Preparation And Review Of Commercial Agreements

Preparation And Review Of Commercial Agreements Presented By Richard L. Wageman Lehman Lee & Xu Chinese Licensed Law Firm Beijing China

Lehman Lee & Xu A Licensed Chinese Law Partnership Beijing – Shanghai – Shenzhen – HongKong Macau – Mongolia – Washington Richard L. Wageman • Email: rwageman@lehmanlaw.com • Tel no: (8610) 8532-1919 / Fax no: (8610) 8532-1999 • Website: www.lehmanlaw.com

Lehman, Lee & Xu • Established in 1992 • Has extensive experience in Foreign Direct Investment, Mergers and Acquisitions, Commercial Transactions, Intellectual Property, Litigation, Franchising, Advertising, Licensing, Software Registration, Counseling Services. • Responsible for over US $5 billion in FDI since 1992 • Granted the 8th private law license in China • Nominated in 2005 as one of the best law firms in China in IP, Real Estate and voted the Best Tax and Trust Firm in China for 2005 • Has a fully licensed Patent and Trademark office as an adjunct to the law firm

Presenter-Richard L. Wageman • Canadian Licensed Lawyer • Member of the British Columbia, Canada, Law Society and Canadian Bar Association • Senior foreign lawyer and head of Commercial Law Section of Lehman Lee & Xu • Expertise in foreign direct investment, mergers and acquisitions, franchising, advertising and commercial transactions • Presentations to business groups and professional groups around the world on China legal issues • Published articles on foreign direct investment and franchising in China

What Is A Lawyer? • A person who knows the law and understands how the law should be applied in a transaction • A professional who is ethical and honest in carry out his/her professional activities • An advocate for his/her client’s position within the boundaries of the law • A member of a profession that is sworn to up hold the law of the land but also “test” the legal limits of the law as an advocate for clients rights • Should also be an advocate for those citizens who cannot afford legal services-pro bono legal work.

Lawyers Role In A Commercial Transaction • Counsel the client concerning relevant legal issues and options related to the transaction • Be an advocate for the client during negotiations with the opposite party • Provide the client with on going legal advice during a transaction that clearly outlines the benefits and and the risks • Preparation of agreements that reflect the commercial transaction • Analysis of agreements prepared by the opposite party to the transaction

Importance of Good Document Preparation/Review • Forms the basis for nearly all legal and commercial transactions • Establishes the clients legal rights in a transactions • The document may be the subject of 3th party review by courts and arbitration panels • Reflects the lawyers competence and understanding of legal and commercial issues or lack thereof • Poorly drafted documents could result in negligence claims against the Lawyer who prepared the document

What Are Good Qualities For A Commercial Lawyer • Good understanding of commercial/business practices in many business sectors • Understanding of financial statements • Has good “people skills” that facilitate good relations with client/opposing counsel • Understands what is the clients goal and business approach • Good negotiating skills-”deal maker not deal breaker”

What Are Good Qualities For A Commercial Lawyer • Is “pro-active” rather then “re-active” when possible • Thinks “outside of the box” and is not offended by criticism of his/her ideas • Open to new ideas and approaches • Good writer with logical approach to his/her writing • Last but “most important”, a good communicator

Agreement Preparation-What You Must Know • Comprehensive understanding of the transaction/business sector • Ask questions of your client-do not rely upon the client’s overview or understanding • Understand the client’s objective and limitations • Educate yourself concerning the opposite party and its professional advisors • Define legal and commercial issues in the transaction • Re-educate yourself on all applicable laws/regulations • Assess your qualifications and limitations for the transaction-get help if needed.

Commercial Agreement Preparation-Overview • Commercial Agreements must: • comply with the requirements of the law • embody the provisions of the negotiated transaction • protect the client’s interest • Outline the transaction in a logical manner • Clearly and accurately describe the agreement provisions whereby any 3th party would understand the arrangement from reading just the agreement

Commercial Agreement Preparation-Overview • Contain enough detail whereby the agreement provisions are certain • Prepare agreement to withstand scrutiny in a court of law or in an arbitration hearing • Seek assistance if you do not understand an issue or are having difficulty drafting a provision. • Review good precedent agreements but use only as a guide/resource

Commercial Agreement Preparation-Overview • Establish a time line for document preparation that gives you time to prepare/consider several drafts of the agreement • Review draft agreement with client to insure client understanding and accuracy of terms • Have an associate in your office review agreement and offer suggestions • Be “open minded” to criticism of document by client and opposite party/opposite party’s legal counsel • Learn from each transaction

Commercial Agreement Structure-General • Agreement title and date • Index of document sections • Legal name and address of parties • Preamble: Briefly describes in several short paragraphs the nature of the transaction to be covered by agreement • Consideration section • Definition section

Commercial Agreement Structure-General • Grant/acceptance section • Financial arrangement section • Term of agreement section • Conditions section • Representations, Warranties and Covenants section • Default section • Enforcement section • Termination section

Commercial Agreement Structure-General • Notice section • Governing law-jurisdiction section • Dispute resolution section • Registration of agreement section • Force Majeure section • Assignment/assumption section • Encumbrance section • Postponement and subordination section

Commercial Agreement Structure-General • Best efforts section • Indemnification section • Compliance with laws section • Interpretation of agreement section • Waiver section • Extension of time section • Counterpart signing section • Whole agreement section

Commercial Agreement Structure-General • Miscellaneous provisions section • Successors and assigns section • Schedules reference section • Execution of agreement section • Schedules attached-referenced

General Form of Commercial Document Review Review Example Of Form Of Commercial Agreement

General Form of Commercial Document Review • THIS AGREEMENT is made as of this __ day of ____ in ____, China, by and between: • Transferee: (the name of the Transferee)(hereinafter referred to as "Transferee") • Legal Address: ______________________________________ • Postal Code: ____ • Transferor: (the name of the Transferor)(hereinafter referred to as “Transferor”) • Legal Address: _______________________________________ • Postal Code: _____ • The Transferor and the Transferee are hereinafter referred to as the "Parties" collectively, and as "Party" singularly. • Etc.

General Form of Commercial Document Review • WHEREAS, • A. The Transferee is a Chinese-foreign joint venture which produces and sells high-quality, high-efficiency ______ and related products ("Products") and intends to acquire the Transferor’s (business and) assets. • B. The Transferor is mainly engaged in ____ and related service and is willing to transfer all of its major assets required for conducting its business to the Transferee. • Now, therefore, the Parties, after consultation and on the basis of equality and willingness, agree to the following in connection with transfer of the assets from the Transferor to the Transferee at the following terms and conditions: • Etc.

General Form of Commercial Document Review • 1. Transfer of the Assets • 1.1 In accordance with the terms and conditions of this Agreement ownership and title to the assets (“Assets”) as listed in Annex A shall be legally transferred to the Transferee or a party nominated by the Transferee upon its first written notice. The Assets comprise all assets owned by the Transferor for carrying out its production and operation activities including but not limited to equipment and machinery, vehicles, office furniture and equipment, tools, fixtures and facilities. • 1.2 The Assets shall also include all technical documents in relation to the Assets including but not limited to operation manuals, records for operation, maintenance and repair. • Etc.

General Form of Commercial Document Review • 2. Value of the Assets • 2.1 The Parties acknowledge that the book value of the Assets at the date of signing this Agreement shall total RMB _________ (in words ____________). • 2.2 The Parties assume that no taxes, fees or other charges are or will become due on the transfer of the Assets. If, however, such taxes, fees or other charges are or will become due they will be borne by the Transferor. If the Transferee or its nominated party is required to pay such taxes, fees or charges up front, the Transferor shall refund such taxes, fees or charges actually paid by the Transferee against presentation of an original invoice. • Etc.

General Form of Commercial Document Review • 3. Take over and Lease of Assets • The Transferor shall hand over the possession of the Assets to the Transferee or its nominated party on the date specified in Transferee’s written notice unless the Parties agree otherwise. Representatives of both parties shall sign a take-over protocol. • Etc.

General Form of Commercial Document Review • 4. Warranty • The Transferor warrants and represents toward the Transferee the following on the date of signing this Agreement: • 4.1 The Transferor owns the good and marketable title of the Assets completely and legally and is entitled to transfer the Assets to the Transferee at the terms and conditions hereunder. • 4.2 The Assets are free and clear of any encumbrance, mortgage, pledge and/or third party’s rights. • Etc.

General Form of Commercial Document Review • 5. Representations and Warranties of the Vendor and the Principal The obligations of the Principal are joint and several with the Vendor. Alternatively, the Principal’s obligations could be contained in a guarantee agreement to be delivered at Closing. In such case, representations of the Guarantor should be included therein including its due incorporation and corporate power and authority to deliver the Guarantee Agreement and any other representations and warranties deemed to be appropriate. • If acting for the Vendor, many of these representations and warranties should be qualified by “materiability” and “best-of-knowledge” qualifications. If the Vendor’s counsel insists on a materiability qualification, that qualification should be restricted to relate to specific factual representations, as opposed to having the Vendor responsible for only material liabilities. Also consider adding “after due inquiry” on certain representations if acting for the Vendor. • Etc.

General Form of Commercial Document Review • 6. Obligations of the Transferor • 6.1 After signing of this Agreement the Transferor undertakes to possess, manage, use and maintain the Assets in an adequate and proper manner at its own costs. The value of the Assets as of the date of signing of this Agreement shall be maintained except for normal tear and wear. The Transferor shall be responsible for any and all losses, damages, costs and claims caused by any improper use, maintenance and management of the Assets. • 6.2 The Transferor shall not lease, mortgage, pledge, transfer or otherwise dispose of the Assets to any third party • Etc.

General Form of Commercial Document Review • 7. Liability for Breach of Contract • In the case that the Transferor fails to fulfil any of its obligations hereunder or any of its undertaking is found to be false, the Transferor shall be fully liable for any and all damages and economic losses suffered by the Transferee due to such breach. • Etc.

General Form of Commercial Document Review • 8.Force Majeure • If one of the Parties is prevented from performing any of its obligations under this Agreement due to an event of force majeure, the time for performing the obligations under this Agreement specifically prevented from performance by such event of force majeure shall be extended by a period equal to the period of delay caused by such event of force majeure. The party claiming inability to perform the obligations due to the event of force majeure shall take appropriate measures to minimize or remove the effects of the event of force majeure and, within the shortest possible time, do its best to resume performance of the obligations affected by the event of force majeure. If an event of force majeure occurs, neither party shall be liable for any damage, increased cost or loss which the other Party may sustain by reason of such failure or delay of performance, and such failure or delay shall not be deemed a breach of this Agreement. All other obligations under this Agreement and the time for performance thereof shall not be affected thereby. • Etc.

General Form of Commercial Document Review • 9. Assignment • At any time of the term of this Agreement, neither party shall assign any of its rights and obligations under this Agreement to any third party without the prior written consent of the other Party • Etc.

General Form of Commercial Document Review • 10. Governing Law • This Agreement shall be governed by, and construed in accordance with, the laws of the People's Republic of China. • Etc.

General Form of Commercial Document Review • 11. Settlement of Disputes • 11.1 Any dispute arising from or in connection with the implementation of this Agreement shall be settled by the Parties through friendly consultation. Such consultation shall begin immediately after one party has sent a written request for such consultation to the other Party. If the dispute can not be settled within ninety (90) days after the delivery of such notice, then Paragraph 2 of this Article shall apply. • 11.2 If the Parties cannot settle the dispute through consultation as mentioned above, either Party may submit the dispute to ______ Arbitration Committee for arbitration in accordance with its rules and regulations. The arbitration proceedings shall be conducted in the Chinese language. The arbitration award shall be final and binding on both Parties. The arbitration cost, including reasonable legal counsel fees, shall be borne by the losing party. • 11.3 During the period when a dispute is being resolved, the Parties shall in all other respects continue their implementation of this Agreement other than the matter(s) in dispute. • Etc.

General Form of Commercial Document Review • 12. Notices • Notices or other communications required to be given by one of the Parties pursuant to this Agreement shall be written in Chinese and may be delivered personally, sent by registered airmail (postage prepaid), by a recognized courier service or by facsimile transmission to the address of the other Party set forth below. The dates on which such notices shall be deemed to have been effectively given shall be determined as follows: • Notices given by personal delivery shall be deemed effectively given on the date of personal delivery; • Etc.

General Form of Commercial Document Review • 13. Waiver of Rights • Unless otherwise provided for, failure or delay on the part of any party to exercise any right, power or privilege under this Agreement shall not operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude further exercise thereof or exercise of any other right, power or privilege. Any waiver by one of the Parties at any time of a breach of any term or provision of this Agreement by the other Party shall not be construed as a waiver by such party of any subsequent breach, its rights under such provision, or any of its other rights hereunder. • Etc.

General Form of Commercial Document Review • 14. Entire Agreement • All the appendices to this Agreement shall be an integral part of this Agreement. This Agreement and all its appendices shall constitute the entire agreement with respect to the subject matter set forth herein and supersede any and all previous oral and written discussions, negotiations, notices, memoranda, documents, agreements, contracts and communications relating to such subject matter. The headings to the articles are for ease of reference only and shall have no legal effect. • Etc.

General Form of Commercial Document Review • 15. Severability of the Agreement • If any one or more of the provisions contained in this Agreement or any document executed in connection herewith shall be invalid, illegal, or unenforceable in any respect under any applicable law, (i) the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired and shall remain in full force and effect; and (ii) the invalid, illegal or unenforceable provision shall be replaced by a valid, legal and enforceable provision that comes closest to expressing the true intent of such invalid, illegal or unenforceable provision. • Etc.

General Form of Commercial Document Review • 16. Counterparts • This Agreement is executed in Chinese in four (4) counterparts, and each party shall hold two (2) copies. This Agreement may be translated into other languages. If there is any conflict between a version in any other language and the Chinese version, the Chinese version shall prevail. • Etc.

General Form of Commercial Document Review • 17. Effectiveness • This Agreement shall take effect from the date of the execution by the authorized representatives of the Parties. • Etc.

General Form of Commercial Document Review • IN WITNESS WHEREOF, The Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. • Name of the Transferee  • Authorized Representative:__________________ • Signature: _______________________________ • Name of the Transferor  • Authorized Representative:__________________ • Signature:________________________________

Commercial Agreement Drafting Practice Points • Encourage your client to first negotiate a non-binding “letter of intent” that defines basic provisions • Prepare an outline of the agreement you will draft before you commence preparation of the agreement • Use plain language rather then “legalize” terms if possible • Provide enough detail to avoid misunderstandings but keep the sentence structure as simple as possible

Commercial Agreement Drafting Practice Points • Double/triple check the grammatical structure and the spelling of the drafted provisions • Prepare agreement in draft form-consider, then prepare a section draft to submit to client for review to ensure accuracy of commercial terms • Explain agreement provisions to client/consider client comments then prepare a 3th draft that will be sent to the opposite party

Types Of Commercial Agreements • Agency and Distribution • Computer and Software • Domestic investment • Engineering/Architectural/Procurement/Construction • Mergers/Acquisitions • Real Property and Leases • Trade and Manufacture • Credit and Finance

Types Of Commercial Agreements • Employment • Foreign Direct Investment • Intellectual Property • Outsourcing and Services • Sale of Goods

Document Review and Analysis Overview • Start from the premise that every document can be improved no matter who prepared the document • Review the agreement for the following: • Provisions reflect the agreed upon arrangement • The agreement provisions are in compliance with the law of China • The commercial terms are accurate • Does the drafted provisions enhance your clients position or do they “hurt” your clients position

Document Review and Analysis Overview • Do not presume that the provision as drafted is in your clients best interests-analyze each provision • Do not presume that your client will understand the legal provisions and even the commercial terms as drafted by the opposite party’s counsel • Clearly set out in writing to your client your opinions/comments concerning the agreement submitted to you by the opposite party/its counsel

Document Review and Analysis Overview • Do not be intimidated by the reputation of the opposing party or its legal counsel • Never presume that the opposite party’s legal counsel’s position is correct concerning the legal or commercial interpretation of a provision in the agreement • Make sure the client understands the risk of either accepting an opposite parties proposed provisions or rejecting such provisions

Document Review and Analysis Overview • Do not just tell the client what it wants to hear but tell the client what it needs to hear • You normally only get one opportunity to deal with a draft provision so you need to address all concerns in your first review to the client • Define what are core terms that should not be changed and those terms that are subject to negotiation • Do not be afraid to advise the client that the proposed agreement as drafted is not in its best interest.

Document Review and Analysis Overview • Insist that the opposite party have legal counsel. • If the opposite party will not engage its own counsel you must do the following: • Have the opposite party acknowledge in writing that you do not act for it, that you have not provided any legal advice to it concerning the agreement and that you recommended it obtain independent legal advice prior to finalizing/signing the agreement • The opposite party must not sign the agreement in your office or in the presence of your client/you

Commercial Agreement Analysis-Example Review Example Of Commercial Agreement Analysis

Commercial Agreement Analysis-Example

Preparation And Review Of Commercial Agreements