optionholder is the registered holder of the Option Shares and the
              Articles of Association shall be deemed varied to the extent required for this
              purpose.
7.1.3              The Option Shares and the Optionholder shall be included in the calculation of
              an Investor Majority (as defined in the Articles of Association) for the purpose of any
              resolution of the sorts contemplated by Clause 7.1.1(a).
7.1.4             Insofar as any of the provisions of the Articles of Association conflict with the
              terms of this Clause 7.1 the terms of this Clause 7.1 shall prevail for so long as the
              Option remains exercisable.
7.2                The Shareholders agree and undertake to exercise their rights as shareholders
              to vote their shares in order to ensure that there shall at all times be a sufficient
              number of suitable unissued shares to enable the Company to discharge its
              obligations under this Agreement.
7.3               The Company undertakes to the Optionholder (and each Shareholder agrees to
              exercise their powers and rights to procure insofar as reasonably practicable) that:-
7.3.1              where there is a potential Change of Control, the proposed transferee(s) of the
              applicable shares in the Company shall have offered to purchase all Option Shares
              registered in the name of the Optionholder or which the Optionholder may either
              conditionally or unconditionally be entitled to have allotted to it, at a price per Option
              Share equal to the greater of:-
        (a)                the Option Price; or
        (b)                the price paid or to be paid by the proposed transferee(s) for each
              share, plus an amount equal to a proportion of any other consideration which, having
              regard to the substance of the transaction as a whole, can reasonably be regarded
              as an addition to the price of the shares.
                  If any part of the share price is payable other than in cash, the Optionholder
                  shall be entitled to elect to take such part of the price in cash.
                  In the event of disagreement as to the price, its calculation shall be referred to
                  an independent person acting as an expert and not as arbiter nominated by the
                  Optionholder and the Company, or, in the absence of such agreement, a
        Handbook of Venture Capital Documentation                                          Page   208


                  person nominated by the Codent for the time being of the Institute of Chartered
                  Accountants of Scotland whose decision shall be final and binding; and
7.3.2             where there is to be a Listing an opportunity shall have been offered to the
              Optionholder to dispose of the Option Shares on terms no less favourable than
              those extended to other shareholders in connection with that Listing.
7.4
7.4.1              Where a further issue of shares by the Company is proposed after the date of
              this Agreement the Company and the Shareholders will procure that:-
        (a)              the Optionholder is given 10 business days notice, by the Company, of
              such proposed issue; and
        (b)              the Optionholder is given the opportunity to subscribe for shares in
              accordance with the terms of Clause 7.4.2.
7.4.2              Upon each notice to the Optionholder pursuant to Clause 7.4.1 the Company
              and the Shareholders shall sign all documents and otherwise take all steps
              reasonably required by the Optionholder to provide the Optionholder with a right to
              subscribe at a price to be agreed between the Company and the Optionholder
              (being not less than the price at which such further shares shall be issued) for that
              number of shares in the share capital of the Company which when aggregated with
              the Option Shares, represents 4% of the issued share capital of the Company as
              enlarged by the relevant proposed share issue.
7.4.3              In the event of failure to agree the price at which the Optionholder will subscribe
              for such shares within 10 business days of notification by the Optionholder that it
              wishes to subscribe for shares the matter shall be referred to an independent person
              acting as an expert and not an arbiter nominated by the Optionholder and the
              Company and in the event of failure to agree within 5 business days, on the
              application of either party to the Codent for the time being of the Institute of
              Chartered Accountants of Scotland, who will determine the fair value at which the
              bank should subscribe for shares but which, in any event, would not be less than
              the price at which any further shares are/have been issued. The decision of such
              expert shall be final and binding and the cost shall be borne as he directs.
        8         WARRANTIES
                  The Company warrants to the Optionholder that:-
8.1                the information provided by the Company to the Optionholder in terms of Clause
              6.2 is, accurate and materially complete at the time that it is given;
8.2                 the directors of the Company have been authorised by the Company in general
              meeting to grant the Option and to allot and issue the Option Shares on its exercise
              all in terms of Section 80 of the Act, and under the terms of that authorisation, the
              Directors may allot and issue the Option Shares notwithstanding that exercise of the
              Option by the Optionholder may occur after expiry of the Directors' authority to issue
              those Option Shares;
8.3               the Articles of Association have been amended so as to enable:-
        Handbook of Venture Capital Documentation                                          Page   209


8.3.1            the creation of sufficient A Ordinary Shares in respect of the Option; and
8.3.2            the transfer of Option Shares in terms of Clause 10 below;
8.4              the Shareholders are all of the shareholders of the Company.
        9        NEW SHAREHOLDERS
9.1               The Company undertakes to the Optionholder that it shall not register any
             transfer of legal title to any shares in the Company:-
9.1.1            where a Change of Control would result unless the provisions of this Agreement
             have been complied with; or
9.1.2             whether or not a Change of Control would result, unless the transferee(s) has
             entered into a Deed of Adherence to this Agreement in form and content satisfactory
             to the Optionholder.
9.2              The Company further undertakes to the Optionholder that no convertible
             shares, debentures, loan stocks, warrants or similar instruments shall be converted
             in accordance with their terms and that no shares in the share capital of the
             Company shall be issued to any person without first procuring that the holder or
             prospective allottee(s) has entered into a deed of adherence to this Agreement in
             form and content satisfactory to the Optionholder.
        10       TRANSFER AND ASSIGNATION
10.1              Following exercise of the Option, the Optionholder shall be entitled to transfer or
             dispose of any part of the Option Shares to any other company in Bank Co plc group
             of companies (subject always to the terms of the Articles of Association).
10.2              The Shareholders agree and undertake that they shall exercise their rights as
             shareholders of the Company to vote in favour of any resolution to vary the Articles
             of Association on or after the date of exercise of the Option to include the right of the
             Optionholder to transfer shares within the Optionholder's group of companies.
10.3              the Optionholder may assign its rights under this Agreement (including its rights
             of assignation or nomination) at any time to any company which is from time to time
             a holding company or subsidiary of it or a subsidiary of its holding company and may
             nominate any of those companies to be holder of the Option Shares provided that if
             such company ceases to be a group company it shall immediately reassign its rights
             under this Agreement and as the case may be transfer the Option Shares to another
             group company.
        11       NOTICES
11.1              All notices or other communications to or between the parties will be in writing
             and will be by first-class pre-paid post or by fax transmission, authenticated to the
             satisfaction of the Optionholder.
11.2              If by letter, receipt will be deemed forty-eight hours after posting (unless hand-
             delivered and then at the time of delivery) and if by fax will be deemed when sent,
             (provided a transmission report is received); where that date is a non-business day
       Handbook of Venture Capital Documentation                                         Page   210


            or after 5 p.m. on a business day, the deemed date shall be 9am on the next
            business day.
11.3            Any notice by the Company to the Optionholder shall be addressed to:-
                             Bank Co (+ person name + place)
11.4            Any notice by the Optionholder to the Company shall be addressed to:-
                             New Co Limited (+ place)
11.5            the Optionholder may rely upon any communication by telephone or fax
            purporting to be on behalf of the Company by anyone notified to the Optionholder as
            being authorised without enquiry by the Optionholder as to authority or identity. The
            Company agrees to indemnify the Optionholder against any liability incurred or
            sustained by the Optionholder as a result.
11.6             In order to prove that a notice or demand has been made, the Optionholder
            need only establish that the notice or demand was properly addressed and posted or
            transmitted.
11.7             Any notice given by the Optionholder to the Company shall be deemed to be an
            effective notice upon each and every party to this Agreement and the Company
            undertakes to procure that, where necessary, each party is informed of that notice.
       12       DISPOSAL OF OPTION SHARES
                It is agreed between the parties to this Agreement that in the event of a sale or
                Listing of any part of the share capital of the Company, the Optionholder shall
                not be required to:-
12.1            make or give in connection with such sale or Listing any representation,
            warranty, undertaking or indemnity of any kind (other than a warranty as to its title to
            any shares to be sold by it in connection with such sale or Listing); or
12.2            make any contribution to the costs (including legal and accountancy fees and
            disbursements) incurred by any other party in connection with such sale or Listing.


       13       DURATION AND LAW
13.1             The Option shall not prescribe provided that nothing in this Clause 13.1 shall
            operate to the prejudice of any provision of this Agreement contemplating the lapse
            of the Option.
13.2            This Agreement shall be governed by and construed according to the law of
            Scotland and the parties to it submit to the non-exclusive jurisdiction of the Scottish
            courts:
       IN WITNESS WHEREOF this Option Agreement made up of this and the
       10 preceding pages and the Schedules are executed as follows:-
Handbook of Venture Capital Documentation                                 Page   211


SUBSCRIBED for and on behalf of
NEW CO LIMITED
By

..........................Direct
or

..........................Direct
or/Secretary

at

on..............................
............2000

SUBSCRIBED for and on behalf of         ..........................Authorised
BANK CO by                              Signatory

at

on..............................
..........
in the presence of

Witness ………………………………

Full name …………………………….

Address ………………………………

………………………………………..

………………………………………..
Subscribed by (Name) of New Co
at                         on the
day of                                  ………………………………………….
2000    before    the   following       (name)
witness:-

Witness ………………………………

Full name …………………………….

Address ………………………………

………………………………………..

………………………………………..
Handbook of Venture Capital Documentation                                 Page   212


SUBSCRIBED for and behalf of            …………………………………………..
Syndicator Co by an authorised          Authorised Signatory
signatory at
on the                      of
2000 before this witness:-

Witness ………………………………

Full name …………………………….

Address ………………………………

………………………………………..

………………………………………..
Subscribed for and on behalf of         ……………………………………
Investor Co by [one of its              [Director/Authorised Signatory]
directors]
[an authorised signatory] at
on the    day of      2000 before
this witness:-
at                         on the
day of
2000    before    the   following
witness:-

Witness ………………………………

Full name …………………………….

Address ………………………………

………………………………………..

………………………………………..

Repeated for number of signatories

This is the Schedule referred to in the preceding Option Agreement entered into
             between New Co Limited and Bank Co plc and the Shareholders
             dated              2000

                                       SCHEDULE
Handbook of Venture Capital Documentation                              Page   213




DOCUMENT NUMBER              26
DOCUMENT TITLE               CONDITIONAL OPTION AGREEMENT
PURPOSE         OF           To exercise an option with the terms of an overall
                             Option Agreement
DOCUMENT


                                      SCHEDULE

                                        Part 2

                           Conditional Option Notice

To:   The Secretary,
      New Co Limited
      (the "Company")

CONDITIONAL OPTION NOTICE

Option Agreement:          The   Option   Agreement   between   (amongst
                           others), us and the Company dated [].
                           Unless otherwise specified words and phrases
                           in this notice bear the same meaning that is
                           given to them in the Option Agreement.

Acknowledgement:           We acknowledge receipt of your notice to us
                           of   a  prospective  [Listing]  [Change  of
                           Control].

Notice:                    We now give notice of our conditional
                           election to exercise the Option to subscribe
                           for [] A ordinary shares in the Company.

                           Should this Notice represent only a partial
                           exercise of the Option to subscribe then the
                           Option Agreement shall continue in full
                           force and effect in relation to the balance
                           of Option Shares.

Price:                            £50,000.

Payment:                   Please open an account within the U.K. for
                           receipt by telegraphic transfer of the
                           Option Price, alternatively you may elect to
                           receive payment by either cheque or bankers
                           draft.
Handbook of Venture Capital Documentation                         Page   214




                           If we do not hear from you within seven days
                           of this Notice, payment will be made by
                           bankers draft.

Completion:                This subscription will be made according to
                           the provisions of the Option Agreement and
                           the date of settlement shall be the date [of
                           Listing]   [on  which   Change  of   Control
                           occurs].

If the [Listing] [Change of Control] does not occur within 60
days after the date of this notice then this notice shall be
deemed to have been withdrawn by us.

                                  Signed

                                  .......................................
                                  ...........................
                                  for []

                                  Date:
                                  .......................................
                                  ....................

                                      SCHEDULE


                             Part 3 – Option Notice

To:   The Secretary,
      New Co Limited
      (the "Company")

OPTION NOTICE

Option Agreement:          The   Option   Agreement   between   (amongst
                           others) us and the Company dated []. Unless
                           otherwise specified words and phrases in
                           this notice bear the same meaning that is
                           given to them in the Option Agreement.

Notice:                         We now give notice of our election to
                           exercise the Option to subscribe for [] A
                           ordinary shares in the Company.

Price:                            £50,000.
Handbook of Venture Capital Documentation                                          Page   215




Payment:                                Please indicate an account within the U.K.
                                        for receipt by telegraphic transfer of the
                                        price,  alternatively  you  may   elect  to
                                        receive payment by either cheque or bankers
                                        draft.

                                        If we do not hear from you within seven days
                                        of this notice, payment will be made by
                                        bankers draft.

Completion:                             This subscription will be made according to
                                        the provisions of the Option Agreement and
                                        the date of settlement shall be on [].


We await allocation and receipt of our share certificate and
authorise that you enter our name in your register of members.



                                                   Signed

                                                   .......................................
                                                   ...........................
                                                   for []

Date: ...........................................................
Handbook of Venture Capital Documentation                              Page   216




DOCUMENT NUMBER              29
DOCUMENT TITLE               SHAREHOLDERS UNDERTAKING
PURPOSE         OF           An agreement between the shareholders of New Co to
                             exercise their powers to meet agreed objectives
DOCUMENT
EXAMPLE OF USE               This is a simple example which refers to objectives
                             laid out in the Investment Agreement (document 21).
KEY SENSITIVITIES            The shareholders Undertaking will often spell out
                             areas of protection for investors (prospective and
                             retrospective), for management (majority and any
                             minority)   and    common   concerns   (restrictive
                             covenants, exit criteria and conditions under which
                             shares may be transferred).

AGREEMENT
among


(1) [               ]              residing                at
[                                                   ],    and
[                   ],              residing               at
[                                     ],         (hereinafter
collectively referred to as “the Shareholders”) of the first
part; and

(2) INVESTOR CO, a company limited by guarantee, incorporated
in Scotland under the Companies Acts with registered number
[          ], having its registered office at ………… a place ………….
(hereinafter referred to as “Investor Co ”) of the second part.

WHEREAS

(A) Investor    Co      has  agreed   to    [advance    a   loan  of
[                     ] ( EUR [            ]) STERLING to [insert
company   name]    (Company  Number   [           ])     having  its
registered office at [                               ] (hereinafter
referred   to   as    “the  Company”)    and   to    subscribe   for
[          ]Shares in the capital of the Company;

(B) The subscription and loan is to be documented in terms of
[an offer letter issued by Investor Co      and accepted by the
Company and the directors of the Company on the date hereof]
(hereinafter referred to as [“the Investment Agreement”]); and

(C) It is a condition precedent of Investor Co    advancing the
loan to and subscribing for shares in the Company that the
Shareholders agree to procure that the Company will comply with
the terms of [the Investment Agreement].
Handbook of Venture Capital Documentation                                                    Page     217




NOW THEREFORE IT IS HEREBY AGREED as follows:-

1.      UNDERTAKING

The Shareholders do hereby undertake to Investor Co    that they
will exercise all votes (whether as shareholders in the Company
and/or as directors of the Company) and all other powers
available to them whatsoever to procure that the Company will
comply with the terms of [the Investment Agreement] and the
articles of association of the Company from time to time and
that they will procure that all transferees of some or all of
the shares held by any of the Shareholders in the capital of the
Company will execute agreements in these terms forthwith upon
becoming shareholders in the Company.

2.      LAW

This agreement shall be governed by the law of Scotland and the parties hereto prorogate the non-exclusive
jurisdiction of the Scottish courts: IN WITNESS WHEREOF



                                             AGREEMENT

                                                among

                                   [                                 ]

                                                  and

                                            INVESTOR CO

                  __________________________________________


                          Re:      [                                         ]


                             Solicitor Co name and address



                                             AGREEMENT

                                                among

                                   [                                 ]
Handbook of Venture Capital Documentation                 Page   218




                                            and

                                     INVESTOR CO

                    ___________________________________

                                    Solicitor Co
Handbook of Venture Capital Documentation                                     Page   219




DOCUMENT NUMBER              30
DOCUMENT TITLE               PERSONAL GUARANTEE
PURPOSE         OF           To underwrite potential debt or default thereby
                             exercising pressure not to default by the Guarantor
DOCUMENT
                             upon the Principal
EXAMPLE OF USE               This is a general personal guarantee relating to a
                             large size deal
KEY SENSITIVITIES            Many VCs will not take Personal Guarantees from
                             members of the management team, since they can
                             result in undue pressure or irrational decision-
                             making, in the event of a crisis.



Under this Guarantee             YOU    MAY   HAVE    TO   PAY    INSTEAD      of    the
principal debtor.

You should consult your solicitor or other independent legal
adviser before entering into this Guarantee.

Unless otherwise specified in Clause 2 below, your liability under this Guarantee is for
an unlimited amount. Your liability as regards further borrowing by the principal debtor
may be terminated in the manner set out in Clause 4 below.

PERSONAL GUARANTEE


To: INVESTOR CO, a Company incorporated under the Companies Acts
in Scotland (Company Number: xxxxxxxx) and having its Registered
Office at (place) (“the Company”)

1.    I, (name), residing at (place) (“the Guarantor”) hereby unconditionally
      guarantee payment or discharge and undertake on written demand made by the
      Company from time to time to pay or discharge to the Company all money and
      liabilities which are or which may become due, owing or incurred by the Principal
      to the Company in any manner whatever, whether actually or contingently,
      whether solely or jointly with any other person and whether as principal or surety,
      including all interest, discount, commission, fees and other lawful charges or
      expenses (whether before or after demand) which the Company may in the
      course of its business charge in respect of any of the above matters.

2.   The total amount recoverable under this Guarantee shall be
EUR 1,000,000.

3.    I shall also reimburse to the Company (on a full indemnity basis) all costs and
      expenses incurred by the Company in connection with the recovery of any
      money due to the Company under this Guarantee.
Handbook of Venture Capital Documentation                Page   220


4.    This   Guarantee    shall   be    a   continuing  security,
      notwithstanding any intermediate payment to the Company, or
      any settlement of account, or my death or mental
      incapacity, or any other matter whatever, but my liability
      may be determined and such liability crystallised at the
      expiration of one month after receipt by the Company of
      written notice signed by me to determine it.        I shall
      remain liable after such determination to the extent of all
      such money and liabilities due, owing or incurred by the
      Principal to the Company as at the close of business on the
      date on which such notice expires, including liabilities
      arising pursuant to commitments entered into prior to the
      expiry   of  such   notice,   unascertained   or contingent
      liabilities and interest, discount, commission, fees,
      charges, costs and expenses referred to above.

5.    Until payment of the ultimate balance to the Company from
      the Principal, I shall remain liable to the full extent of
      this Guarantee and shall not be entitled to participate in
      any security held or money received by the Company on
      account of such balance, or to stand in the Company's place
      in respect of any such security or money, or take any step
      to enforce any right or pursue any claim against the
      Principal or any co-surety, or prove in competition with
      the Company in the bankruptcy or winding up of the
      Principal or such co-surety, and the Company may in the
      meantime hold any money received under or by virtue of this
      Guarantee on suspense account.

6.    The Company may prove in the Principal's winding-up for the
      full amount of the Company's claim and retain the whole of
      the dividends to the exclusion of my rights as Guarantor in
      competition with the Company until its claim is satisfied
      in full.   In the event of the Principal's winding-up, my
      liability will extend to all money which would otherwise
      have been due from the Principal if such event had not
      occurred or had not commenced until the Company received
      actual notice of it.

7.    This Guarantee shall be in addition to, and shall         not
      prejudice or be prejudiced by, any other security          or
      guarantee at any time held from or on account of          the
      Principal.   This Guarantee may be enforced without       the
      Company's first taking any steps or proceedings against   the
      Principal or having recourse to any such security          or
      guarantee.
Handbook of Venture Capital Documentation                Page   221


8.    The Company may, at all times, in its absolute discretion,
      and without affecting my liability, (i) grant, continue,
      vary, renew, refuse, determine or increase any credit or
      facilities to the Principal, (ii) grant any indulgence to,
      release, compound with or enter into any other arrangement
      whatever with the Principal, me or any other person, (iii)
      deal with, renew, vary, release abstain from perfecting or
      enforcing, enforce or realise any security, guarantee or
      other rights held by the Company from or on account of the
      Principal, or (iv) do or omit or neglect to do anything
      whatever which (but for this provision) might operate to
      discharge or reduce my liability.

9.    Any settlement or discharge between the Company and me
      shall be subject to the condition that no security or
      payment to the Company by the Principal, me or any other
      person shall be avoided or reduced pursuant to any
      provision or enactment relating to insolvency or otherwise.
      If any such security or payment shall be so avoided or
      reduced, the Company shall nevertheless be entitled to
      exercise all rights which, by virtue or as a consequence of
      this Guarantee, or any security held for my liability, it
      would have been entitled to exercise but for such
      settlement or discharge. Where any security is held by the
      Company for my liability, the Company will be entitled to
      retain such security for such period as the Company shall
      determine after repayment in full of all money hereby
      guaranteed, notwithstanding any release, settlement or
      discharge made or given by the Company.

10.   A demand for payment or any other demand or notice by the
      Company under this Guarantee may be made or given by any
      director or the company secretary of the Company by letter
      addressed to me and sent by post to or left at my existing
      or last known place of business or abode (or, if more than
      one, any one of such places). If sent by post, it shall be
      deemed to have been made or given at noon on the day
      following the day the letter was posted (even if it is
      returned by the Post Office).

11.   As a separate and independent stipulation, all sums of
      money which may not be recoverable from me on the footing
      of a guarantee, whether by reason of any legal limitation
      or the insolvency of the Principal or any other fact or
      circumstances (whether known to the Company or not), shall
      nevertheless be recoverable from me as sole or principal
      debtor.
Handbook of Venture Capital Documentation                             Page   222




12.   All payments falling to be made by me shall be made to the
      Company without any set-off or counterclaim and free from
      any deduction or withholding for or on account of any
      taxes.

13.   A certificate by any director or the company secretary of
      the Company as to the money and liabilities for the time
      being due or incurred by the Principal to the Company
      shall, in the absence of manifest error, be conclusive and
      binding on me.

14.   Until the ultimate balance owing to the Company by the
      Principal has been satisfied in full, the Company shall
      have a lien on all my property in the Company‟s possession,
      whether for safe custody or otherwise.

15.   For the purposes of this Guarantee:

      (a)    "the Company" includes it successors and assigns;

      (b)    "this Guarantee" includes any separate or independent
             stipulation or agreement contained in this document;

      (c)    "person" includes a company, society, corporate, firm
             or an individual, and any executor, administrator,
             committee, receiver or other person lawfully acting on
             behalf of any such person;

      (d)    "Principal" means New Co, a Company         incorporated under
             the Companies Acts in Scotland               (Company Number:
             xxxxxxxx) and having its Registered         Office at (place),
             and shall include its successors and        assigns;

      References to "I" or "me" means the party named in clause 1
      as the Guarantor (including the Guarantor‟s successors and
      assigns). Where any such party is also named as Principal,
      such party shall be liable as guarantor only for the money
      and liabilities due or incurred to the Company by the other
      party or parties comprising the Principal.    References to
      the singular include references to the plural and vice
      versa.

16.   This Guarantee shall be governed by and construed in accordance with Scots
      law.
Handbook of Venture Capital Documentation                                    Page   223


17.   It is agreed, for the Company's exclusive benefit, that the Scottish Courts shall
      have jurisdiction to settle any dispute or difference which may arise out of or in
      connection with this Guarantee or the legal relationships established by this
      Guarantee. Nothing in this Clause shall limit the Company‟s right to take
      proceedings in any other court of competent jurisdiction.

18.   I consent to the registration of this Guarantee and to the
      registration of any certificate issued on behalf of the
      Company pursuant to Clause 13, for preservation and
      execution.

IN WITNESS WHEREOF these presents consisting of this and the three preceding
     pages have been executed as follows:


SUBSCRIBED by the above named
(name)                   Signature…………………………….
in the presence of:


……………………………Witness

……………………………Name

…………………………….Occupation

…………………………….Address

…………………………….

Date:               September 2000


Signed by Investor Co
for identification purposes only by:


……………………………………


                       _______________________________

PERSONAL GUARANTEE
               _______________________________


                                            by
Handbook of Venture Capital Documentation          Page   224




(Name)

                                    in favour of

INVESTOR CO



Solicitor Co (name and place)
Handbook of Venture Capital Documentation                     Page   225




DOCUMENT NUMBER    31
DOCUMENT TITLE     SHARE CAPITAL CERTIFICATE
PURPOSE         OF To officially distribute share ownership
DOCUMENT

                     [Company‟s Solicitor‟s Letterhead]


Investor Co
Address

Dear Sirs

[                     ] Limited (“the Company”)

We refer to your proposed [loan of EUR[                  ] to]
[and] [subscription of EUR[          ] for [          ] shares
in] the Company.   We hereby confirm that we are solicitors to
the Company and certify that:-

1.    the authorised share capital of the Company is EUR[      ]
      divided into [      ] Preference Shares of EUR[    ] each,
      [     ] A Ordinary Shares of EUR[       ] each and [     ]
      Ordinary Shares of EUR[     ] each;

2.    all the directors and all the shareholders of the Company
      are listed, and the Company Secretary is named, in the
      Schedule below;

3.    subscription moneys totalling EUR[           ] have been
      received by the Company from the persons named in the
      Schedule below in respect of the shares shown as held by
      them [and have been credited to the Company‟s bank account
      with [              ];

4.    all of the issued shares are fully paid;

5.    prior to giving this certificate the Company has amended
      its memorandum and articles of association in accordance
      with the resolutions, a copy of which has been supplied to
      Investor Co as part of its completion requirements;

6.    neither the Company [nor any of its subsidiaries have]
      passed any elective resolution (within the meaning of
      section 379A of the Companies Act 1985);
Handbook of Venture Capital Documentation                                    Page   226


7.    the Company has no subsidiaries [other than those listed in
      the Schedule which, unless otherwise stated, are wholly
      owned];

8.    on [               ] the Company acquired [the whole of the
      issued share capital of [                         ] Limited
      which became and remain a wholly owned subsidiary of the
      Company] [[all] of the assets of the partnership trading as
      [                    ]] for a consideration of EUR[    ].




Dated this             day of                   199

……………………………………..


                                       SCHEDULE


               Directors                                  Shareholding
[                                           [
        ]                                             ]




Company Secretary:         [                                             ]

[Subsidiaries: [                                                   ]]
Handbook of Venture Capital Documentation                                 Page   227




DOCUMENT NUMBER               32
DOCUMENT TITLE                DISCLOSURE LETTER
PURPOSE         OF            Towards completion of an investment investors will
                              seek warranties – the comfort of knowing that if
DOCUMENT
                              disclosed information is untrue, they have a basis
                              upon which to sue.      An indemnity is a covenant
                              giving   protection   against  a   possible    future
                              contingent liability.
EXAMPLE OF USE                Here the warranties and indemnities are listed,
                              referencing    a    shareholders     agreement     or
                              undertaking.
KEY SENSITIVITIES             It is crucial for the investor to have disclosed
                              the true state of past and future liabilities.
                              Management, however may seek to minimise their
                              exposure by limiting warranties and indemnities.



Our Reference: xxxxxxxxxxxxxxxxxx
Your Reference: xxxxxxxxxxxxxxxxxxx

Strictly Private & Confidential


Solicitor Co
(place)

(date)

Dear Sirs

New Co Limited
1999 Investment

We refer to the Share Subscription and Loan Agreement among the
Company, the Director and the Investors to be executed by the
Company of even date herewith ("the Agreement").

This is the disclosure letter referred to in Clause 16 of the
Agreement which qualifies the warranties set out in Clause 16 of
the Agreement ("the Warranties"). All Warranties are given by
the Director subject to the events, occurrences, matters, facts,
disputes, assets, liabilities, obligations or rights apparent
from this disclosure letter and in the documentation attached to
this disclosure letter ("the Disclosure Documents") and the
Director's liability in respect of any breach of or claim in
respect of the Warranties shall be excluded or limited where the
matter giving rise to such liability is disclosed in this
disclosure letter.
Handbook of Venture Capital Documentation                             Page   228




All words and expressions defined in the Agreement shall, save
where the context in this disclosure letter clearly otherwise
requires, have the same respective meanings in this disclosure
letter and the provisions governing the interpretation of the
Agreement shall be deemed to have been incorporated into this
disclosure letter.

All disclosures in this disclosure                letter are made by the
Director in respect of each of the                Warranties generally and
shall not be limited or restricted in             any way by references in
them which have been included, for the            sake of convenience only,
to particular Warranties.

General Disclosures

This disclosure letter shall be deemed to include and the
Investors agree that there are hereby incorporated into this
disclosure letter by reference as having been disclosed the
following events, occurrences, matters, facts, disputes, assets,
liabilities, obligations or rights:-


1.    those apparent from the face of the Business Plan and/or
      the Accounts and/or the Management Accounts;

2.    those apparent from the face of the letter dated xxxxxxxx
      from New Co‟s Auditors to the Company;

3.    those apparent from the face of the report of Consult Co
      dated xxxxxxxx;

4.    those apparent from             this   disclosure   letter   and/or    the
      Disclosure Documents;

5.    those apparent from an examination of the microfiche
      obtained on xxxxxxxx of the file at the Companies
      Registration Office (place) in respect of the Company (save
      insofar as any such entries or information are inconsistent
      with that set out in the solicitors certificate addressed
      by us to the New Investors of even date herewith); and

6.    those apparent from the Agreement and any acts                         or
      transactions contemplated or required by the Agreement.
Handbook of Venture Capital Documentation                                                 Page     229




Specific Disclosures

The following specific disclosures are fairly made and, for
convenience only, reference is made to specific Warranties.
Each event, occurrence, matter, fact, dispute, asset, liability,
obligation or right disclosed shall, however, be deemed to have
been fairly disclosed in respect of all the Warranties and shall
not be limited to the Warranty which is referred to below:-


Warranty Clause                                       Disclosure
   Number
     16.1         The Company has circulated to the Investors various different
                  sets of profit and cash flow forecasts and underlying
                  assumptions. The latest set of profit and cash flow forecasts
                  dated 19 January 2000 (attached to this disclosure letter as
                  Disclosure Document 1) contains the latest profit and cash
                  flow forecasts prepared by the Company. The Investors should
                  disregard any profit and cash flow forecasts circulated to the
                  Investors before the profit and cash flow dated 19 January
                  2000.

                  The Business Plan is supplemented and amended by the following
                  documents:-

                      The technical milestones set out in the document entitled
                       "New Co Project Plan" dated xxxxxxx (a copy of which is
                       attached to this disclosure letter at Disclosure Document
                       2) are the latest technical milestones set by the board of
                       directors of the Company for the Company; and
                      The sales and marketing strategy set out in the document
                       entitled "New Co Sales & Marketing Strategy"    (a copy of
                       which is attached to this disclosure letter at Disclosure
                       Document 3) amends the sales and marketing strategy set out
                       in the Business Plan.

     16.5         The Company has been adversely affected by losses since the date of the
                  Management Accounts. The Company made losses totalling approximately £30,000
                  between the date of the Management Accounts and 2 February 2000. The
                  Company has not made significant losses between 2 February 2000 and the date of
                  this letter.

    16.10         The Company is the sole owner of all of the Intellectual Property owned by the
                  Company. The Company is not the sole owner or sole licensee of all of the
                  Intellectual Property used by the Company for the carrying on of its business. In
                  common with most other companies, the Company has obtained non-exclusive
                  licences of certain "shrink-wrapped" software packages (referred to in this
                  disclosure letter as "the Software"). The Company does not own any of the
                  Intellectual Property subsisting in respect of the Software but the Company is
                  instead licensed on a non-exclusive basis to use the Software for the carrying on of
                  its business.

                  The Intellectual Property owned by the Company is now (or may in the future) be
Handbook of Venture Capital Documentation                                             Page    230


Warranty Clause                                       Disclosure
   Number
                  the subject of the following liens, charges and encumbrances:-
                   a bond and floating charge granted in favour of the Bank Co dated xxxxxx and
                      delivered to the Registrar of Companies for registration on xxxxxxxxxx;
                   a bond and floating charge to be granted in favour of Bank Co plc;
                   a bond and floating charge to be granted in favour of syndicator;
                   a bond and floating charge to be granted in favour of syndicator;
                   a bond and floating charge to be granted in favour of syndicator;
                   a bond and floating charge to be granted in favour of syndicator ;
                   a bond and floating charge to be granted in favour of Investor Co;
                   a bond and floating charge to be granted in favour of syndicator I;
                   a bond and floating charge to be granted in favour of syndicator; and
                   any liens, charges and/or encumbrances arising automatically by operation of
                      law (including, without limitation, a landlords' hypothec).

    16.13         The Company has filed the following UK patent applications:-
                   UK patent application number xxxxxxx. This application was filed on xxxxxx;
                     and
                   UK patent application number xxxxxxxx. This application was filed on xxxxxx.

                  The Company has filed a UK registered trade mark application in respect of the
                  mark "XXXXXXXXXX". This application was filed on (date).

    16.16         The Company does not have access to the source code of the Software and is
                  unaware of any escrow arrangements existing in respect of the Software.

                  Discussions are currently ongoing in respect of contributions to be made by the
16.19             Company to personal pensions plans held or to be held by Pension Co. No such
                  contributions have yet been made by the Company

    16.22         The Director is a director of AN Other Co.

This disclosure letter is given by us as agents for and on
behalf of and as instructed by the Director.     All information
included in this disclosure letter has been provided for and on
behalf of the Director and accordingly no responsibility for any
of its contents is accepted by this firm.

Please confirm your acceptance of this disclosure letter on
behalf of Investor Co and Syndicator Co (n) by signing and
returning the duplicate of this disclosure letter.

Yours faithfully




We, Solicitor Co, acknowledge receipt and confirm our acceptance
of the foregoing disclosure letter on behalf of and as
instructed by (names).
Handbook of Venture Capital Documentation   Page   231




………………………….

Solicitors


………..…………
Date
Handbook of Venture Capital Documentation                                         Page   232




DOCUMENT NUMBER                   33
DOCUMENT TITLE                    INVESTMENT RECORD
PURPOSE         OF                To record   a   complete     set   of    the   investor‟s
                                  interests
DOCUMENT
EXAMPLE OF USE                    Not only is this a record, it is also a useful
                                  checklist



                                     INVESTMENT RECORD

Company Name and Address                      Business Activity


Telephone:
Fax:
Prime Contact:                                Total Equity
Accounts                                      - Issued
Contact:
Directors &    their   equity   Shares   %    -   Authorised
interests:                      Held
                                              -   Options

                                              Voting Rights by Class

Investor                 Co                   -   Ordinary
Investment:
Equity                                        -      Preference
                                              shares
Share Type 1                                  - Other
No of shares
Price:                                        Registered Securities (charges)
% Total:
Income:
Due:                                          Key-man Insurance           Ye        No
                                                                          s
                                              Amount:
Share Type 2                                  Other Income - Ongoing
No. of Shares:
Price:                                        Directors‟ fees:
% Total:                                      Due:
Income:                                       Monitoring fee:
Due:                                          Due:
Redemption:
Option:                                       Other Income - on completion

Loan                                          Negotiation fees:
Original Sum:                                 Date invoiced:
Interest Rate:                                Date paid:
Payment
Amount:
Due:                                          Legal fees cost:
1st Payment:                                  Legal fees charged:
No.          of                               Date Invoiced
Payments:
                                              Date Received:
Lease
Original Sum:                                 Management Accounts
Handbook of Venture Capital Documentation                        Page   233


Interest Rate:                               Date Due:
Payment Amount:
Due:                                         Year End
1st Payment:
No. of Payments:                             Auditors
Other Syndicate Investors and % Interests

                                             Clearing Bankers:

Other Financing
                     Amount:      Provider
                                     :
-   Overdraft                                Lawyers:
-   Loans
-   Guarantees
-   Leasing
-   Other                                    Date Completed:
Handbook of Venture Capital Documentation                                       Page   234




DOCUMENT NUMBER              34
DOCUMENT TITLE               APPOINTMENT LETTER
PURPOSE           OF         Appointing a nominee to the Board of an investee
                             company and stipulating what is expect of him/her.
DOCUMENT
KEY SENSITIVITIES            NOTE:   the    appointed   Director   is    not   a
                             representative of the investor on the Board, rather
                             their responsibilities are those of a Director to
                             company law, the public, the Board, the company
                             shareholders and its creditors.



Reference:

Date:

Dear

[……………………… Limited]
Appointment as Non-Executive [Chairman/Director] of Investor Co
Limited

We have agreed with …………(company name)………… Limited [add Company name]
that Investor Co [and other Investors] have the right to appoint a Non-Executive
[Chairman/Director] to the board. Following our discussions, although the Company will
write to you separately to offer you the post formally, we are writing to you now to
outline the role that Investor Co [and other VCs (the Investors)] envisage for you, should
you choose to accept.

1.     Your position will be that of Non-Executive [Chairman/Director]. As you will be
       aware, legally there is no distinction between the duties of directors, and you will
       therefore owe all the normal duties that a director owes to a company. It is
       expected that you will [chair/attend] all board meetings and take whatever steps
       may be necessary to ensure that you have sufficient knowledge and familiarity
       with the Company‟s affairs to discharge the duties which your position entails.
       The time involvement on your part will, to a large extent, be determined by
       events within the Company. As a minimum, however, it is expected that the
       board will meet officially once a month and that you will meet unofficially with
       senior management and [Investor Co] as necessary.

2.     Although   you   are   nominated  by   Investor   Co  [the
       Investors/and    other    VCs],  your    obligations   and
       responsibilities will be to the Company. Accordingly, like
       other directors, you should act at all times in what you
       consider to be in the best interests of the Company. You
       should exercise independent judgement on all matters and,
       while Investor Co [and the Investors] expect you to have
Handbook of Venture Capital Documentation                                  Page   235


      regard to [its/their] interests, [it/they] recognise[s]
      your primary obligations are to the Company, and will not
      seek to instruct you, nor are you under any obligation to,
      act in accordance with [Investor Co] wishes.

3.    The primary functions envisaged are to:-

      (a)    Catalyse the strategic thinking in the Company, widen the horizons within
             which the board determines strategy and ensure that the Company
             prepares, and implements, an annual strategic and operating plan with
             appropriate objectives;

      (b)    Procure that resources, especially from an operational
             point of view, are available to the Company and that
             they   are   consistent   with   its   objectives.  In
             particular,   this  may   involve   liasing  with  the
             Company‟s bank to ensure appropriate facilities are
             made available to the Company;

      (c)    Ensure   that  the   appropriate  financial  reporting
             disciplines are in place and are working adequately.
             This should include the Company monitoring its
             cashflow and bank balance on a weekly basis;

      (d)    Monitor management performance, including the extent
             to which management are achieving the objectives
             planned, particularly with regard to product/business
             development, the growth of the Company infrastructure
             and the development of sales channels;

      (e)    [Set   up  and]   Chair   the  Company‟s  Remuneration
             Committee which will [: (i)] agree remuneration levels
             for the Company‟s employees and directors; [and (ii)
             [run/set up] the share plan] (both subject to Investor
             approval, where necessary);

      (f)    Initiate and assist with the recruitment of senior
             employees and directors as the Company develops;

      (g)    Ensure that the board has adequate systems to
             safeguard the interest of the Company where these may
             conflict with the personal interests of individual
             directors; and

      (h)    Act as an objective sounding board for the directors
             and [Investor Co].
Handbook of Venture Capital Documentation                                    Page   236


4.    We will expect you to liase regularly with us and as a minimum after each board
      meeting. We would like you to keep us informed of the progress and strategy of
      the Company. In particular, we would like to receive from you a brief
      [monthly/quarterly] written report on the Company‟s progress, highlighting any
      issues you feel are particularly important to the Company‟s future strategy and
      success. In addition, we recommend that the Company give a presentation to
      [Investor Co] on a [six] monthly basis, which we would expect you to attend.


5.    While your appointment as Investor Co [the Investors‟] nominee may be
      withdrawn at any time without compensation from Investor Co [the Investors] or
      the Company, the intended duration is one year from appointment. At that date,
      Investor Co [the Investors] will review the position with yourself and the Company
      and will inform you whether [it/they] wish[es] you to accept re-nomination for a
      further period. For as long as you remain Investor Co [the Investors] nominee
      you will be subject to retirement by rotation.

6.    [As discussed,] Your remuneration [will be set by the Company and, at this stage,
      we understand it] [will be EUR ……k per annum plus reasonable expenses]
      [plus a daily rate for additional work over …. days per month] [plus [….%]
      participation in the share plan] [to be agreed with and paid by the Company].
      [You may also wish to invest in the Company as part of the current fundraising.
      Please feel free to discuss this with us]. [Note: rates should be between EUR 6-
      EUR 12k pa}.

Obviously, this list is not exhaustive and we would be happy to
discuss any further issues you believe are relevant.

By its nature, this letter has to be somewhat formal in tone.
May I nevertheless take this opportunity to welcome you to the
role and to wish you every success in the appointment. If I can
be of help at any point please feel free to contact me.

Kind regards.

Yours sincerely,



…..
Investment ….
Investor Co Limited

cc:      ………………… Limited
Handbook of Venture Capital Documentation                                           Page   237




DOCUMENT NUMBER                   35
DOCUMENT TITLE                    STANDING ORDER
PURPOSE         OF                To formalise and log-in periodic payments from New
                                  Co to Investor Co by instituting an order to New
DOCUMENT
                                  Co‟s bank agreed by New Co
KEY SENSITIVITIES                 A bank‟s refusal to honour a Standing Order is a
                                  clear sign of difficulties at New Co.




STANDING ORDER FORM

To:                   Bank Co

From:                        New Co

Date:                        xxxxxxxxxxxxxxxx

Please make the payments detailed below and debit my/our account

Name   of   Account     to   be    New Co                     Account Number: xxxxxxxxxx
debited

Reference to be quoted             Interest


Name of Payee                      Investor Co                Account Number:    XXXXXXXXXX



Bank & Branch to         which     Bank Co
payment is to be made                                         Sort Code:   xxxxxx


                                   Ten thousand one hundred   EUR 10,125
Amount in words                    and twenty five EUR


Date of payments                   6 monthly:

                                   31 January and 31 July

Date of first payment              31 January 2002


Special instructions if any        Until further notice

                                   Please     cancel    all
                                   previous standing orders
                                   to   Investor   Co  with
Signed                             Reference Interest


                                   ……………………………………
Handbook of Venture Capital Documentation        Page   238


Date                           …………………………………….


                               ……………………………………
Handbook of Venture Capital Documentation                                         Page   239




DOCUMENT NUMBER                 36
DOCUMENT TITLE                  EXCEPTION REPORT (BLANK)
PURPOSE         OF              To record and report to Investor Co‟s Board when an
                                investment fails to meet a payment target
DOCUMENT

                                    EXCEPTION REPORT

Company Name and Address                      Payment Default
                                              Nature of Default           [Dividends]/[Inte
                                                                          rest]/[Capital]
Telephone:                                                                [Fees]
Fax:                                          Amount Defaulted
Prime Contact:                                No. of Payments
Accounts                                      Original Default Date
Contact:
Directors  &   their   equity   Share   %
interests:                      s
                                Held
                                              Profit & Loss       date

                                              Actual Month        (   )   YTD      (     )

Investor               Co                     Budget              (   )   YTD      (     )
Investment:
Equity
Share Type 1                                  Balance Sheet Net Worth:
No of shares
Price:                                        Total Invested:
% Total:
Income:                                       Security:
Due:
                                              Estimated Amount Exposed:
Share Type 2
No. of Shares:                                Comments:
Price:
% Total:
Income:
Due:
Redemption:
Option:

Loan
Original Sum:
Interest Rate:
Payment
Amount:
Due:
1st Payment:
No.          of
Payments:

Lease
Original Sum:
Interest Rate:
Payment Amount:
Due:
1st Payment:
Handbook of Venture Capital Documentation     Page   240


No. of Payments:
Other Syndicate Investors and % Interests



Other Financing
                     Amount:      Provider:
-   Overdraft
-   Loans
-   Guarantees
-   Leasing
-   Other
Handbook of Venture Capital Documentation                                            Page        241




DOCUMENT NUMBER                 37
DOCUMENT TITLE                  EXCEPTION REPORT (EXAMPLE)
EXAMPLE OF USE                  Some investors „write-off‟ their entire investment
                                and then „write-back‟ if its value rises.   Others
                                maintain a valuation of the investment on their
                                books, making provisions against expected lower
                                valuations.   Lower valuations will result from
                                Exception Reports recording poorer than expected
                                results or projections.    In some circumstances,
                                Investor Co‟s Board or Panel may decide upon
                                strategic changes in relation to New Co on the
                                basis of an Exception Report and associated
                                information.

                                     EXCEPTION REPORT
                                          (date)

Company Name and Address                         Payment Default
New Co
(place)                                          Nature of Default       [Dividends]/[Interest]
                                                                         /[Capital]
Telephone:         XXXXXXXXX                                             [Fees]
Fax:               XXXXXXXXX                     Amount Defaulted        No default
Prime Contact:     (name)                        No. of Payments
Accounts           (name)                        Original   Default
Contact:                                         Date
Directors  &   their   equity   SHAR      %
interests:                      ES
                                HELD
(Name)                          1,005   0.4      Profit & Loss   April
                                         1%                      xxxx
(Name)
(Name)                                           Actual Month    £(25,33     YTD    £(95,509)
                                                                 0)

Investor               Co                        Budget                            YTD       (
Investment:                                                                                  )
Equity                     £50,000
Share Type 1     Ordinary shares                 Balance Sheet Net Worth:          £16,428
No of shares     16,286
Price:           £3.07                           Total Invested:                   £50,000
% Total:         6.68%
Income:                                          Security:                         None
Due:
                                                 Estimated Amount Exposed:         £50,000
Other Syndicate Investors and % Interests
(Name)                  53,812     22.08%        Comments:
(Name)                  25,464     10.45%        It was thought prudent to make a provision
                                                 mainly due to difficulties in raising
                                                 additional funds to take the
(Name)                      67,455      27.67%   company forward to the next stage of
                                                 development.
(Name)                      18,857       7.73%   Although progress has been made, this has
                                                 been much
(Name)                      17,300       7.09%   slower than originally anticipated. On the
                                                 positive side,
(Name)                      10,000       4.1%    the company has put in place various
                                                 management and
Handbook of Venture Capital Documentation                                     Page    242


(Name)                    11,000     4.51%    operational changes and has drastically
                                              cut its monthly
(Name)                    22,635     9.28%    cash burn. It is also in the£350,000+ from
                                              a consortium
                                              advanced stages of raising second round
                                              financing of
                                              of new investors on fairly stringent
                                              conditions
                                               (including draw down against certain
                                              parameters).
Other Financing    NONE                       It should also be noted that development
                                              costs, while
                     Amount:       Provider   significant, have largely been written off
                                       :      as incurred,
-   Overdraft                                 leaving intangible assets of less than
                                              £20,000
-   Loans                                     in the Balance Sheet. Our decision on
                                              whether to
-   Other                                     invest in this round of finance will
                                              impinge
                                              upon the level of any investment provision
                                              considered    necessary.    The    auditors
                                              believe, particularly
                                              if we do not invest, that some provision
                                              will be
                                              appropriate   although   this    need   not
                                              necessarily be 100%.
Handbook of Venture Capital Documentation                              Page   243




DOCUMENT NUMBER              38
DOCUMENT TITLE               EXIT PROPOSAL
PURPOSE         OF           For Investor Co to agree the terms upon which it
                             will withdraw from New Co/realise the value of its
DOCUMENT
                             investment.
EXAMPLE OF USE               Here Investor Co is realising the value of its
                             investment having decided that it maximum up-side
                             has been reached.
KEY SENSITIVITIES            Note the „non-embarrassment‟ clause


                                      INVESTOR CO
                                     EXIT PROPOSAL
New Co Ltd

INVESTMENT EXECUTIVE:             (Name)
DATE

SUMMARY OF MAIN REASONS FOR INVESTING:

         We do not fit into company‟s expansion plans
         Original remit fulfilled
         Opportunity to make a return and recycle funds

KEY SENSITIVITIES

         Our expectations vs. management
         Basis of valuation
         Difficulties of valuing early stage company
         Conflict of interest between management and investors
         No external benchmark

8.     NAME AND ADDRESS          New Co
9.     DIRECTORS                 Names
10.    BANKERS                   Bank Co
11.    AUDITORS                  Auditor Co
12.    SOLICITORS                Solicitor Co


13.    NATURE OF BUSINESS:

      Details

14.    ORIGINAL INVESTMENT – (date - 2 years before exit)

Purpose                      £‟000          Source                £‟000
Handbook of Venture Capital Documentation                                                           Page      244


Existing facilities                       380             Management equity                           20
Capital expenditure                    1,380              Investor Co (1)                             50
Working capital                              40           Investor Co (2)                             50
Costs                                        50           Bank       Co      (Loan                  200
                                                          Guarantee)
                                                          Bank Co (Loan)                         1,200
                                                          Bank Co (Mezzanine)                      330

Total                                £1,850                                                   £1,850
                                       =====                                                    =====

15.     STRUCTURE and TERMS OF INVESTMENT

15.1. Because of the relatively                               small amount of                   management
      equity, the investment was                              structured to be                  mainly in
      Preference Shares

15.2. We invested £100,000 viz.

              3,550 £1 „A‟ ordinary shares                                with      a     participating
               dividend of 5% of profits

              96,450 £1 Preference shares with a net 9% dividend and
               redeemable from December 2000 - 2004

16.     BACKGROUND AND HISTORY

Detailed description of the history of the investment relationship, detailing the
investment, risks, work with New Co and planned exit route. Details also of proposed
exit route, its value, effect on New Co and return to Investor Co.

17.     ISSUES and CONCERNS

Details of any legal and financial issues arising for Investor Co, New Co and syndicators or other stakeholders in
exiting.


18.     PROSPECTS

Effect of exit on New Co potential effect on New Co and Investor
Co or non-exit.

19.     FINANCIALS

                     Forecast       Actual        Forecast         Actual          Forecast       Actual
                     March 98       March 98      March 99         March 99        March 00       Dec 99
                     £’000          £’000         £’000            £’000           £’000          £’000

Turnover               372           369          2,056            1,552           2,488          1,880
Operating profit        62            (36)          539               78             682            225
Handbook of Venture Capital Documentation                                    Page   245


Profit before tax   (30)      (65)          307       29         441         132
                     ===      ====          ====      ===        ====        ===

The company is performing reasonably well although less than expectations.
Management wish to buy us out for a sum of £300,000 which will take make our return
in two years to 28%.

I recommend we accept this offer but to protect us against any potential buyer „in the
wings‟ any agreement must include a non-embarrassment clause which will match our
return with the other stakeholders should there be a sale of the company with a 12
month period.

20.     INVESTMENT DIRECTOR’S RECOMMENDATION

Details and recommendation of exit route, timing and price.
Handbook of Venture Capital Documentation                            Page   246




DOCUMENT NUMBER              39
DOCUMENT TITLE               INDEPENDENT NON-EXECUTIVE DIRECTORS
PURPOSE         OF           A general policy/training document outlining the
                             role, responsibilities and qualification of non-
DOCUMENT
                             executive directors.

   The role of the independent director/chairman

The role of the non-executive director

GENERAL

Non-executive directors can perform a useful role in any
business, however large or small, provided the individuals
appointed are suited to an qualified to undertake the work.
Practically all publicly listed companies, and many larger
unlisted companies, have several non-executive directors;     and
if they don/t already, it is likely that institutional and/or
venture capital investors will insist upon such appointment(s).

Despite the “non-executive” prefix (perhaps “independent” or
“external” would sound more appropriate), outside directors
often perform special tasks e.g. - sitting on a remuneration
committee, liasing with the company‟s bankers and/or investors,
helping to install accounting systems, assisting the executives
to prepare a business plan or corporate strategy paper.

In some smaller companies, they can be fairly heavily involved
in a particular capacity - at which level they be described as
having a “hands-on” role. In such a case, the individual is
probably filling a “skills gap” on the board, which the company
cannot afford, or does not currently need, to fill by the
appointment of a qualified, full-time executive director.

QUALITIES AND ATTRIBUTES REQUIRED

Because he is not involved in the day-to-day running of the
company, the non-executive director/chairman should be able to
take a “helicopter view” of the business and should apply that
faculty in helping to guide the company and its executive
directors along the chosen path. It follows, therefore, that -
as a minimum requirement - the individual must be: HONEST,
INDEPENDENT, OBJECTIVE and COMMERCIALLY EXPERIENCED.
Handbook of Venture Capital Documentation                        Page   247


If the person also has a SPECIFIC SKILL (e.g. in marketing or
finance) that is presently lacking on the board, so much the
better.

It is a practical necessity that he or she CAN DEVOTE THE TIME
REQUIRED, whether that be (say) two days per week , or two days
per month.

To be able to act in an honest, independent and objective
fashion - and not to be frightened or reluctant to state a view
which may be truthful but uncomfortable so far as the rest of
the board is concerned - the individual must NOT BE DEPENDENT ON
THE JOB FOR HIS INCOME. It is also better, if the non-executive
is appointed by an outside investor, that he/she is NOT
DEPENDENT ON THE APPOINTER‟S PATRONAGE.

DUTIES OF THE NON-EXECUTIVE DIRECTOR / CHAIRMAN

The non-executive director is not regarded, in law, as any
different from a full-time director of a company, so far as his
or her legal responsibilities are concerned.

There is no such thing as an official list of duties for a non-
executive director/chairman (though, who knows, the EC may get
round to that yet), but the following list of tasks - based on
experience - would probably be widely supported:

Guidance             To provide guidance and support to the chief
                     executive. His is a lonely job and he should be
                     able     to      regard    the     non-executive
                     director/chairman as his friend, confidant and
                     counsellor.

Direction            To ensure the company is run by      a balanced and
                     properly motivated management        team;    whose
                     principal members participate at    board level and
                     communicate effectively with each   other (and with
                     their respective staffs).

Strategy             To ensure the company has a business plan with
                     clearly defined objectives and strategy;     that
                     all senior executives know what those are;    and
                     that the business is operated with a view to
                     meeting the objectives and targets set out in the
                     plan.

Objectivity          At all times to adopt an objective and balanced
Handbook of Venture Capital Documentation                      Page    248


                     view of the business, its direction      and     the
                     abilities of its executive managers.

Fairness             To   ensure   even-handed    treatment  of   all
                     shareholders;   and to take particular care to
                     look   after  the  interests   of   any external
                     shareholders.

Administratio        To ensure matters such as remuneration, staff
n                    appraisals and personnel development are properly
                     handled   and    administered;       and,   where
                     appropriate, to sit on or chair the Remuneration
                     and Audit committees.

External             To assist in dealings with external shareholders,
Relations            bankers and professional advisers;     and, when
                     requested, with existing and potential new
                     clients/customers.


Order                To ensure that the company holds regular board
                     meetings, that are conducted in an orderly and
                     professional manner;    and that, in advance of
                     each meeting, board members receive well prepared
                     papers   containing  sufficient   information  to
                     enable them to make decisions.

Discipline           To help instil a sense of discipline in the
                     business; ensuring, at least, that all statutory
                     requirements are met and that external investors
                     and the company‟s bankers are kept regularly and
                     fully informed of the company‟s progress.

Contact              To act as a contact for or introducer of external
                     advisers, should the need arise.

Assignments          At the board‟s request, to take on any specific
                     assignments that are particularly suited to the
                     director‟s/chairman‟s personal skills.

REMUNERATION OF NON-EXECUTIVE DIRECTORS

Fees paid to non-executive directors for their services vary
widely - from about £5,000 per annum up to £40,000 or more.
There are no set guidelines; much depends on the time required
and the degree of skill and level of responsibility exercised. A
lot also depends on the depth of the paying company‟s pocket.
Handbook of Venture Capital Documentation                               Page   249


But if the job is to be done properly and seriously, companies
can expect to pay appropriate individuals anywhere between £500
and £1,000 (or more) per day devoted to the company‟s affairs
(including preparation for meetings and behind-the-scenes work).

As a general guide, most non-executive directors should be paid
between £7,500 and £15,000 per annum;     and reasonably active
chairmen between £15,000 and £30,000.

„Nodding donkies‟ - non-executives who turn up at board meetings just for the
appearance money, who agree with everyone round the table and who never take a
controversial stance on anything - are of no use whatever to any company. They are
truly an avoidable overhead. But an effective non-executive, who makes a real
contribution, is someone who probably comes cheap at the price.

If you would like to discuss this subject in more detail, or
would simply like more information about W L Ventures‟
activities and investment criteria
Handbook of Venture Capital Documentation                               Page   250




DOCUMENT NUMBER              40
DOCUMENT TITLE               PREPARING A BUSINESS PLAN
PURPOSE         OF           A general training document which could also be
                             used in response to enquiries on the processes of
DOCUMENT
                             creating a business plan.



    Some point to remember when preparing a business plan

THE PLANNING STAGE

   The business plan should be a summary document – aimed at
    informing and captivating the reader – not a work to rival
    Tolstoy.

   The prose part should be no more than 10 to 20 pages long.

   The appendices – which are often best bound separately – might
    be 15 to 20 pages long : of which at least 9 pages will
    comprise financial projections.

   If the plan does not grab the reader‟s attention in the first
    5 to 10 minutes, the chances are it has failed. For this
    reason alone, every plan should have a one-page executive
    summary.

   If management cannot summarise their hopes and ambitions on
    one or (at most) two pages, they have probably not thought the
    proposal through enough;    or they may lack the ability to
    identify key points and to express themselves clearly and
    concisely. Either failing may warrant a subjective “no
    thanks”.

   Always attempt         to    write      the   plan   from   the   investor‟s
    perspective.

   It takes longer to write a short plan than a mighty tome.
    Remember the words of Samuel Johnson : “What is written
    without effort is, in general, read without pleasure”. And on
    another occasion : “I am sorry, dear friend, to write you so
    long a letter. I did not have time to write a short one.”
Handbook of Venture Capital Documentation               Page   251


CONTENTS

The following is intended merely as a guide and an aide-memoire.
It does not need to be followed slavishly and obviously should
be adapted to meet the needs of the particular case :

Index – makes the document faster/easier to read and adds a
professional touch.

Management and Advisers – name and address of company, with
telephone and fax numbers, list of directors and senior
managers, noting their ages and duties, list of solicitors,
auditors, tax advisers, corporate finance advisers and bankers :
noting addresses, with contact names and phone/fax numbers.

Executive Summary – crisp, punchy summary of what the business
does, achievements to date, future objectives, how much cash is
needed, in what form and for what purpose, key figures, summary
of historic and projected sales, PBT and net worth, conclusions,
why one should invest.

Outline Investment Proposals – do the investor‟s job for him :
summarise finance required and purpose, proposed equity and debt
financing scheme, with summary terms, resultant share capital
structure and equity percentages, key ratios and IRRs.

Introduction – short history of the business, objectives and
strategy, why/how much funds are required, type/mix of funds
sought, equity percentage owners are willing to concede.

Management – summary details of directors and key managers,
specifying ages, duties, experience and shareholdings. If
detailed CVs are offered, put them in the appendixes (and state
their location in this part of the prose section).

Business – what it does now and will do in the future, how trade
is to be developed.

Products/Services – detailed description(s), in what respects
the proposers‟ goods/services are „better‟ than competitors‟.

Market – current position, trends, market share and how/why it
should   grow,  external   influences,   competitors  and their
characteristics, what marketing edge the proposers have.
Handbook of Venture Capital Documentation              Page   252


Financial – summarised historic trading results (2 to 3 years‟,
if available), latest audited balance sheet, 3 years‟ trading,
cash flow and balance sheet projections, list of assumptions,
notes explaining significant items each year and what did/will
help or hinder performance, key ratio analysis.

Conclusions – balanced assessment of strengths and weaknesses
(SWOT analysis), reward versus risk, why one should invest.
Handbook of Venture Capital Documentation                 Page   253




   APPENDICES

Management – short-form CVs for all directors and key personnel
listed in main plan under ”Management”. Give names and addresses
of suitable referees.

Financial – detailed trading, cash flow and balance          sheet
projections and assumptions on which they are based,         ratio
analysis, sensitivity calculations.

Marketing   Data    –   customer    list,   details    of    major
contracts/orders   if  appropriate,   suppliers‟  list    (stating
alternative sources of supply); list of competitors.

Other Items – relevant press cuttings and anything else that
genuinely adds to the interest/quality of the presentation.
Handbook of Venture Capital Documentation                                    Page   254




DOCUMENT NUMBER              41
DOCUMENT TITLE               RAISING VENTURE CAPITAL
PURPOSE         OF           A general training document which could also be
                             used in response to enquiries on the processes of
DOCUMENT
                             creating a business plan.



    Some key points to consider when raising venture capital


AWARENESS/PLANNING/PREPARATION

   Know where your company is going, what you want to achieve and
    how you are going to do it. In short, have a plan.

   Appoint the best and most experienced professional advisers
    (accountants, corporate lawyers, fund raisers) you can afford.
    Never use friends.

   Understand, by discussion with your accountant or other
    qualified adviser, what mix of funds you require (e.g. equity,
    preference shares, loan capital). Also establish the right mix
    of long and short term borrowings.

   Never use short term finance (e.g. bank overdraft) to fund
    long term assets (e.g. buildings or major items of plant);
    and, if you can, avoid debt factoring.

   To allow for interest rate fluctuations, avoid the temptation
    to borrow more than 4 x maintainable [future] profit before
    interest and tax (“MPBIT”).
     Note: Borrowing 4 x MPBIT = interest cover of 2.5 x at an interest rate of 10% p.a.
     and interest cover of just under 1.5 x at an interest rate of 17% p.a.

   Prepare a clear, concise and well written business plan, with
    a short executive summary at the front. It is quality that
    impresses, not quantity.

   Have your business plan professionally vetted and edited; but
    never let your accountant write the whole thing for you. It
    must bear your imprimatur.

   Allow plenty of time to raise the capital:   never less than
    one month; preferably at least three months (it can take even
    longer).
Handbook of Venture Capital Documentation                 Page   255


   If you are likely to need the cash urgently, consider pre-
    arranging bank bridging finance when investors are committed -
    though bridging can be notoriously difficult to obtain.


DECISIONS

   By all means shop around , but don‟t visit too many venture
    capitalists:  some will be put off by the thought of an
    „auction‟.

   Decide what you want out of the arrangement (look on it as a
    financial marriage) and ask your professional adviser which
    sources of finance are most likely to fit the bill.

   Prepare a short list of target financiers (which might include
    „business angels‟) whose own requirements should be compatible
    with yours.


   Before you start the rounds, have a clear idea of how much
    equity you are prepared to concede, whether you will accept a
    non-executive director on your board (often a condition), and
    whether you are willing to commit yourself in principle to
    going public or selling out within say, a 3 to 7 year period,
    to allow the investor the exit he will probably require.

THE PSYCHOLOGICAL APPROACH

   Try to understand the venture capitalist‟s approach by putting
    yourself in his shoes. Your professional adviser can help
    there;   he should have sufficient experience to explain what
    are the venture capitalist‟s aims.

   You must do a professional selling job of yourself. The
    venture capitalist‟s main interest will be in you: investing
    in unquoted companies is a highly personal affair.

   Time, not money, is the venture capitalist‟s scarcest
    resource. He will make a very quick subjective judgement
    (probably in the first few minutes) whether he likes the cut
    of your jib. Successful investors rely a lot on their
    instinct.

   To make the meeting more worthwhile, send a copy of your
    business plan in advance. This gets you both off to a better
    start.
Handbook of Venture Capital Documentation                                   Page   256




THE MEETING AND PRESENTATION

   Be on time and, in a pleasant fashion, attempt to control the
    meeting. He is a professional interrogator and will respect
    this.

   Do not oversell yourself or the company. The                            venture
    capitalist sees a large number of propositions                          and is
    healthily sceptical by nature.

   Spell out your strengths - but also admit your weaknesses and
    explain how you are tackling them. This creates confidence.

   Questioning techniques vary;     and some venture capitalists
    adopt an aggressive style deliberately. Be robust, but retain
    your sense of humour and do not lose your temper.

   Establish clearly what the venture capitalist wants: the level
    of equity percentage, any specific income or voting rights on
    his shares, a non-executive board seat, what sort of exit and
    within what timescale, any restrictions to be imposed on the
    company or on directors‟ remuneration, fees and costs, regular
    management accounting information.

   Equally important, find out what he can offer you: is he
    experienced, how fast can he act, can he provide further
    finance if it should be needed, can he offer other services,
    does he have useful contacts, what level of contribution can
    he make to you business.

   Decide whether his personality and approach suit you.

   Ask for references (existing investee companies of his) so you
    can carry out due diligence checks on him - just as he will on
    you.

   Ask what other information he wants and by what date.

FOLLOW-UP TO MEETINGS

   Write and thank him for                 his   time.   This   uncommon   courtesy
    always goes down well.

   Supply   further   information                requested      as   quickly      and
    efficiently as possible.
Handbook of Venture Capital Documentation                                Page   257


   Allow a few days, then              press   for   an   early   indication   of
    interest in principle.

   Encourage him to carry out prompt due diligence checks. Warn
    him of any that are likely to be unfavourable and explain why
    this might be.

   If you do not like him, or find his requirements incompatible
    with yours, reject him quickly but politely.
Handbook of Venture Capital Documentation                                                  Page   258


NEGOTIATING AND CLINCHING THE DEAL

   Be reasonable, but fight hard about the things that really
    matter (e.g. equity %, capitalisation of the business,
    dividend rights, remuneration and/or operational restrictions,
    board appointments): he will respect that.

   If a deal is struck, appoint an experienced corporate lawyer
    to act for you.

   Keep a close eye on progress and chase the deal along. Don‟t
    rest till his cash is in your bank.


AFTERWARDS

   Make sure you both stick to your commitments.

   Get the most help you can out of him.

   Work hard to maintain good relations: you can‟t have too many
    friends. Remember you may need his help again in the future.

   Keep him and your bankers well and regularly informed. Always
    give plenty of warning if there are storm clouds ahead.

   Make sure his contribution to your business matches his
    promises at the outset - and, if not, seek your professional
    adviser‟s help and advice.


        THE THREE MOST IMPORTANT POINTS

          Appoint the best accounting and legal advisers you
                               can find

                Produce a short, well-written business plan

                    Remember to sell yourself and the team

        The readability of your plan and the impression you create in the first few minutes of
        the initial meeting are absolutely critical
Handbook of Venture Capital Documentation                             Page   259




DOCUMENT NUMBER              42
DOCUMENT TITLE               EQUITY INSTRUMENTS AND DEAL STRUCTURING
PURPOSE         OF           A general training document which could also be
                             used in response to enquiries on the processes of
DOCUMENT
                             creating a business plan.



The precise financial instruments and financial structure of any
venture capital investment is the result of aligning the
interests and needs the company and its entrepreneurs with those
of the investors. This document lays out some useful definitions
and explains the advantages and disadvantages of particular
financial instruments.

EQUITY

At one time this was used as a generic name for all kinds
(classes) of share capital.      Various accounting reporting
requirements have seen this definition move towards ordinary
shares only although this can also encompass 'A' or Preferred
ordinary shares.

The 'A' denotes one class of preferred ordinary shares; there can
be others e.g. 'B' and 'C' all with different rights.

1.    Ordinary Shares

These are the basic ordinary shares exactly the same as those
which management will have; they have no preferential rights to
income or capital repayment and will usually attract one vote per
share.

2.    Preferred Ordinary Shares (sometimes 'A' ordinary)

'A' ordinary shares can have a wide variety of preferential
rights. They can in fact be defined in any way we like but
commonly they will be: a) redeemable; b) cumulative; c)
convertible; d) participating; e) preferred or a combination of
these.

a)    Redeemable means that the company can buy them back in
      certain circumstances.      This would be used to give
      management a ratchet whereby their percentage shareholding
      can increase if they meet certain pre defined targets
      (normally profit related but sometimes based on sale value).
Handbook of Venture Capital Documentation                Page   260


b)    Cumulative means that dividends build up and if not paid in
      early years (because of a lack of profits or reserves) will
      be carried forward until such time as these can be paid.

c)    Convertible normally means convertible into ordinary shares
      which we would normally want to do on a flotation of the
      company.

d)    Participating means being entitled to a participating
      dividend which is based on a percentage of profits before
      tax. This percentage can be set to vary from year to year
      (generally to escalate in later years).

e)    Preferred means as it says, having certain preferences. As
      well as those above, it also confers on a winding up of the
      company, a return of capital before the ordinary shares.

f)    Ordinary perpetuates the myth that these shares bear any
      resemblance to ordinary shares at all! It also confers the
      normal voting rights of one vote per share.

Dividends can be either fixed e.g. x% of the subscription price -
commonly 8 - 10%; participating as described above or a
combination of these.      They will normally rank after any
preference dividend but before any ordinary dividend.

'A' ordinary shares will often also attract certain class rights,
requiring consent from the 'A' ordinary shareholders before
certain things can be done e.g. a) sell the company; b) change
its accounting reference date; c) alter the share capital
structure; e) change the Articles of Association; e) wind up the
company.

Quasi equity

Normally this relates to Preference Shares. As with 'A' ordinary
shares there can be more than one class of preference share.
They also have a similar wide variety of preferences; they are
however even more preferential in that normally:

a)    On a return on capital on a wind up the preference shares
      get their money out first.

b)    They do not normally attract votes although may acquire
      voting rights if e.g. dividends or redemptions are in
      arrears or if there has been a material breach of the
      shareholders agreement.
Handbook of Venture Capital Documentation                              Page   261




c)    Preference shares are normally redeemable i.e. they will be
      repaid in accordance with an agreed schedule, perhaps in
      three instalments from years 3 - 5. Redemptions can be at
      par, at a premium (from 10p - £3 is not uncommon); stepped
      to encourage early redemption; priced to give a certain
      overall return taking account of past dividends; at a price
      based on a percentage of net asset value.

d)    Preference       dividends      normally   rank   before   'A'   ordinary
      dividends.

Options

Options can attach either to loans or to preference shares and
allow the holders on certain defined parameters to convert
normally into ordinary shares (less often into 'A' ordinary
shares.


WHY DO venture capitalists NEED OR WANT THESE COMPLICATIONS?

a)    Financial engineering.
b)    To give us protections which as a minority shareholder in a
      private company, we would not otherwise have.
c)    To give us the returns we need by a combination of factors;
      some investors may be more income than capital driven.
d)    To give us an exit from a lifestyle company, or
      alternatively, an attractive from an investment which we
      can't realise.
e)    To allow management to keep a majority of the company even
      though we may be putting up the bulk of the money.
f)    To prevent our having a subsidiary.
g)    To keep us below the shareholding levels allowed by our own
      rules (e.g. many venture funds will not hold more than 30%).
h)    To ally our requirements with other syndicate partners.
i)    To satisfy management requirements not to give up ownership
      at all.
j)    Expensive in the early days for the company but ultimately
      could be cheaper.
k)    To let us have our cake and eat it!

WHAT ARE THE DRAWBACKS

a)    Management see our position as 'better' than theirs.
b)    Potential   conflicts  of   interests   between  holders                of
      different classes of shares.
Handbook of Venture Capital Documentation                 Page   262


c)    Don't sit easily alongside private investors who are tax
                                                    driven.
d)    Often less suitable for very early stage investments.
e)    Cash coming out of the company when it would be better being
      reinvested.
f)    May reduce the capital value.
g)    We could be limiting our upside.
h)    Pressurises management into early redemptions to escape
      escalating redemption premiums/dividends.
Handbook of Venture Capital Documentation                  Page   263




ORDINARY SHARES

Advantages

a)    Allies everyone's interests.
b)    If unsuccessful, very cheap for the company and the
      management (in effect a grant).
c)    Needed for EIS investors to get tax relief.
d)    Allows simpler (and therefore less expensive) documentation.
e)    Builds up capital value within the company.
f)    Very suitable for early stage investments.
g)    Allows a greater equity percentage thus a greater return on
      successful investments.

Disadvantages

a)    If   successful,   very   expensive    for   the   management
      shareholders.
b)    Tax driven investors may hamper a sale within 5 years.
c)    Still need some kind of investor protections.
d)    Returns only on a sale/flotation.
e)    May need differential pricing to protect against having a
      subsidiary.
f)    Inability to exit from a lifestyle or non performing
      company.
g)    Syndication with other institutions may be more complicated.

				
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