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."

Resolving China Trademark Disputes Using Arbitration

"Traditionally, foreign companies have manufactured products in China for export and resale in Western Europe and the United States, or licensed the manufacture of goods in China to previously-known licensees. These business models did not require investors to rethink their trademark protection strategy. Companies could register their marks in their home countries or the countries where the goods were sold, and use their standard license agreements.

"All this is changing. Increasingly, Western trademark owners are entering into trademark licenses with Chinese entities in order for them to make and sell Western branded goods in China and other local Asian markets. To meet with the requirements of this new business model, companies must have a Chinese registration of the trademark. Just as importantly, they must refine their license and related agreements to reflect the particular risks associated with this market.

"One of the most significant risks in manufacturing or licensing branded goods for the Chinese/Asian markets is dispute resolution. If companies fail to think through this issue, they may find themselves in a situation where delays in local courts, jurisdictional wrangling or objections to the enforcement of foreign judgments mean that they are unable to recover damages resulting from infringements of licenses or other agreements relating to their trademarks…

"While it is not a perfect solution, a well-designed arbitration strategy can effectively manage some of these risks. Arbitration can ensure that relevant disputes will be heard by neutral and experienced decision-makers, under internationally recognized procedural rules. It will also maximize the likelihood that any resulting award will be enforceable where the other party’s assets are located. Finally, a properly deployed arbitration strategy will assist the parties in overcoming their cultural differences, and achieving an early settlement to their dispute."

Read more in this Kilpatrickstockton.com article from which the foregoing is quoted.

Maximimize M&A Real Estate Returns

"Getting an early handle on a company’s real estate and facilities can be a powerful tool in increasing the profitability of a merger or acquisition...

"With real estate and facilities representing the second- or third-largest expense on the average company’s balance sheet, how the real estate is handled prior to, during, and after a transaction can be critical to the success of the overall transaction.

"One of the keys to help maximize shareholder value is to carefully evaluate the entire real estate portfolio — both owned and leased facilities — as early as possible, solidify a real estate strategy that is in alignment with your business goals and objectives, and then ensure that the necessary resources are in place to implement once the transaction is complete.

"There are three critical steps or phases of a merger or an acquisition; preliminary due diligence, prior to the transaction; portfolio assessment and strategy, during the transaction; and integration and implementation, after the transaction has closed..."

Read more in Managing Corporate Real Estate In Mergers or Acquisitions.

Risk Managment in Chinese M&A Transactions

"Against the backdrop of China's accession to the WTO and the continuous lifting of restrictions on foreign investment in many industries, China is going through an extraordinary period of merger and acquisition activity. However, executing M&A transactions in China is not for the faint of heart, and making successful investments and striking good deals require more than a gold-rush mentality. In particular, taking an overly cautious approach might result in missing out on great opportunities, while an undisciplined or overly optimistic approach might well lead to disaster.

"Consequently, it is essential that dealmakers and their counsel take an informed, balanced, and practical approach to the myriad and unique risks presented by Chinese M&A transactions.

"Matters that require careful attention in Chinese M&A transactions include regulatory restrictions on commercial enterprise, governmental approvals that are required in connection with purchases and sales of businesses, confirmation of title to assets, assessment of potential liabilities, and structure of purchase price and other amounts potentially payable to the seller.

"Circumstances in China that tend to make these matters challenging include a legal and regulatory system that is in a state of flux, unavailability and unreliability of public records, unfamiliar customs and practices, a "sellers' market" created by a significant influx of investment capital, and regulatory restrictions applicable to deferred payments of purchase price.

"This Commentary [from Jones Day] identifies several key areas of risk associated with M&A transactions in China, with the aim of helping dealmakers identify and address important issues at an early stage."