Associate Professor
College of Business
Exam Spring 2022
Business Law 315
FACTS
Consistent with current economic times, Jack Wilson, a resident of San Francisco, CA,
and having just completed his MBA at the University of Stanford, was determined to develop his
own Surf Business.
Wilson had been a competitive surfer in college and was confident that his surfing
experience coupled with his concentration in finance during his MBA program was a perfect mix
to organize a surfboard manufacturing business.
Prior to his graduation, Wilson had developed a custom surf board which he marketed
under the patented name "Surf Large" with a close friend, Hudson Waves. Within the last 2
months both Wilson and Waves had gone through the process of copywriting the
aforementioned invention with the Department of Copywrite and Patent registration in
Washington D.C.
Wilson's next priority was to establish his company and solicit outside “venture” investors
to fund the growth of his organization. Wilson solicited the legal advice of the prestigious law
firm of “Martha, Stewart, and Holmes,” of San Francisco CA, to advise him regarding business
organizations. Fred Holmes, senior partner in charge of corporations, advised Wilson he should
utilize the legal entity of “corporation”. He immediately filed the Articles of Organization with the
Secretary of State and subsequently filed a Subchapter S Election with the IRS approximately
45 days after acceptance of the corporation by the secretary of state.
Wilson, with the counsel of his lawyer, immediately drafted a Business Offering
Prospective and mailed it to 100 of his wealthy friends who had recently graduated from the
University of Stanford. Jack Holmes had the corporation issue 100,000 Class A shares of
Common Stock and 50 shares of Preferred B Stock with warrants.
The Offering memorandum required each investor to purchase one unit of the offering for
$10,000. Within the attached "subscription agreement" the investors would receive:
1. 250 Shares of convertible preferred stock in "Surf Large Inc." with an accrued dividend
of 7%. If the corporation were to go public, which was the plan of Wilson's from the
beginning, the convertible stock would be converted with the warrant of the accrued
dividend to 500 shares of Common Stock in Public Entity.
To accompany the subscription agreement, Wilson and his lawyers drafted a prospectus.
The Prospectus included:
1. Marketing Plan
2. Executive Summary of Business
, 3. Pro-Formas (5-year)
4. Design Specifications
5. Strategic Growth Model
Within the prospectus, the Executive Summary and with the recommendation of his attorney
Wilson Stated as follows:
WE ARE SO PLEASED WITH THE CURRENT MARKETING SURVEY OF THIS PRODUCT
AND WITH THE INITIAL OFFERING AND FUNDING FROM THE SAME THAT WE
"GUARANTEE" THAT THE COMPANY WILL BE PROFITABLE WITHIN TWO YEARS OF
OPERATION AND WILL HAVE A MINIMUM RETURN TO ITS INVESTORS OF 22%.
Wilson could not believe the response to the offering and within 2 months 30 investors had
executed the "Offering Agreement" and forwarded a check to Wilson. Having received interim
checks of approximately 1.2 million dollars, and having yet to establish his corporate bank
account through UBS Bank, Wilson deposited all of the funds to his personal account.
Consistent with the business plan, Wilson had to construct a manufacturing facility. Having read
the real estate section of the Wall Street Journal, Wilson noticed an ad which stated there were
7 acres of land zoned for commercial use available in Berkeley CA. Wilson immediately
contacted the owner Fred Smith, and after the conclusion of the phone conversation Wilson
emailed the following agreement to Smith:
"I, Jack Wilson, in conjunction with my corporation Surf Large Inc. agree to procure the land and
building of Fred Smith located in California for the consideration of 6.2 million dollars with the
understanding that the closing shall take place within the near future. However, until such time, I
shall have the opportunity to commence development and construction on the aforementioned
property for the development of a manufacturing facility."
______________________
Fred Smith
______________________
Jack Wilson
Upon electronic execution of the aforementioned Agreement, Wilson immediately retained the
services of the internationally recognized construction management firm of Enron Inc. Enron
Inc. is a limited partnership with its principal place of business located in Houston TX and
comprising two principals; Sam Sneed and Fred Fitzpatrick. The company is known specifically
for its ability to design and construct manufacturing facilities around the world. Sneed after a
very lengthy phone conversation with Wilson discussing the different attributes of the plans and
College of Business
Exam Spring 2022
Business Law 315
FACTS
Consistent with current economic times, Jack Wilson, a resident of San Francisco, CA,
and having just completed his MBA at the University of Stanford, was determined to develop his
own Surf Business.
Wilson had been a competitive surfer in college and was confident that his surfing
experience coupled with his concentration in finance during his MBA program was a perfect mix
to organize a surfboard manufacturing business.
Prior to his graduation, Wilson had developed a custom surf board which he marketed
under the patented name "Surf Large" with a close friend, Hudson Waves. Within the last 2
months both Wilson and Waves had gone through the process of copywriting the
aforementioned invention with the Department of Copywrite and Patent registration in
Washington D.C.
Wilson's next priority was to establish his company and solicit outside “venture” investors
to fund the growth of his organization. Wilson solicited the legal advice of the prestigious law
firm of “Martha, Stewart, and Holmes,” of San Francisco CA, to advise him regarding business
organizations. Fred Holmes, senior partner in charge of corporations, advised Wilson he should
utilize the legal entity of “corporation”. He immediately filed the Articles of Organization with the
Secretary of State and subsequently filed a Subchapter S Election with the IRS approximately
45 days after acceptance of the corporation by the secretary of state.
Wilson, with the counsel of his lawyer, immediately drafted a Business Offering
Prospective and mailed it to 100 of his wealthy friends who had recently graduated from the
University of Stanford. Jack Holmes had the corporation issue 100,000 Class A shares of
Common Stock and 50 shares of Preferred B Stock with warrants.
The Offering memorandum required each investor to purchase one unit of the offering for
$10,000. Within the attached "subscription agreement" the investors would receive:
1. 250 Shares of convertible preferred stock in "Surf Large Inc." with an accrued dividend
of 7%. If the corporation were to go public, which was the plan of Wilson's from the
beginning, the convertible stock would be converted with the warrant of the accrued
dividend to 500 shares of Common Stock in Public Entity.
To accompany the subscription agreement, Wilson and his lawyers drafted a prospectus.
The Prospectus included:
1. Marketing Plan
2. Executive Summary of Business
, 3. Pro-Formas (5-year)
4. Design Specifications
5. Strategic Growth Model
Within the prospectus, the Executive Summary and with the recommendation of his attorney
Wilson Stated as follows:
WE ARE SO PLEASED WITH THE CURRENT MARKETING SURVEY OF THIS PRODUCT
AND WITH THE INITIAL OFFERING AND FUNDING FROM THE SAME THAT WE
"GUARANTEE" THAT THE COMPANY WILL BE PROFITABLE WITHIN TWO YEARS OF
OPERATION AND WILL HAVE A MINIMUM RETURN TO ITS INVESTORS OF 22%.
Wilson could not believe the response to the offering and within 2 months 30 investors had
executed the "Offering Agreement" and forwarded a check to Wilson. Having received interim
checks of approximately 1.2 million dollars, and having yet to establish his corporate bank
account through UBS Bank, Wilson deposited all of the funds to his personal account.
Consistent with the business plan, Wilson had to construct a manufacturing facility. Having read
the real estate section of the Wall Street Journal, Wilson noticed an ad which stated there were
7 acres of land zoned for commercial use available in Berkeley CA. Wilson immediately
contacted the owner Fred Smith, and after the conclusion of the phone conversation Wilson
emailed the following agreement to Smith:
"I, Jack Wilson, in conjunction with my corporation Surf Large Inc. agree to procure the land and
building of Fred Smith located in California for the consideration of 6.2 million dollars with the
understanding that the closing shall take place within the near future. However, until such time, I
shall have the opportunity to commence development and construction on the aforementioned
property for the development of a manufacturing facility."
______________________
Fred Smith
______________________
Jack Wilson
Upon electronic execution of the aforementioned Agreement, Wilson immediately retained the
services of the internationally recognized construction management firm of Enron Inc. Enron
Inc. is a limited partnership with its principal place of business located in Houston TX and
comprising two principals; Sam Sneed and Fred Fitzpatrick. The company is known specifically
for its ability to design and construct manufacturing facilities around the world. Sneed after a
very lengthy phone conversation with Wilson discussing the different attributes of the plans and
