Checklist for a Technology Transfer Agreement

Partially adapted from the "Training Manual on Technology Transfer", by United Nations Industrial Development Organization (UNIDO)

Preliminary Statements

Identification of the parties

The opening paragraph should identify the parties to the agreement with their official names, addresses and, when applicable, the location of their governing law of incorporation. Corporations should be identified as patent and subsidiary, patent, or subsidiary alone, and their legal capacity or authority should be given.

Care in specifying the parties to an agreement ensures precise identification of licensing and licensed parties. For the licensor, this precludes the possibility of extending the licence beyond the intended entity or of not including all of the include entity. For the licensing party extend to the entire intended entity.

Purpose

The purpose of an agreement should be stated in a brief paragraph that captures the essence of why the licence agreement is being executed. It can be as simple as “ This agreement is to permit company A to make, use and sell product X in the territory, as defined in the agreement, with the help of the technical assistance and the know-how licensed under this agreement, by company B and under the licensed patents as defined in this agreement. ‘ A statement can also be made, either in this section or in the whereas clauses, on the economic aim of the contract, i.e. to produce the licensed goods economically and competitively.

Effective date of the agreement

The data when the agreement comes into full force and effect is often stated in a separate paragraphs. It can come before or after the date the agreement is signed. The effective date is sometimes defined in the definitions section of the agreement when conditions prevent showing just the date itself.

Some countries require government approval after the parties to an agreement have agreed to all of its provisions and have executed ( signed ) the document. In those cases the date of the government approval usually becomes effective date.

Whereas clauses (recitals, preamble)

The whereas clauses give the background and rationale for the agreement . They should be worded carefully to clarify the terms and conditions for people from either party who were not involved in making the agreement but who are asked later to settle conflicts between the parties. Clarity is also important in the event legal action is taken by one party against the other. In a court of law the judge may look to the whereas clauses to improve his understanding of clauses that may be difficult to interpret. Whereas clauses contain such things as licensor and licensee representation and background of the agreement.

Licensor representations

For the rest of this checklist which is a reproduction of a page from www.tannedfeet.com see this post.

How M&A Works in China

For M&A, the basic policy is as follows:

Foreigners are permitted to purchase small Chinese companies that the central government is not interested in managing.

Foreigners are permitted to purchase large, state-owned enterprises that suffer from financial difficulty, provided the foreign investor agrees to restructure the purchased company.

Foreigners are permitted to purchase non-majority interests in strong, successful Chinese companies, but only if there is some added benefit, such as transfer of technology, advanced management or access to foreign markets.

Foreigners are not permitted to purchase a majority interest in a large and financially successful Chinese company. Even smaller companies are off the table if they are financially sound and work in a core technology field or have created a strong or historically important brand.

China is remarkably receptive to direct foreign investment that creates new business activity in China. The policy towards the purchase of existing businesses and assets is the opposite. Such purchases are strongly disfavored, since they are seen as providing no net benefit to China. Under this policy regime, venture capital and troubled company buy-out businesses have plenty of room to operate. Strategic alliances in core industries also work well.

On the other hand, traditional private equity that focuses on the outright purchase of strong and successful companies simply does not work under this system. Central government regulators will consistently step in and exercise their veto powers to prevent the foreign acquisition of a majority interest in any existing, strong Chinese company. This is not likely to change anytime soon.

Read more in this article from China International Business

Negotiating a Real Estate Broker Agreement

This article discusses some of the common issues that a Company may want to explore before the Company signs and delivers a real estate broker's standard form of retention agreement.

Reverse Merger Financial Statement Requirements

This memorandum discusses the steps that a former shell company must take to comply with the SEC Staff’s position with respect to reporting financial statements in connection with mergers that cause a public shell company to cease being a shell company.

Joint Venture Agreements

Great collection of joint venture agreements at this OneCLE webpage

ESOPs in a Nutshell

"ESOPs are most commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase.

"An ESOP is a kind of employee benefit plan, similar in some ways to a profit-sharing plan. In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible, within certain limits.

"Shares in the trust are allocated to individual employee accounts...

"Owners of privately held companies can use an ESOP to create a ready market for their shares. Under this approach, the company can make tax-deductible cash contributions to the ESOP to buy out an owner's shares, or it can have the ESOP borrow money to buy the shares (see below). In C corporations, once the ESOP owns 30% of all the shares in the company, the seller can reinvest the proceeds of the sale in other securities and defer any tax on the gain...

"ESOPs are unique among benefit plans in their ability to borrow money. The ESOP borrows cash, which it uses to buy company shares or shares of existing owners. The company then makes tax-deductible contributions to the ESOP to repay the loan, meaning both principal and interest are deductible...

"As attractive as these tax benefits are, however, there are limits and drawbacks... Private companies must repurchase shares of departing employees, and this can become a major expense. The cost of setting up an ESOP is also substantial -- perhaps $30,000 for the simplest of plans in small companies and on up from there. Any time new shares are issued, the stock of existing owners is diluted. That dilution must be weighed against the tax and motivation benefits an ESOP can provide. Finally, ESOPs will improve corporate performance only if combined with opportunities for employees to participate in decisions affecting their work."

From this NCEO webpage.

Troubled Tech Company Due Diligence Tips

"The considerations and observations listed below are by no means exhaustive, but may provide some guidance (or at least food for thought) if you are looking at acquiring a tech company, particularly a distressed tech company.

"1. Test the target’s accounts payable, accrued expenses and liabilities...
When considering the acquisition of truly distressed companies, the acquirer should also confirm that all 401(k) withholdings of employees have been properly deposited, and that all tax withholdings have been accounted for and forwarded to the appropriate federal or state agency.

2. Quantify the “Transaction Cost” of a successful transaction...
Buying companies is expensive, and when an acquirer is buying a distressed company Although this list is not exhaustive, the “one off” transaction costs include:

(a) Target’s attorney’s fees (for which payment at closing will be expected).
(b) Target’s investment bank or business broker’s success fees, if one was engaged.
(c) Cost of target’s fairness opinion, if one was obtained.
(d) Acquirer’s attorney’s fees (probably due in the ordinary course, not at closing).
(e) Possible costs associated with any consents required from target’s accountants.

3. Quantify the “Business Cost” of a successful transaction.
Similar to transaction costs, there are a number of “one off” business costs associated with an acquisition that should be quantified during the due diligence process. These include:

(a) Payments due under change of control agreements or severance agreements post acquisition.
(b) The cost of buying out leases or other costs associated with discontinuing certain operations of the target or consolidating the operations of acquirer and target.

4. Review customer contracts or licenses for out of market terms...
Terms to be aware of include:

(a) “Fixed price” contracts that require completion of a project and all warranty work at a single price.
(b) Unlimited liability of the target for work performed or intellectual property licensed to a customer.
(c) Non-competition clauses which limit the target’s ability to provide services or products to other clients in the same line of business as the customer.
(d) License terms which authorize the customer to re-license or resell target products or intellectual products built for the customer by target.
(e) Terms which permit or do not prohibit customers from hiring target’s employees.
(f) Terms which allow customers to cancel agreements or obtain other relief from target in the event of a change in control of target.

5. Confirm that intellectual property and human capital are in place...

6. Test and confirm the sales pipeline...

7. Review (and renegotiate) severance arrangements with target management...

8. Identify third-party agreements to be restructured...

9. Test the proposed acquisition structure...
At a minimum, one of the factors considered in pricing the offer should be the analysis of the market stigma facing the target’s business.

10. Do Not be afraid to abandon the transaction..."

Read more in this article by Jude Sullivan from which the foregoing is quoted.

The Perils of Using Form Agreements

Set forth here is a form of consulting agreement available from the collection of OneCle.com Business Contracts from SEC filings. OneCle provides a useful reservoir of publicly available contracts.

The problem, however, with using these or any other contracts as a model for your agreement is that your situation may differ in significant ways from the circumstances surrounding the publicly available contract (the "PAC"). For instance, the PAC may or may not have been subject to negotiation. Thus, the PAC may be stronger or weaker from your point of view than your agreement could be.

For example, the below agreement, although not completely unfair to the Consultant, could be substantially improved from the Consultant's perspective. For instance, the indemnity provision is overly broad. At the very least, a mutual indemnity obligation on the part of the Company could be negotiated.

Also, it is commercially reasonable for the Consultant to make more limited Warranties and Representations than are present below. In addition, standard UCC disclaimer language is usually appropriate in such an agreement. So too would be provisions limiting the Company's remedies for breach of contract, limiting the Consultant's liability for incidental and consequential damages and limiting the total dollar amount of the Consultant's exposure to liability.

Law of Contracts Outline

Here is a link to a worthwhile outline of the Law of Contracts

Mutual NDA for Evaluation

While a good example of a mutual non-disclosure agreement may be found at this docstoc.com page, caution is always appropriate when considering the use of form documents. It is essential to understand fully the legal implications of each provision and to tailor the form to the particular circumstances in which it will be employed.

Incoterms

"Incoterms are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce,...correct use of Incoterms goes a long way to providing the legal certainty upon which mutual confidence between business partners must be based. To be sure of using them correctly, trade practitioners need to consult the full ICC texts, and to beware of the many unauthorized summaries and approximate versions that abound on the web...

Incoterms 2000 provides Preambles explaining the function of each Incoterm. These are reproduced in full for visitors to this site. For example, the Preamble to FAS FREE ALONGSIDE SHIP states that under FAS the seller delivers when the goods are placed alongside the vessel at the named port of shipment. "The buyer has to bear all costs and risks of loss of or damage to the goods from that moment."

Click on any of the 13 terms listed below and read a concise definition from the Preambles to Incoterms 2000. Several of the Preambles, marked below with an *, include a footnote referring to the Introduction. Click anywhere on those pages to view the relevant part of the Introduction. Please note that the terms will appear on your screen in read-only format and so cannot be copied or printed.

EXW EX WORKS (named place)*
FCA FREE CARRIER (named place)
FAS FREE ALONGSIDE SHIP (named port of shipment)*
FOB FREE ON BOARD (named port of shipment)
CFR COST AND FREIGHT (named port of destination)
CIF COST, INSURANCE AND FREIGHT (named port of destination)*
CPT CARRIAGE PAID TO (named place of destination)
CIP CARRIAGE AND INSURANCE PAID TO (named place of destination)*
DAF DELIVERED AT FRONTIER (named place)*
DES DELIVERED EX SHIP (named port of destination)
DEQ DELIVERED EX QUAY (named port of destination)*
DDU DELIVERED DUTY UNPAID (named place of destination)*
DDP DELIVERED DUTY PAID (named place of destination)*

Crash Course on M&A Negotiations

"On paper, it all seems so perfect: You’ve targeted the ideal company to acquire, the PowerPoint slides are screaming “upside,” you’ve done your financial and legal research, and you’ve given the other company a heads-up that you’re interested in making an offer. (See our previous BNET feature, “Evaluating Potential Mergers,” on how to get through those first stages.)

Now comes the hard part: the process of closed-door bargaining that leads to the real deal.

While there is no absolute rulebook that governs the incalculable variables involved in merger bargaining, there is a method to this aspect of M&A madness. We interviewed dozens of M&A veterans — from both sides of the table — and distilled some of the best thinking on negotiating into a four-step BNET Crash Course.

Best-selling author and merger guru James Freund also shares his 10 rules of bargaining. And, since negotiations rarely go as planned, we’ve identified some common mistakes that can derail good deals, and we explain how to avoid each.

From Be a Master M&A Negotiator on BNET.com

Software Contract Checklist

This list illustrates some of the types of issues which should be considered when negotiating contracts for the supply of computer hardware, software and services. It is not intended to be a definitive or complete list. Parties negotiating contracts should always consider the terms and conditions in depth and obtain appropriate legal advice. No liability whatsoever can be accepted for any errors or omissions in this list nor for any adverse consequences of using it.

Contract Attachments - various pre-contractual documents and statements may be explicitly or implicitly included in the contract (make sure their status is clear)
• Vendor correspondence
• Vendor literature and advertising
• Notes of meetings between vendor and client
• Materials from vendor demonstrations, such as output reports
• Systems specifications
• The vendor’s financial statements
• All responses and other materials completed from the Request for Proposal (RFP), including the completed system requirements
• An Implementation Plan identifying the tasks to be completed, the assigned responsibilities and the scheduled completion dates
• Stated usage of named sub-contractors and specific named employees
• Other vendor representations

Term of Agreement
• Initial term
• Optional terms
• Renewal terms
• Relationship with vendor's sub-contractors
• Terms and conditions for transfer of personnel (eg with outsourcing contract)

Deliverables
• Design
• Hardware
• Networking provision, connectivity, ISP, portal connectivity
• Access to servers and facilities not owned by the client
• Software / programs
• Source code
• Programming and data standards (eg language, database, XML)
• Modifications
• Custom programming
• Application / transaction / business process outsourcing / facilities management services
• Supply of data and information
• Consultancy
• Support services
• Introduction of trading partners, suppliers, customers etc
• Documentation
• Training
• Enhancements and updates
• Initial support and maintenance
• Continuing support and maintenance
• Backup, recovery and disaster recovery provision
• Access to information and electronic support services

Delivery
• Timetable
• Delays (constituting contract default)
• Price reduction or penalty for delays (liquidated damages)
• Actual-cost damages for defaults (and any limit applied thereto)
• Trial period

Acceptance Criteria
• Thorough test data
• Functional tests
• User Acceptance Tests and criteria
• Integration tests and compatibility with connected systems including those of other partner organisations, customers and suppliers
• Performance tests
• Reliability tests
• Throughput / transaction times
• Run time
• Computer resources required
• Efficiency
• Standards of continuing performance
• Acceptance period
• Terms for operation where there are outstanding problems and no user final acceptance

Use and Ownership of Software, Hardware and Services
• Unlimited use
• Use by or extension to associated companies in same group, outsourcers, sub-contractors, customers, suppliers, other third parties
• Use and ownership of software on transfer of the business to new owners
• Ability to assign rental, maintenance and service contracts to new owners
• Continuing use of systems and provision of services if the business is placed into administration due to insolvency
• Upgrades and portability of software for client's future use
• Ownership of software customised to client's specifications
• Client's right to modify software package
• Effect of refusal of future modifications if unacceptable

Source Programs
• Access by client and sub-contractors to source programs
• Undertaking to maintain open source
• Source code and program documentation in escrow

Installation and Training
• Timeframe of installation
• Amount of disruption to client's operations
• Minimum hardware and software configuration to be provided by client for vendor's hardware and software to operate upon or in conjunction with
• All appropriate education required by client to successfully implement and operate system
• Period of time that training will be available
• Training location
• Training costs
• Training curriculum
• Facilities required to provide training

Support and Maintenance
• Amount and nature of implementation support at no additional cost
• Cost of annual maintenance
• Guaranteed prices and nature for specified period
• Starting time for maintenance (eg after warranty period)
• Support the vendor can provide in the event of a disaster

Warranties of Vendor
• Commencement event of warranty period (installation, acceptance, etc.)
• Suitability of software for client's requirements
• Compliance with legislation and regulatory requirements (eg accounting standards, employment legislation, data privacy / protection, use by the disabled, access to data by authorised public bodies)
• Capacity to handle stated volume of transactions
• Ownership of software and hardware
• Vendor's right to license software
• Assurances regarding infringement
• Period of time vendor will keep software operational
• Correction of malfunctions
• Willingness to allow changes in the specifications or deliver additional items (subject to agreed terms and charges)
• Equipment configuration required for software
• Vendor's commitment to software and/or hardware maintenance
• Guarantee of support availability
• Service levels
• Call out times
• Escalation procedures
• Items explicitly or implicitly included or excluded from warranties (does itemisation of included items imply exclusion of anything else - "reverse limitation")
• Definition of basis for compensation and limits applied (eg contract price, actual damages, liquidated damages, capped limits, fault / no fault, force majeure, opportunity to cure, time and notice requirements)
• Definition of limits of accountability where parts of the overall solution are provided by the client or by other parties

Client's Rights and Safeguards
• Right to reproduce or otherwise make available reference documentation
• Right to disclose software to others
• Right to rescind agreement at any time prior to acceptance of system
• Right to terminate agreement, optionally with agreed notice period or at defined break points
• Right to transfer software with sale of computer
• Right to modify software
• Right to merge software into other program material
• Right of assignment
• Right to outsource
• Product liability insurance
• Performance bond

Confidentiality
• Client data
• Client's business methods and trade secrets
• Vendor-related information that is subject to non-disclosure

Infringement Provisions
• Vendor defends any suit brought against client
• Vendor pays costs and damages
• Vendor replaces infringing software
• Vendor indemnifies client for loss

Events Constituting Default
• Failure to deliver
• Failure of software or hardware to perform according to specifications
• Unreliability of software or hardware
• Failure of vendor to correct malfunctions within an agreed-on time period
• Failure of vendor to provide support services
• Bankruptcy of vendor

Default and Malfunction Remedies
• Termination of agreement
• Recovery of damages for costs incurred
• Liquidation of damages
• Refund of money paid and costs incurred
• Replacement of software or hardware by vendor
• Repair of software or hardware by vendor
• Payment by vendor for cost of repairing or replacing software or hardware by others
• Downtime credits
• Backup facility in the event of malfunction
• Time to correct malfunctions, which extends the warranty period

Price
• Fixed cost
• Time and material costs
• Rental basis
• Pricing basis and parameters eg per "seat" / by processor size / per transaction or event
• Optional and call off-charges (eg consultancy advice per day)
• Pricing of subsequent variations to the contracted specification and other additional work
• Renewal costs
• Other charges
• Quantity discounts (eg multiple or subsequent installations, reduced day rates after given number of days)
• Agreed discounts apply to which prices and charges (eg all elements discounted by agreed amount, or only the basic price is discounted with other charges based on full standard price)
• Price protection for future enhancements and support
• Pass through of future price reductions
• Pricing for upgrades or trade-in's
• Lease payments applied to purchase
• Charges or penalties for early termination (in the absence of default)

Payments
• Fixed dates
• Progress payments based on defined acceptance criteria
• Credit for delays
• Refund of money if agreed-on situation occurs
• Holdback
• Periodic payments and royalties
• Maintenance fees

Taxes
• Liability for taxes
• Place of contract - country / state taxes that apply
• Tax credits

Client-Vendor Relationship
• Vendor's status (eg independent contractor, not employee of client)
• Risk and reward sharing
• Vendor and/or third-party funding of capital requirements
• Creation of new legal entities to manage joint-venture relationships and partnerships
• Prohibition against assignment by vendor
• Prohibition against sub-contracting by vendor without client's consent
• Continuity during dispute
• Personnel recruitment policy - anti-poaching agreement
• Use of client's resources by vendor - eg office facilities, access to site, computers, software

Other Considerations
• Free trials or demonstrations
• Compensation for assisting vendor in developing or testing software
• Intellectual Property Rights - who owns anything created for the client (eg source code, text, images, information)
• Publicity and endorsements, eg right to refer to other party's name or situation in published materials
• Confidentiality during disputes / commitment not to make derogatory public statements
• Arbitration
• Termination procedures
• Terms and conditions for subsequent transfer or return of outsourced systems, personnel and services on termination of contract
• Inclusion of all side agreements in contract

From Project Management and Programme Management - The FREE ePMbook by Simon Wallace

Christmas Hanukkah in Merger Talks

A few years ago, my colleague sent me an email in the form of a humorous press release regarding the merger of Hannukah and Christmas. I turned the email into a small speech that I gave at our firm holiday party.

Apparently, the idea of the merger is not so far fetched as it seemed then, judging by this post from Tech Law Advisor and others out in the blogosphere.

Anyway, I dug out the old speech and reprint for your enjoyment below:

As many of you know, my practice involves mergers and acquisitions. I am, also, among other things, a student of yiddish.

So before I get all farblondzet, and you gey shlofn, I have an important announcement to make. And don’t tell me this is a kakameyme or farkatke idea. Hear me out.

Continuing the current trend of large-scale mergers and acquisitions, it was announced today at a press conference that Christmas and Hannukah will merge. An industry source said that the deal had been in the works for about 1300 years.

While details were not available at press time, it is believed that the overhead cost of having twelve days of Christmas and eight days of Hannukah was becoming prohibitive for both sides. By combining forces, we're told, the world will be able to enjoy consistently high-quality service during the fifteen days of Christmukah, as the new holiday is being called.

Massive layoffs are expected, with lords-a-leaping and maids-a-milking being the hardest hit.

As part of the conditions of the agreement, the letters on the dreidel currently in hebrew, will be replaced by latin, thus becoming unintelligible to a wider audience.

Also, instead of translating to "a great miracle happened there," the message on the dreidel will be the more generic "miraculous stuff happens."

In exchange, it is believed that Jews will be allowed to use Santa Claus and his vast merchandising resources for buying and delivering their gifts.

In fact, one of the sticking points holding up the agreement for at least three hundred years was the question of whether Jewish children could leave milk and cookies for Santa even after having eaten meat for dinner. A breakthrough came last year, when Oreos were finally declared to be kosher.

All sides appeared happy about this. A spokesman for Christmas, Inc., declined to say whether a takeover of Kwanzaa might not be in the works as well. He merely pointed out that were it not for the independent existence of Kwanzaa, the merger between Christmas and Hanukkah might indeed be seen as an unfair cornering of the U.S. holiday market. Fortunately for all concerned, he said, Kwanzaa will help to maintain the competitive balance.

He then closed the press conference by leading all present in a rousing rendition of "Oy, Come All Ye Faithful."