preparation review of commercial agreements rw 04212006

8/8/2019 Preparation Review of Commercial Agreements RW 04212006

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Lehman Lee & Xu

Preparation And Review Of CommercialAgreements

Presented

By

Richard L. Wageman

Lehman Lee & Xu

Chinese Licensed Law FirmBeijing

China


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Lehman Lee & Xu 2

A Licensed Chinese Law Partnership

Beijing Shanghai Shenzhen Hong Kong

Macau Mongolia Washington

Richard L. Wageman

Email: [email protected] Tel no: (8610) 8532-1919 / Fax no: (8610) 8532-

1999

Website: www.lehmanlaw.com

Lehman Lee & Xu


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Lehman, Lee & Xu

Established in 1992

Has extensive experience in Foreign DirectInvestment, Mergers and Acquisitions, CommercialTransactions, Intellectual Property, Litigation,

Franchising, Advertising, Licensing, SoftwareRegistration, 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 inChina in IP, Real Estate and voted the Best Tax andTrust Firm in China for 2005

Has a fully licensed Patent and Trademark office asan adjunct to the law firm


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Presenter-Richard L. Wageman

Canadian Licensed Lawyer

Member of the British Columbia, Canada, LawSociety 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 commercialtransactions

Presentations to business groups and professionalgroups around the world on China legal issues

Published articles on foreign direct investment andfranchising in China


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What Is A Lawyer?

A person who knows the law and understands howthe law should be applied in a transaction

A professional who is ethical and honest in carry outhis/her professional activities

An advocate for his/her clients position within theboundaries of the law

A member of a profession that is sworn to up hold thelaw 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.


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Lawyers Role In A Commercial Transaction

Counsel the client concerning relevant legal issuesand options related to the transaction

Be an advocate for the client during negotiations withthe opposite party

Provide the client with on going legal advice during atransaction that clearly outlines the benefits and andthe risks

Preparation of agreements that reflect the

commercial transaction Analysis of agreements prepared by the opposite

party to the transaction


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Importance of Good Document Preparation/Review

Forms the basis for nearly all legal and commercialtransactions

Establishes the clients legal rights in a transactions

The document may be the subject of 3th party reviewby courts and arbitration panels

Reflects the lawyers competence and understandingof legal and commercial issues or lack thereof

Poorly drafted documents could result in negligence

claims against the Lawyer who prepared thedocument


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What Are Good Qualities For A Commercial Lawyer

Good understanding of commercial/businesspractices in many business sectors

Understanding of financial statements

Has good people skills that facilitate good relationswith client/opposing counsel

Understands what is the clients goal and businessapproach

Good negotiating skills-deal maker not deal breaker


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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 bycriticism 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


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Agreement Preparation-What You Must Know

Comprehensive understanding of thetransaction/business sector

Ask questions of your client-do not rely upon theclients overview or understanding

Understand the clients 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 applicablelaws/regulations

Assess your qualifications and limitations for thetransaction-get help if needed.


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Commercial Agreement Preparation-Overview

Commercial Agreements must:

comply with the requirements of the law

embody the provisions of the negotiatedtransaction

protect the clients interest

Outline the transaction in a logical manner

Clearly and accurately describe the agreementprovisions whereby any 3th party would understandthe arrangement from reading just the agreement


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Contain enough detail whereby the agreementprovisions are certain

Prepare agreement to withstand scrutiny in a court oflaw or in an arbitration hearing

Seek assistance if you do not understand an issue orare having difficulty drafting a provision.

Review good precedent agreements but use only asa guide/resource


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Establish a time line for document preparation thatgives you time to prepare/consider several drafts ofthe 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 partys legal counsel Learn from each transaction


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Commercial Agreement Structure-General

Agreement title and date

Index of document sections

Legal name and address of parties

Preamble: Briefly describes in several shortparagraphs the nature of the transaction to becovered by agreement

Consideration section

Definition section


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Grant/acceptance section

Financial arrangement section

Term of agreement section

Conditions section Representations, Warranties and Covenants section

Default section

Enforcement section

Termination section


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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


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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


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Miscellaneous provisions section

Successors and assigns section

Schedules reference section

Execution of agreement section Schedules attached-referenced


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General Form of Commercial Document Review

Review Example Of Form

Of Commercial Agreement


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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.


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WHEREAS,

A. The Transferee is a Chinese-foreign joint venturewhich produces and sells high-quality, high-efficiency ______and related products ("Products") and intends to acquire the

Transferors (business and) assets. B. The Transferor is mainly engaged in ____ and

related service and is willing to transfer all of its major assetsrequired 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 withtransfer of the assets from the Transferor to the Transferee at thefollowing terms and conditions:

Etc.


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1. Transfer of the Assets

1.1 In accordance with the terms and conditions of this Agreementownership and title to the assets (Assets ) as listed in Annex A shall belegally transferred to the Transferee or a party nominated by the

Transferee upon its first written notice. The Assets comprise all assetsowned by the Transferor for carrying out its production and operationactivities 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.


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2. Value of the Assets

2.1 The Parties acknowledge that the book value of the Assets atthe date of signing this Agreement shall total RMB _________ (inwords ____________).

2.2 The Parties assume that no taxes, fees or other charges areor will become due on the transfer of the Assets. If, however, suchtaxes, fees or other charges are or will become due they will beborne by the Transferor. If the Transferee or its nominated party is

required to pay such taxes, fees or charges up front, the Transferorshall refund such taxes, fees or charges actually paid by theTransferee against presentation of an original invoice.

Etc.


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3. Take over and Lease of Assets

The Transferor shall hand over the possession of the Assets to theTransferee or its nominated party on the date specified inTransferees written notice unless the Parties agree otherwise.

Representatives of both parties shall sign a take-over protocol.

Etc.


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4. Warranty

The Transferor warrants and represents toward the Transferee thefollowing on the date of signing this Agreement:

4.1 The Transferor owns the good and marketable title of theAssets completely and legally and is entitled to transfer the Assetsto the Transferee at the terms and conditions hereunder.

4.2 The Assets are free and clear of any encumbrance, mortgage,

pledge and/or third partys rights.

Etc.


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5. Representations and Warranties of the Vendor and the Principal

The obligations of the Principal are joint and several with theVendor. Alternatively, the Principals obligations could be contained ina 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 theGuarantee Agreement and any other representations and warrantiesdeemed to be appropriate.

If acting for the Vendor, many of these representations and warrantiesshould be qualified by materiability and best-of-knowledge

qualifications. If the Vendors counsel insists on a materiabilityqualification, that qualification should be restricted to relate to specificfactual representations, as opposed to having the Vendor responsiblefor only material liabilities. Also consider adding after due inquiry oncertain representations if acting for the Vendor.

Etc.


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6. Obligations of the Transferor

6.1 After signing of this Agreement the Transferor undertakes topossess, manage, use and maintain the Assets in an adequate andproper manner at its own costs. The value of the Assets as of the

date of signing of this Agreement shall be maintained except fornormal tear and wear. The Transferor shall be responsible for anyand all losses, damages, costs and claims caused by any improperuse, maintenance and management of the Assets.

6.2 The Transferor shall not lease, mortgage, pledge, transfer orotherwise dispose of the Assets to any third party

Etc.


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7. Liability for Breach of Contract

In the case that the Transferor fails to fulfil any of its obligationshereunder or any of its undertaking is found to be false, theTransferor shall be fully liable for any and all damages and

economic losses suffered by the Transferee due to such breach.

Etc.


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8. Force Majeure

If one of the Parties is prevented from performing any of its obligationsunder this Agreement due to an event of force majeure, the time forperforming the obligations under this Agreement specifically preventedfrom performance by such event of force majeure shall be extended by aperiod equal to the period of delay caused by such event of force

majeure. The party claiming inability to perform the obligations due tothe event of force majeure shall take appropriate measures to minimizeor remove the effects of the event of force majeure and, within theshortest possible time, do its best to resume performance of theobligations affected by the event of force majeure. If an event of forcemajeure occurs, neither party shall be liable for any damage, increasedcost or loss which the otherParty may sustain by reason of such failureor delay of performance, and such failure or delay shall not be deemed a

breach of this Agreement. All other obligations under this Agreementand the time for performance thereof shall not be affected thereby.

Etc.


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9. Assignment

At any time of the term of this Agreement, neither party shall assignany of its rights and obligations under this Agreement to any thirdparty without the prior written consent of the other Party

Etc.


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10. Governing Law

This Agreement shall be governed by, and construed inaccordance with, the laws of the People's Republic of China.

Etc.


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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. Suchconsultation shall begin immediately after one party has sent a written requestfor such consultation to the other Party. If the dispute can not be settled withinninety (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 asmentioned above, either Party may submit the dispute to ______ ArbitrationCommittee for arbitration in accordance with its rules and regulations. Thearbitration proceedings shall be conducted in the Chinese language. Thearbitration award shall be final and binding on both Parties. The arbitrationcost, including reasonable legal counsel fees, shall be borne by the losingparty.

11.3 During the period when a dispute is being resolved, the Parties shall inall other respects continue their implementation of this Agreement other thanthe matter(s) in dispute.

Etc.


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12. Notices

Notices or other communications required to be given by one of theParties pursuant to this Agreement shall be written in Chinese andmay be delivered personally, sent by registered airmail (postage

prepaid), by a recognized courier service or by facsimiletransmission to the address of the other Party set forth below. Thedates on which such notices shall be deemed to have beeneffectively given shall be determined as follows:

Notices given by personal delivery shall be deemed effectivelygiven on the date of personal delivery;

Etc.


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13. Waiver of Rights

Unless otherwise provided for, failure or delay on the part of anyparty to exercise any right, power or privilege under this Agreementshall not operate as a waiver thereof, nor shall any single or partial

exercise of any right, power or privilege preclude further exercisethereof or exercise of any other right, power or privilege. Anywaiver by one of the Parties at any time of a breach of any term orprovision of this Agreement by the other Party shall not beconstrued as a waiver by such party of any subsequent breach, itsrights under such provision, or any of its other rights hereunder.

Etc.


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14. Entire Agreement

All the appendices to this Agreement shall be an integral part of thisAgreement. This Agreement and all its appendices shall constitutethe entire agreement with respect to the subject matter set forth

herein and supersede any and all previous oral and writtendiscussions, negotiations, notices, memoranda, documents,agreements, contracts and communications relating to such subjectmatter. The headings to the articles are for ease of reference onlyand shall have no legal effect.

Etc.


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15. Severability of the Agreement

If any one or more of the provisions contained in this Agreement orany 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 provisionscontained herein or therein shall not in any way be affected orimpaired and shall remain in full force and effect; and (ii) the invalid,illegal or unenforceable provision shall be replaced by a valid, legaland enforceable provision that comes closest to expressing the trueintent of such invalid, illegal or unenforceable provision.

Etc.


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16. Counterparts

This Agreement is executed in Chinese in four (4) counterparts,and each party shall hold two (2) copies. This Agreement may betranslated into other languages. If there is any conflict between a

version in any other language and the Chinese version, theChinese version shall prevail.

Etc.


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17. Effectiveness

This Agreement shall take effect from the date of the execution bythe authorized representatives of the Parties.

Etc.


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IN WITNESS WHEREOF, The Parties hereto have caused thisAgreement to be executed by their duly authorized representativesas of the date first above written.

Name of the Transferee

Authorized Representative:__________________

Signature: _______________________________

Name of the Transferor

Authorized Representative:__________________

Signature:________________________________


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Commercial Agreement Drafting Practice Points

Encourage your client to first negotiate a non-bindingletter of intent that defines basic provisions

Prepare an outline of the agreement you will draftbefore you commence preparation of the agreement

Use plain language rather then legalize terms ifpossible

Provide enough detail to avoid misunderstandingsbut keep the sentence structure as simple as

possible


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Commercial Agreement Drafting Practice Points

Double/triple check the grammatical structure and thespelling of the drafted provisions

Prepare agreement in draft form-consider, thenprepare 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 tothe opposite party


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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


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Types Of Commercial Agreements

Employment

Foreign Direct Investment

Intellectual Property

Outsourcing and Services

Sale of Goods


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Document Review and Analysis Overview

Start from the premise that every document can beimproved no matter who prepared the document

Review the agreement for the following:

Provisions reflect the agreed upon arrangement

The agreement provisions are in compliance withthe law of China

The commercial terms are accurate

Does the drafted provisions enhance your clients

position or do they hurt your clients position


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Do not presume that the provision as drafted is inyour clients best interests-analyze each provision

Do not presume that your client will understand thelegal provisions and even the commercial terms as

drafted by the opposite partys counsel Clearly set out in writing to your client your

opinions/comments concerning the agreementsubmitted to you by the opposite party/its counsel


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Do not be intimidated by the reputation of theopposing party or its legal counsel

Never presume that the opposite partys legalcounsels position is correct concerning the legal or

commercial interpretation of a provision in theagreement

Make sure the client understands the risk of eitheraccepting an opposite parties proposed provisions or

rejecting such provisions


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Do not just tell the client what it wants to hear but tellthe client what it needs to hear

You normally only get one opportunity to deal with adraft 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 tonegotiation

Do not be afraid to advise the client that the proposedagreement as drafted is not in its best interest.


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Insist that the opposite party have legal counsel.

If the opposite party will not engage its own counselyou must do the following:

Have the opposite party acknowledge in writing

that you do not act for it, that you have notprovided any legal advice to it concerning theagreement and that you recommended it obtainindependent 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


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Commercial Agreement Analysis-Example

Review Example Of Commercial Agreement Analysis


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Closing Thought

A Business Lawyer Must Always Strive To Be BetterWhen He/She Prepares and Analyzes Documents As

Such Documents Are A Reflection Of YourCompetency And Reputation


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10-2 Liangmaqiao Diplomatic CompoundNo.22 Dongfang East Road Chaoyang District

Beijing 100600 ChinaTel: (86)(10) 8532-1919

Fax: (86)(10) 8532-1999