NSTITUTE VENTURE DRAFTING AGREEMENTS JOINT Joint Venture Agreements - 04.21.15.pdf · Drafting...

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NYCLA CLE I NSTITUTE D RAFTING J OINT V ENTURE A GREEMENTS Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers’ Association, 14 Vesey Street, New York, NY scheduled for April 21, 2015 Faculty: Program co-sponsors: NYCLA’s Construction Law Committee and Entertainment Intellectual property & Sports Section Program Chair: Joel Sciascia, Pavanni McGovern Faculty: George Meyer, Carlton Fields/Jorden Burt; Jose Pienknagura, AECOM; Richard Raysman, Holland & Knight; Carolyn Vardi, White & Case This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2 Transitional and Non-Transitional credit hours: 2 Skills. This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 2 hours of total CLE credits. Of these, 0 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law. ACCREDITED PROVIDER STATUS: NYCLA’s CLE Institute is currently certified as an Accredited Provider of continuing legal education in the States of New York and New Jersey.

Transcript of NSTITUTE VENTURE DRAFTING AGREEMENTS JOINT Joint Venture Agreements - 04.21.15.pdf · Drafting...

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NY

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DRAFTING JOINT

VENTURE AGREEMENTS Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers’ Association, 14 Vesey Street, New York, NY

scheduled for April 21, 2015

Faculty:

Program co-sponsors: NYCLA’s Construction Law Committee and Entertainment

Intellectual property & Sports Section

Program Chair: Joel Sciascia, Pavanni McGovern

Faculty: George Meyer, Carlton Fields/Jorden Burt; Jose Pienknagura, AECOM; Richard Raysman, Holland & Knight; Carolyn Vardi, White & Case

This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2 Transitional and Non-Transitional credit hours: 2 Skills.

This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 2 hours of total CLE credits. Of these, 0 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law.

ACCREDITED PROVIDER STATUS: NYCLA’s CLE Institute is currently certified as an Accredited Provider of continuing legal education in the States of New York and New Jersey.

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Information Regarding CLE Credits and Certification

Drafting Joint Venture Agreements April 21, 2015; 6:00 PM to 8:00 PM

The New York State CLE Board Regulations require all accredited CLE providers to provide documentation that CLE course attendees are, in fact, present during the course. Please review the following NYCLA rules for MCLE credit allocation and certificate distribution.

i. You must sign-in and note the time of arrival to receive your

course materials and receive MCLE credit. The time will be verified by the Program Assistant.

ii. You will receive your MCLE certificate as you exit the room at

the end of the course. The certificates will bear your name and will be arranged in alphabetical order on the tables directly outside the auditorium.

iii. If you arrive after the course has begun, you must sign-in and note the time of your arrival. The time will be verified by the Program Assistant. If it has been determined that you will still receive educational value by attending a portion of the program, you will receive a pro-rated CLE certificate.

iv. Please note: We can only certify MCLE credit for the actual time

you are in attendance. If you leave before the end of the course, you must sign-out and enter the time you are leaving. The time will be verified by the Program Assistant. Again, if it has been determined that you received educational value from attending a portion of the program, your CLE credits will be pro-rated and the certificate will be mailed to you within one week.

v. If you leave early and do not sign out, we will assume that you left at the midpoint of the course. If it has been determined that you received educational value from the portion of the program you attended, we will pro-rate the credits accordingly, unless you can provide verification of course completion. Your certificate will be mailed to you within one week.

Thank you for choosing NYCLA as your CLE provider!

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New York County Lawyers’ Association

Continuing Legal Education Institute 14 Vesey Street, New York, N.Y. 10007 • (212) 267-6646

Drafting Joint Venture Agreements Tuesday, April 21, 2015 6:00 PM to 8:00 PM

Program Co-sponsors: NYCLA’s Construction Law Committee and Entertainment Intellectual Property & Sports Section

Program Chair: Joel Sciascia, Pavanni McGovern

Faculty: George Meyer, Carlton Fields/Jorden Burt; Jose Pienknagura,

AECOM; Richard Raysman, Holland & Knight; Carolyn Vardi, White & Case

AGENDA

5:30 PM – 6:00 PM Registration 6:00 PM – 6:10 PM Introductions and Announcements. 6:10 PM – 8:00 PM Presentation and Discussion

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Drafting Joint Venture Agreements

Tuesday, April 21, 2015 6:00pm-8:00pm

2 NY MCLE Credits: 2 Skills; Transitional and Non-transitional

2 NJ Credits: 2 General

14 Vesey Street

New York County Lawyers’ Association

Panel

Joel Sciascia, Pavarini McGovern

George Meyer, Carlton Fields/Jorden Burt

Jose Pienknagura, AECOM

Richard Raysman, Holland & Knight

Carolyn Vardi, White & Case

Title Author Type

Drafting Joint Venture Agreements Carolyn J. Vardi PowerPoint

Construction Joint Venture Agreements George J. Meyer, Jose Pienknagura, and Carlton Fields Jorden Burt , P.A.

PowerPoint

Technology and Joint Venture Agreements Richard Raysman PowerPoint

Negotiating Joint-Venture Management Provisions: A Primer

Rashida La Lande Article

The Key Benefits Of Forming A Joint Venture Rashida La Lande Article

Business Divorces – Plan Ahead - Article Mark Rosencrantz Article

Recent Disputes between Parties to Joint Ventures Richard Raysman and Peter Brown

Article

AIA-C101 - 1993 Joint Ventures AIA Sample Agreement

Strategic Alliance Software Development And Distribution Master Agreement

Richard Raysman Sample Agreement

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Drafting Joint Venture Agreements New York County Lawyers’ Association- April 21, 2015

Carolyn J. Vardi

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White & Case 1

Why a Joint Venture?

Strategic Joint Ventures Sharing costs and risks Accessing new markets and/or new technology Pooling resources

Financial Investors Joint Ventures Sponsor/Lead investor Minority financial investors Management Debt holders who receive equity kicker

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White & Case

Initial Considerations

Due Diligence Business Issues Capital Contributions Ownership/Governance (i.e., Control) Opportunities/Non-Compete Agreements Going-Forward Support Monetization/Liquidity Events Minority Protections Information rights/board observer Corporate governance protection Veto rights over significant transactions

Legal Issues Tax Planning and Type of Entity (Inc./LLC/LP) IP Considerations (protecting a partner’s IP and how to deal with jointly developed IP) Antitrust concerns Jurisdiction of Formation

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White & Case

Who Has the Control?-Corporate Governance

Board of Directors Equityholders agree to allocate Board seats – usually based on ownership

percentage When there is a Sponsor/Lead Investor, equityholders generally agree to elect a

majority of directors nominated by the Sponsor/Lead Investor Minority financial investors may be entitled to nominate a director Equityholders often agree to elect the chief executive officer of the operating

company to the Board In lieu of a Board seat, some minority investors may seek Board observer

Receives same meeting materials as Board members The Company is permitted to exclude information which may raise a conflict or

jeopardize attorney/client privilege

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White & Case

Who Has the Control-Corporate Governance (Cont’d)

Veto Rights On some occasions, minority investors may be entitled to veto certain major

transactions Major acquisitions or dispositions The Company’s initial public offering Declaring bankruptcy Declaring dividends Incurring debt above a pre-approved limit Amendment of material agreements Amendment of the Company’s organizational documents Other “material” actions or transactions

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White & Case

Who Has the Control-Corporate Governance (Cont’d)

Affiliate Transactions The Company is prohibited from entering into transactions with Affiliates (e.g., the

Sponsor/Lead Investor) without the approval of the disinterested directors or a majority of disinterested stockholders

Information Rights Equityholders entitled to receive quarterly and annual financial statements Certain VCOC investors may require additional rights (e.g., right to consult with

management)

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White & Case 6

Keeping Partners Locked In - Transfer Restrictions

Transfer Restrictions Strategic JV Approach Right of First Refusal Right of First Offer Limited Permitted Transfers

Financial Investor/Lead Investor Approach Control of the Investor Group is Key No transfer permitted other than “Permitted Transfers” such as: Basic wills and trusts transfers—allows estate planning for management Transfers to affiliates (other than competitors) Transfers expressly permitted by the Equityholders Agreement Drag-Along rights Tag-Along rights Registration rights

Transfers in connection with transfers of related debt Transfers approved by disinterested directors

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White & Case

Keeping Partners Locked In - Transfer Restrictions (cont’d)

Right of First Refusal Equityholder may sell to Third Party if the other Equityholders refuse to exercise right

to repurchase Selling Equityholder Must Identify Third Party and Terms of Proposed Sale to the

Company and Other Equityholders (“chills” Third Party sale) The other Equityholders have the right to purchase some or all of the shares on

the terms offered to the Third Party If the other Equityholders fail to purchase all the shares proposed for sale, the

Selling Equityholder may sell all shares to the Third Party Right of First Offer

Selling Equityholder offers shares to the other Equityholders first, then finds a third-party Buyer

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White & Case

Keeping Partners Locked In - Transfer Restrictions (cont’d)

Tag-Along Rights

Minority Investors right to participate in sales by sponsor/lead Investor

Does not apply to transfers to affiliates

Sponsor/Lead Investor May Request “Cushion” —Some Sales Allowed Before Tag-Along Rights Triggered

Minority Investors May Elect to Participate Up to Their Pro Rata Portion

Minority Investors Must Sell on Same Terms as Sponsor/Lead Investor (Representations/Warranties/Indemnification)–Sometimes minority investors are not willing to give full Reps and Warranties

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White & Case

Keeping Partners Locked In -Transfer Restrictions (cont’d)

Drag-Along Rights

Sponsor/Lead Investor right to sell whole Company

In Connection with a Sale of the Business, Sponsor/Lead Investor may require all Equityholders to Participate

Minority Investors grant Irrevocable Proxy to Sponsor/Lead Investor to consummate Sale of the Business

Minority Investors may only be required to give limited Reps (Ownership of Equity, Authority to consummate Transaction)

Minority Investors may be permitted to limit Indemnification exposure (Indemnification granted on a several, not joint and several, basis; exposure limited to gross proceeds from the transactions

Recently, in Halpin v. Riverstone National, the Delaware Chancery Court held that failure to properly exercise drag-along rights allowed minority holders to pursue their statutory appraisal rights

Key Client Program 9

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White & Case 10

Structuring Profit Sharing-An LLC Example

An LLC Agreement can establish different classes of LLC interests Voting or Non-Voting Capital or Profits Interests

If a member would be entitled to a share of the proceeds on a deemed liquidation of the LLC at the time the interest is received, that member has a “capital interest” Most members who contribute cash or other property receive capital interests

If a member would not be entitled to a share of the proceeds on a deemed liquidation of the LLC at the time the interest is received, that member has a “profits interest” Profits interests only share in future appreciation of the LLC Under certain circumstances, profits interests can be granted to management on a

tax-free basis, and proceeds upon exit will be treated as capital gains

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White & Case

Handling Disputes

Mechanisms to help avoid disputes Agree one party to have clear control over a particular area Limit matters subject to equityholder approval

But sometimes disputes cannot be avoided Dispute should persist for some period of time and be material before deadlock is

declared Typical deadlock provisions preceded by negotiating period among senior officers of

equityholders If no negotiated solution, either (i) status quo or (ii) dispute resolution mechanism

applied

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White & Case

Handling Disputes (cont’d)

Potential Dispute Resolution Mechanisms Mediation Mostly used for legal or specialist disputes Parties agree to mediator solution or move on to more severe deadlock resolution

provision Russian Roulette Triggering party must offer to sell its shares or buy the non-triggering party’s

shares at price determined by triggering party Partner may either buy the triggering party’s shares or sell its shares at the price

determined by the triggering party Texas Shoot Out Triggering party offers to buy the non-triggering party’s shares at specific price The non-triggering party may accept triggering party’s offer, or may offer to buy

shares at higher price If the non-triggering party makes higher offer and the triggering party does not

accept offer, then both parties submit sealed bids and highest bidder wins.

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White & Case

Handling Disputes (cont’d)

Potential Dispute Resolution Mechanisms Auction Sale Deadlock triggers commitment to sell the company through an auction process at

best obtainable price Process often run by an investment bank

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White & Case

Worldwide. For Our Clients. whitecase.com

White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities. The partners of our German offices are partners of the New York State registered limited liability partnership. According to the laws of the State of New York, the personal liability of the individual partners is limited.

In this presentation, White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.

White & Case LLP 1155 Avenue of the Americas New York, NY 10036 United States Tel: + 1 212 819 8200 Fax: + 1 212 354 8113

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CONSTRUCTION JOINT VENTURE AGREEMENTS

Presented by:

George J. Meyer Jose Pienknagura

Carlton Fields Jorden Burt , P.A. Hunt Construction Group, Inc.

CFJB

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A. Types of Joint Ventures 1. Traditional or Integrated Joint Ventures 2. Line Item or Non-Integrated Joint Ventures. 3. Combined Approach B. Threshold (Pre-Joint Venture) Considerations 1. When do you enter into the JV Agreement? 2. Entity Selection 3. Jurisdiction Selection 4. Who is in Control: Project Management vs. Profit Participation 5. Qualifying the Joint Venture 6. Parent Guarantees 7. Bonding C. Key Provisions in the JV Agreement 1. Capital Requirements 2. Profit Participation 3. Minority Member Protections 4. Reimbursement of Costs 5. Management. 6. Exit Strategies 7. Insurance

Outline

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Types of Joint Ventures

Traditional or Integrated Joint Ventures - “integrated” agreement - shared resources - shared profits and losses - centralized approach Line Item or Non-Integrated Joint Ventures - “non-integrated” approach - contractual allocation of rights and obligations - not a true partnership - no shared resources or shared total profits and losses - Teaming and Alliance Agreements Combined Approach Centralized approach to some aspects of the project & carve out specialized areas where one or more parties is solely responsible for the work and resulting profit or loss relating to that work

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When do you enter into the JV Agreement? Timing issues include: - negotiating specific deal terms and joint venture agreement language before the 11th hour - confirming the parties are able to agree on specific joint venture deal terms prior to being awarded the contract - setting the terms for sharing pre-award costs - investing significant time and energy (and legal fees) in negotiating an agreement when the joint venture may not be awarded the contract Compromise: parties agree to form joint venture in accordance with a detailed term sheet (MOU) with the form of joint venture agreement attached Entity Selection General Partnership Limited Liability Company

Threshold (Pre-Joint Venture) Considerations

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Jurisdiction Selection -Each state (and, potentially, foreign country) has its own peculiar statutes governing partnerships and LLC’s, which may vary in terms of default management provisions, fiduciary duties, rights to capital, etc. -Based on project site or location of JV members Who is in Control: Project Management vs. Profit Participation Contracts allow parties to vary their profit participation, right to capital, capital contributions, and management percentages. Profit participation can increase or decrease while the liability for losses can remain constant. Run through hypothetical scenarios and craft the relationship you want from an economic and governance perspective, both in good times and bad.

Threshold (Pre-Joint Venture) Considerations

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Qualifying the Joint Venture A joint venture that is a party to a construction contract must be the qualified entity to perform the work under the contract. Failure to do so can be catastrophic. Parent Guarantees Common practice to get a guarantee from the party’s parent with a more formidable balance sheet to stand behind the obligations of the joint venture party. Bonding If performance and payment bonds will be required for project, whose bonding capacity is used? How are bond premiums paid?

Threshold (Pre-Joint Venture) Considerations

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Capital Requirements Set out clearly the expectations for capital requirements of the joint venture, both initially and throughout the life of the project. Clearly state the parties’ initial capital contribution amounts. Determine how additional capital contributions will be required or requested, as applicable, e.g., minimum contributions based on a set schedule or a projected budget or capital calls as needed. Capital calls must be carefully drafted (and reviewed) to take into account who has the ability to make the calls, when calls can be made, and if there are any limits to the calls. Clearly contemplate remedies for failure of a party to make any required capital contribution.

Key Provisions in the JV Agreement

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Profit Participation Set out very clearly each party’s share of profits and losses generated from the project. May, but need not be, the same as each party’s “ownership” percentage or “voting” percentage. Do the profit-sharing percentages change over time or are they different based on certain elements of the project or self-performed work? “Profit” means different things to different people. Any terms relating to distributions of cash or property from the joint venture, in particular, should be very clearly defined in the agreement itself: - How and when is “profit” determined and distributed? - Is it all available cash? - Does it permit for reserves? - Is “profit” also used in the agreement to refer to tax allocations, and, if so, are they computed in the same way (probably not)?

Key Provisions in the JV Agreement

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Minority Member Protections Unanimous Votes on: -Membership -Capital Calls -Contract with Owner (including changes and amendments) -Adjustments to profit/loss/expense percentages -Settle claims and disputes -Purchase and sale of assets Reimbursement of Costs Set forth general guidelines for reimbursement of expenses incurred by each party, prior to and during the bid process, if appropriate, and after the contract is awarded to the joint venture. Reimbursement by the joint venture only in the event the owner reimburses the joint venture.

Key Provisions in the JV Agreement

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Management Often the most confused provisions of a joint venture agreement. Establish a clear and unambiguous management plan that allows for timely and final decisions in the field Clearly delineated change order authority Common problems include: - too many levels of management - not delineating between party decisions and management committee decisions - not making it clear when the project manager can act without the management committee - not making it clear when the lead venture/managing venture/sponsor can act without the management committee - not providing for resolution of deadlocks

Key Provisions in the JV Agreement

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Exit Strategies Contemplate worst case scenarios Build in exit strategies to help avoid disputes, and, potentially, litigation Areas to address include: - right to withdraw and pursue project on own - remedies for a party’s breach, default, or insolvency - deadlock among the parties and/or management committee - permissible/prohibited transfers to third parties and affiliates - causes and effects of liquidation of the joint venture

Key Provisions in the JV Agreement

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Insurance Cover insurance briefly or in depth, as the parties determine. Key considerations include: -Does the joint venture purchase project specific insurance or use the JV members corporate policies? - When there is a claim who pays the deductible and in what proportion? - Who chooses legal counsel? - Who determines whether the joint venture itself makes a claim, settles a claim, etc?

Key Provisions in the JV Agreement

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Q&A

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Copyright © 2015 Holland & Knight LLP. All Rights Reserved

Technology and Joint Venture Agreements NYCLA Joint Venture Seminar

Richard Raysman ● New York, NY ● April 21, 2015

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Ownership of Intellectual Property

• Contribution to venture • Enhancements to existing IP

• Development of new IP

• Termination of joint venture

2

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Expectations of the Parties

• Business plan

• Expected revenues

• Capital requirements

• Responsibilities

3

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Software Development

• Responsibility

• Compensation

• Licensing

• Third-parties

4

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Marketing Responsibilities

• Introduction of clients

• Ownership of clients

• Obligation to bring clients to joint venture

• Sales channels

5

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Compensation Structure

• License fees from clients of the joint venture

• Opportunity to perform consulting services

• Distribution of profits

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Other Considerations

• Hosting responsibilities

• Staffing

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Cases

Instep Software, LLC v. Instep (Beijing) Software Co., Ltd., No. 11-cv-3947, 2013 WL 1343874 (N.D. Ill. Apr. 2, 2013), vacated on other grounds, 577 Fed. Appx. 612 (7th Cir. 2014). • Joint venture between engineering software companies that permitted Instep Beijing to sell

the software in China.

• Companies entered into corresponding license agreement. Instep Beijing later rejected the royalty and pricing schedule in the license. Instep Software then terminated the license.

• Instep Beijing claimed this termination was invalid, thus Instep Software was in violation of JV Agreement.

• JV Agreement never mentioned license. License had an integration clause and it’s irrelevant that both agreements were consummated contemporaneously.

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Cases

Brownstein v. Lindsay, 742 F.3d 55 (3d Cir. 2014). • Co-authors devised computer program and the copyrights embedded therein. They later

formed a joint venture with their former employer to monetize the program.

• One author (Brownstein) did not sign the joint venture agreement.

• This same author later left the joint venture on bad terms. He then signed a settlement agreement foregoing any claims to the technology created by the joint venture.

• However, the settlement agreement did not transfer Brownstein’s copyrights in the program to the joint venture.

• Therefore, co-author could not register the computer program as a sole owner within the Copyright Act.

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Cases

GE Oil & Gas, Inc. v. Turbine Generation Services, L.L.C., No. 6:14-00760, 2015 WL 588834 (W.D. La. Feb. 11, 2015). • GE and TGS signed a term sheet memorializing a future joint venture agreement.

Following the funding of a $25 million loan to TGS, GE would make its own contribution to the joint venture.

• TGS never paid back the loan and GE sued. TGS counterclaimed for breach of joint venture duties and breach of agreement by GE to form a joint venture.

• Joint venture could not exist because the term sheet by its terms was not to be considered final. Therefore, breach of duties by GE could not occur.

• However, GE lost motion to dismiss TGS’ claim that no preliminary agreement to form a joint venture had been created.

• Context and intent showed that GE and TGS had agreed to negotiate in good faith to form some sort of partnership or joint venture.

• GE may have not acted in good faith because it had not pursued its obligations under the term sheet, even after TGS had taken out the $25 million loan.

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H&K DRAFT

NYCLA Joint Venture Seminar 4/21/15

STRATEGIC ALLIANCE SOFTWARE DEVELOPMENT AND DISTRIBUTION MASTER AGREEMENT

by and between

PARTNERA LLP

and

PARTNERB, INC.

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TABLE OF CONTENTS

Page 1. OVERVIEW OF AGREEMENT ........................................................................................1

1.1 Purpose .....................................................................................................................1

1.2 Scope of Activity .....................................................................................................1

1.3 Objectives .............................................................. Error! Bookmark not defined. 1.4 Relationship of Parties .............................................................................................2

1.5 Awareness of Product ..............................................................................................2

1.6 Relationship with Client ..........................................................................................2

1.7 Master Subcontractor Agreement ............................................................................2

1.8 Contemplated Scope of Activities ...........................................................................2

1.9 Core Business of the Parties ....................................................................................2

2. DEFINITIONS .....................................................................................................................2

3. JOINT DEVELOPMENT RESPONSIBILITIES ................................................................5

3.1 Development Plan ....................................................................................................5

3.2 PartnerB Development Responsibilities .................................................................6

3.3 PARTNERA Development Responsibilities ...........................................................6

3.4 Development Milestones .........................................................................................6

3.5 Vendor Relationships ...............................................................................................6

3.6 Joint Development ...................................................................................................7

3.7 Information Exchange ..............................................................................................7

4. JOINT MARKETING AND SALES RESPONSIBILITIES ..............................................7

4.1 Joint Business Plan ..................................................................................................7

4.2 Marketing and Sales .................................................................................................7

4.3 Joint Business Plan Activities ..................................................................................7

4.4 Sales Channels .........................................................................................................7

4.5 No Other Marketing Activities ................................................................................7

4.6 PARTNERA Professional Independence Standards.Error! Bookmark not defined. 4.7 Access to Systems and Assets..................................................................................8

4.8 Marketing Materials .................................................................................................8

4.9 Business Opportunities ............................................................................................8

4.10 Marketing Responsibilities ......................................................................................8

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4.11 Ownership Rights in Marketing Materials ...............................................................9

4.12 PartnerB Deployment............................................ Error! Bookmark not defined. 4.13 Use of Third Parties .................................................................................................9

5. RELATIONSHIP OF PARTIES..........................................................................................9

5.1 Non-Exclusivity .......................................................................................................9

5.2 Provision of Services: Right of First Refusal ..........................................................9

5.3 Investment ..............................................................................................................10

5.4 Representation........................................................................................................10

5.5 Staffing ...................................................................................................................10

5.6 Sponsors .................................................................................................................10

5.7 Affiliates ................................................................................................................10

5.8 Publicity and News Releases .................................................................................10

5.9 Hosting and Access to Solution .............................................................................10

6. INTELLECTUAL PROPERTY ........................................................................................11

6.1 IP General. .............................................................................................................11

6.2 Ownership and License Rights. .............................................................................11

6.3 No Right of Ownership ..........................................................................................13

6.4 Restrictions and Licenses. ......................................................................................13

6.5 Proprietary Filings .................................................................................................13

6.6 Further Licenses .....................................................................................................14

6.7 Trademarks and Tradenames .................................................................................14

6.8 No Assignment.......................................................................................................14

6.9 Right of First Refusal in Event of Sale ..................................................................14

6.10 Joint Access to Technology Platform ....................................................................15

6.11 Residuals ................................................................................................................15

7. PRICING AND LEVEL OF VALUE................................................................................15

7.1 Share of License Fees. ...........................................................................................15

7.2 Obligation to Share Revenue .................................................................................16

7.3 Jointly Established Sales Targets and Anticipated Revenues ................................16

7.4 Collections and Revenue Sharing. .........................................................................16

8. COSTS ...............................................................................................................................16

9. MANAGEMENT COMMITTEE ......................................................................................16

9.1 Management Committee ........................................................................................17

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9.2 Change Management .............................................................................................17

9.3 Disclosure of New Management or Ownership .....................................................17

9.4 Dispute Resolution .................................................................................................17

10. CONFIDENTIAL INFORMATION .................................................................................17

10.1 Use and Disclosure ................................................................................................17

10.2 Non-Disclosure ......................................................................................................18

10.3 Legal Disclosure ....................................................................................................18

10.4 Sole Purpose...........................................................................................................18

10.5 Confidential Information of PARTNERA Clients and PartnerB Clients .............18

11. TERM AND TERMINATION ..........................................................................................19

11.1 Term .......................................................................................................................19

11.2 Termination. ...........................................................................................................19

12. INDEMNIFICATION........................................................................................................20

12.1 Indemnification by PartnerB .................................................................................20

12.2 Indemnification by PARTNERA ...........................................................................21

13. LIMITATION OF LIABILITY .........................................................................................21

13.1 NO CONSEQUENTIAL DAMAGES ...................................................................21

13.2 LIMITATION OF LIABILITY .............................................................................21

13.3 ACT OF OTHER PARTY .....................................................................................22

13.4 WARRANTY DISCLAIMER ...............................................................................22

14. REPRESENTATIONS, WARRANTEES AND COVENANTS ......................................22

14.1 Corporate Representations .....................................................................................22

14.2 Inducement .............................................................................................................23

15. MISCELLANEOUS ..........................................................................................................23

15.1 Non-Solicitation .....................................................................................................23

15.2 Bankruptcy .............................................................................................................23

15.3 Section Headings ...................................................................................................23

15.4 Binding ...................................................................................................................24

15.5 No waiver ...............................................................................................................24

15.6 Invalid ....................................................................................................................24

15.7 Execute Documents ...............................................................................................24

15.8 Notices ...................................................................................................................24

15.9 Force Majeure ........................................................................................................24

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15.10 Export Control .......................................................................................................25

15.11 Entire Agreement ...................................................................................................25

15.12 Relationship of the Parties .....................................................................................25

15.13 Publicity .................................................................................................................25

15.14 No Third Party Beneficiaries .................................................................................25

15.15 Survival ..................................................................................................................25

15.16 Authority ................................................................................................................26

15.17 No Reliance ............................................................................................................26

15.18 Counterparts ...........................................................................................................26

15.19 Jointly Drafted .......................................................................................................26

15.20 Law and Venue ......................................................................................................26

15.21 Cooperation ............................................................................................................26

15.22 Severability ............................................................................................................26

15.23 Assignment ............................................................................................................26

15.24 Trademark and Web Linking Agreement ..............................................................26

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Table of Schedules

Schedule Number Description Initial Section Reference 1.6 Master Subcontractor Agreement

1.7

3.1 Development Plan

3.1

4.2 Joint Business Plan

4.2

6.1.1 PARTNERA Existing IP

6.1.1

6.1.1 PartnerB Existing IP

6.1.1

6.2.3 Security Agreement for PARTNERA (security interest in the Covered Products)

6.2.3

6.2.4 Iron Mountain Escrow Agreement

6.2.4

6.4.1 Competitors

6.4.1

7.3 Jointly Established Sales Targets and Anticipated Revenues

7.3

15.24

PARTNERA Trademark and Web Linking Agreement

15.24

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STRATEGIC ALLIANCE MASTER AGREEMENT

This Strategic Alliance Master Agreement (“Agreement”) is made and entered into this ___ day of ____________, 2012 (“Effective Date”) by and between PARTNERA LLP (“PARTNERA”) , a Registered Limited Liability Partnership formed under the laws of Delaware, having an office at 757 Third Avenue, New York, NY 10017 and PartnerB, Inc. (“PartnerB ”), a _________corporation, having a place of business at _________________________.

W I T N E S S E T H:

WHEREAS, PARTNERA has a premier reputation, capability and expertise for Private Funding Reporting Requirements;

WHEREAS, PartnerB has software experience and resources to develop and deploy Private Funding Reporting solutions that will be developed with PARTNERA;

WHEREAS, PARTNERA and PartnerB desire to enter into a mutually beneficial relationship that may result in the development of joint products and/or intellectual property, collaboration in marketing and selling jointly defined solutions, and collaborative delivery of those solutions;

NOW, THEREFORE, for and in consideration of the foregoing and of the mutual representations, promises, terms, and conditions contained herein, receipt of which is hereby acknowledged, and intending to be bound, PARTNERA and PartnerB agree as follows:

1. Overview of Agreement

1.1 Purpose. The primary purpose of the Alliance is to develop the “PartnerB Strategic Product” for utilization in conjunction with the PartnerB software platform and PartnerB ’s pre-existing “PartnerB Product”, by each Party agreeing to perform certain tasks and responsibilities itself as well as agreeing to collaborate with the other Party in the performance of other identified tasks and responsibilities, in accordance with the terms and conditions of this Agreement.

1.2 Scope of Activity. PARTNERA and PartnerB will collaborate on configuring and testing collections of objects for use within the PartnerB “Strategic Product” to be marketed for utilization in conjunction with the PartnerB software platform and PartnerB’s pre-existing Product, (a) with PartnerB being responsible for configuring, customizing, and enhancing the PartnerB Strategic Product (as a baseline Strategic solution as well as for specific client needs), at least in part utilizing applicable business requirements provided by PARTNERA, and (b) with PARTNERA being responsible (i) for providing applicable business requirements to PartnerB, and (ii) for conducting business-level (i.e., not related to software development or programming) testing of the PartnerB Strategic Product business rules functionality and output results. In addition, the Parties will work to coordinate their respective services with the intent of addressing the strategic needs of joint clients in a more complete and seamless manner.

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1.3 Relationship of Parties. The relationship between PARTNERA and PartnerB will not be principal and agent, partners, joint venturers, or any other form of legal association. Each Party will conduct its business in its own name and will be responsible for the acts and conduct of its employees and agents. Neither Party will have authority to act for or bind the other or make any representation or warranty on behalf of the other.

1.4 Awareness of Product. The product is PartnerB Product. PARTNERA will help PartnerB design and develop the product. Awareness of the product will be created through directly engaging the leaders within target clients. Leads may be identified by either Party, but will be discussed and agreed upon by both firms before the client is approached.

1.5 Relationship with Client. For each customer in the target market where the Alliance is proposing the PartnerB Products, the prime and subcontractor model will be jointly agreed between PARTNERA and PartnerB before initiating the engagement, with the decision for prime and subcontractor to be finalized by the Management Committee. PartnerB will be the licensor of the PartnerB Products regardless of which Party is the prime with the customer.

1.6 Master Subcontractor Agreement. For any relationship with an Alliance client requiring a subcontract agreement between the Parties, the Parties will sign the Master Subcontractor Agreement in substantially the form attached as Schedule 1.6 which will apply to the client relationship. Depending on the relationship with the client, one of the Parties will be the prime contractor and the other Party will be the subcontractor under the Master Subcontractor Agreement.

1.7 Contemplated Scope of Activities. It is anticipated that each Party shall have certain defined roles and responsibilities based upon each Party’s knowledge, experience and expertise.

1.8 Core Business of the Parties. Except for the exclusive commitments set forth in this Agreement, each Party is free to conduct its business (including with competitors of the other Party) without the involvement of the other Party. For example, with respect to PARTNERA, consulting is a core business of PARTNERA. PARTNERA must be able to continue to operate its core business in an unencumbered fashion. The Alliance cannot restrict PARTNERA’s current method of performing its core business. It is PARTNERA’s intent to marshal all of PARTNERA’s capabilities to jointly market the PartnerB Solution and services enumerated under the Alliance governance model. For all other consulting, (e.g., the way PARTNERA currently conducts its professional business), PARTNERA must be able to go to market by itself without PartnerB . For example, PartnerB can pursue IT business that is not a PartnerB Solution without the involvement of PARTNERA.

2. Definitions

“Affiliate” with respect to a Party shall mean any person or entity directly or indirectly controlling, controlled by, or under common control with a Party, and for this purpose, “control,” “controlling” and “controlled by” shall mean the ownership and control of more than fifty percent (50%) of the outstanding voting securities or interest in capital or profits of any person or

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entity, or the right to direct or control the management or affairs of any person or entity by contract or similar arrangement.

“Agreement” shall have the meaning set forth in the Preamble.

“Alliance” shall mean the alliance of PARTNERA and PartnerB to develop, license and sell PartnerB Solutions in accordance with the terms of this Agreement.

“Anticipated Revenues” shall have the meaning set forth in Schedule 7.3

“PartnerB Existing IP” shall mean any Intellectual Property brought to the relationship by PARTNERB and set forth in Schedule 6.1.1.

“PartnerB Products” shall mean PartnerB Strategic Product and PartnerB Product.

“PartnerB Indemnitees” shall have the meaning set forth in Section 12.2.

“PartnerB Strategic Product” is a comprehensive strategic solution, comprising a collection of objects that include various business rules, calculation components, and related features, configured and tested in conjunction with PARTNERA, that are operable to process applicable and relevant base client data in accordance with the Rules and client requirements, and to provide the processed output results to PartnerB’s Component (having equivalent functionality to the PartnerB Product described below), for populating applicable Template Forms, preparing the Template Forms for electronic submission to the regulators, and for thereafter electronically submitting and validating the prepared Template Forms.

“PartnerB Product” is a limited functionality solution, that leverages PartnerB’s existing software platform to capture and format pre-processed client data that has been previously prepared by the client in accordance with the Rules, and to then populate the applicable Template Forms, prepare the Template Forms for electronic submission to the regulators, and to thereafter electronically submit and validate the prepared Template Forms. For the avoidance of any doubt, the PartnerB Product does not comprise any business rules or related data processing functionality, and is solely intended for enabling clients, who use an external strategic solution or manual processes to generate the processed data necessary for reporting requirements, to automatically populate, electronically submit, and validate the applicable Forms. For further avoidance of any doubt, PartnerB Product has been developed, configured and tested without any involvement of, or contribution from, PARTNERA.

“Background Intellectual Property” or “Background IP” of a Party shall mean all its IP which such Party conceives, creates, develops or actually reduces to practice, owns or controls independent of any joint development activity performed hereunder and which is necessary, useful or applicable to the purposes of this Agreement. PartnerB Existing IP and PARTNERA Existing IP are Background IP.

“Calendar Year” shall mean the period from January 1 to December 31.

“Confidential Information” shall mean shall mean any and all non-public technical and/or commercial information in tangible or non-tangible form which is disclosed or made

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available by one Party to the other Party for the purposes of this Agreement. Confidential Information shall include information, in any form and regardless of whether it was developed by a Party or acquired through a license, agreement or otherwise, which is not generally known to the public, including without limitation any data, know-how, formulations, techniques, equipment, methods, results, information regarding sources of supply, business plans, partners, clients, potential agreements and the existence, scope and activities of any research, development, manufacturing, marketing, or other projects, patent applications, trade secrets and other similar information with like characteristics. Confidential Information also includes, but is not limited to, formulae, compositions, specifications, designs, ideas, software, algorithms, methodologies, machine readable data, production and quality control methods, processes, techniques, customer lists, sales leads, sales plans, market information, roadmaps, business policies or practices, and other technical and/or commercial information and data, as well as product samples. Confidential Information does not include information that can be established by the other Party by competent proof that such information: (a) is generally available to the public through no fault of such Party; (b) was known by such Party prior to receipt thereof as evidenced by prior written documents in the possession of such Party; (c) is subsequently disclosed to such Party in good faith by a third party who is not under an obligation of confidentiality as to the information disclosed; or (d) was or is independently developed by such Party without reliance upon any Confidential Information of the disclosing Party.

“Covered Products” shall have the meaning set forth in Section 6.1.2.

“Development Plan” shall have the meaning set forth in Section 3.1.

“Development Responsibilities” shall have the meaning set forth in Section 3.1.

“Dispute” shall have the meaning set forth in Section 9.4.

“Effective Date” shall have the meaning set forth in the first paragraph of this Agreement

“External Contractor” shall have the meaning set forth in Section 4.13.

“Force Majeure” shall have the meaning set forth in Section 15.9.

“Intellectual Property” shall mean any and all patents and patent applications, copyrights, author’s rights, works of authorship, moral rights, trademarks, service marks, mask works, trade secrets, ideas, inventions, know-how, processes, methods, formulations, concepts, inventions, discoveries, proprietary information, software, processes, improvements, developments, results, discoveries, designs, patterns, devices, diagrams, charts, drawings, specifications, documentation, data, plans, reports and/or other like information or items, along with any and all patent applications, registrations, renewals, divisionals, continuations, reissues and extensions therefor in the United States and foreign countries and any other intellectual property rights of a Party.

“IP Claim” shall have the meaning set forth in Section 12.

“Joint Business Plan” shall have the meaning set forth in Section 4.1.

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“Jointly Established Sales Targets” shall mean the targets set forth in Schedule 7.3

“Joint Marketing Material” shall have the meaning set forth in Section 4.11.

“PARTNERA Existing IP” shall mean any Intellectual Property brought to the relationship by PARTNERA and set forth in Schedule 6.1.1.

“PARTNERA Indemnitees” shall have the meaning set forth in Section 12.1.

“PARTNERA Member Firms” shall mean the global network of professional firms which are members of PARTNERA International.

“Management Committee” shall have the meaning set forth in Section 9.

“New Solely-Owned IP” shall mean any Program Developed IP, whether patentable or not, regardless of which Party created, conceived or developed it, that is solely a derivative or improvement of a single Party’s Background IP or product(s), for purposes other than integrating the products or Background IP of more than one Party.

“Party” shall mean PARTNERA or PartnerB . When used in the plural form, the term shall mean PARTNERA and PartnerB collectively. For the purposes of this agreement, an Affiliate of any Party which that Party utilizes to carry out its obligations pursuant to this Agreement, shall be considered that Party.

“Program Developed Intellectual Property” or “Program Developed IP” shall mean all Intellectual Property any Party, conceives, creates or develops in the performance of the Development Plan.

“Residuals” shall have the meaning set forth in Section 6.11.

“Royalty Payment” shall have the meaning set forth in Section 7.1.

“Rules” shall have the meaning set forth in Section 1.3.

“Task” shall have the meaning set forth in Section 3.1.

“Term” shall have the meaning set forth in Section 11.1.

“Vendor” shall have the meaning set forth in Section 3.5.

3. Joint Development Responsibilities

Each Party agrees to assume the respective responsibility for overseeing and performing specific development activities in connection with a “Development Plan” to be further defined and attached as Schedule 3.1 as set forth in this Section.

3.1 Development Plan. To effectively cooperate and collaborate in the development of the Alliance, the Parties seek to perform pursuant to a Development Plan (to be attached as a Schedule), identifying the following: (1) specific tasks, including without limitation,

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development of software or hardware and testing of such software or hardware each Party is to complete in performing its Development Responsibilities (“Task”); (2) requirements, if any, for the satisfactory completion of a Task; (3) development milestones for the completion of certain Tasks; (4) procedures for each Party to test, review or otherwise approve, at its option, of Tasks completed by the other Party; (5) the start date for the Development Plan; (6) prototype development and production rollout schedule; (7) requisite regulatory submissions and approvals; (8) necessary agreements in place; and (9) flexibility for delays not the responsibility of the parties) (“Development Plan”). Each Party agrees to use its best efforts to negotiate and prepare, on or before the [third month] anniversary of the Effective Date, a mutually agreeable Development Plan. If the Parties are not able to enter into a mutually agreeable Development Plan on or before such anniversary, the Parties may mutually agree to extend such deadline if they believe that a mutually agreeable Development Plan can be agreed to.

3.2 PartnerB Development Responsibilities. PartnerB agrees to configure, customize, parametrize, and enhance (as needed) the PartnerB Products as well as for specific client needs. PartnerB will make available all resources necessary to support PARTNERA’s efforts in connection with the PartnerB Strategic Product. In addition, PartnerB will provide both sales and end-to-end training on its system to PARTNERA. In the case where the PartnerB solution is deployed on third-party hosted or Cloud provider environments, PartnerB is fully responsible for the reasonable supervision and oversight of the application and associated customer data with the solutions described in this contract. PartnerB is also responsible for ensuring that the appropriate contracts are in place with the client to represent the known technology, data, security, and availability risks inherent in third-party hosted or Cloud provider environments.

3.3 PARTNERA Development Responsibilities. PARTNERA agrees to make available professionals with knowledge and experience most applicable to addressing client needs for complying with the Rules. PARTNERA will provide the rule’s business requirements analysis, report specifications, user acceptance testing, and QA / business-level (i.e., not related to software development or programming) testing and QA of the business rules functionality of, and the results provided by, the PartnerB Strategic Product, and will consult with PartnerB on the PartnerB Strategic Product configuration / parameters (including advising on dashboard / support testing, and on provision of report specifications suitable to each client’s configuration).

3.4 Development Milestones. The Parties understand and agree that the completion of their respective responsibilities in the Development Plan shall be pursued in accordance with Development Plan’s milestones. The Development Plan’s milestones will have been determined and agreed upon between the Parties based on information available at the Effective Date of this Agreement, and the Parties agree that the Development Plan’s milestones are commercially reasonable. Notwithstanding the foregoing, the Parties acknowledge that information not known upon the Effective Date may affect the reasonableness of one or more Development Plan’s milestones, and that a Party may seek an extension or other modification of one or more Development Plan milestones by obtaining consent of the Management Committee.

3.5 Vendor Relationships. Each Party agrees that it will permit the other Party to have access to, and develop working relationships with, existing vendors of such Party

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(“Vendor”) for the purpose of allowing the other Party to perform its Development Responsibilities; provided, however, that no Party may act or attempt to act to disrupt, terminate or materially change any relationship of the other Party with a Vendor.

3.6 Joint Development. The Parties shall work together jointly and collaboratively to develop PartnerB Strategic Product.

3.7 Information Exchange. The Parties will use commercially reasonable efforts to jointly facilitate information exchange among the Parties in connection with the development, expansion, growth and promotion of the Alliance.

4. Joint Marketing and Sales Responsibilities

4.1 Joint Business Plan. The relationship sponsors from PARTNERA and PartnerB will create a Joint Business Plan and meet as frequently as necessary, but not less than once per quarter to review the performance of the relationship. If performance is not meeting expectations, a new Joint Business Plan will be developed or the relationship will be terminated. The Joint Business Plan (to be attached as Schedule 4.1) will describe the responsibilities of each party in promoting and selling the PartnerB Strategic Product and provide milestones for key marketing activities.

4.2 Marketing and Sales. Both Parties will establish and maintain a target client list and actively participate in marketing and selling efforts as mutually agreed.

4.3 Joint Business Plan Activities. The Parties agree to use to use their best efforts to negotiate and prepare, on or before the three (3) month anniversary of the Effective Date, a mutually agreeable Joint Business Plan for the marketing and commercialization of PartnerB Strategic Product. The Joint Business Plan shall include, among other things: (1) primary responsibilities of each Party in performing the Joint Business Plan; (2) allocation of costs associated with performing the Joint Business Plan; (3) standard terms and conditions for sublicensing the Intellectual Property to third parties; (4) procedures for approving proposed sublicenses of the Covered Products. Upon completion of the Joint Business Plan, each Party agrees to use commercially reasonable efforts to satisfy its respective responsibilities. Each Party shall prepare and submit to the Management Committee on a monthly basis a status report summarizing the status of its responsibilities during the preceding month and any issues concerning its responsibilities.

4.4 Sales Channels. PARTNERA and PartnerB agree to utilize their considerable marketing and sales channels to promote and assist each other in securing new clients for PartnerB Products. This assistance includes, but is not limited to, training each other’s sales personnel on the offering, presenting the services to each other’s clients during independent sales calls and other independent sales efforts, and conducting joint sales calls, efforts, and events with each other’s sales personnel The Joint Business Plan sets forth the specific roles and responsibilities of each Party and a list of deliverables.

4.5 No Other Marketing Activities. Neither party will engage in marketing activities with respect to the Alliance beyond those agreed to in the Joint Business Plan without the express agreement of the other Party.

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4.6 Access to Systems and Assets. PartnerB will provide whatever system access is necessary for PARTNERA on PartnerB’s computer system to support customer demonstrations and proofs of concept.

4.7 Marketing Materials. All marketing materials will be reviewed by both parties and agreed to in a timely manner before being presented to any client or potential client.

4.9 Business Opportunities. Each Party shall keep the other Party continuouy informed about business opportunities and related marketing activities. Each Party shall describe its progress in periodic reports submitted to and approved by the Management Committee.

4.10 Marketing Responsibilities. PARTNERA and PartnerB shall at all times during the term of this Agreement:

(a) Develop and maintain an annual Joint Business Plan, and cooperate with each other in promotional efforts, including developing and maintaining marketing tools and literature;

(b) Prepare and share quarterly marketing and product intelligence reviews covering all joint business activity including pricing strategies on an ongoing basis;

(c) Provide dedicated promotion and sales personnel of appropriate experience and implement appropriate sales management resources and tools to deliver against targets;

(d) Actively and diligently undertake best commercial efforts to promote the sale of PartnerB Strategic Products by solicitation of inquiries and calls on customers and prospective customers to obtain inquiries, and by rendering such services as may be required to present and sell Products;

(e) Facilitate communications by and between each other and customers or prospective customers regarding PartnerB Strategic Products inquiries, orders, delivery schedules, administrative, or other matters, and maintain records and summary reports regarding such communications with customers and prospective customers with such items to be provided promptly upon reasonable request;

(f) Provide service for existing and potential customers on a regular basis consistent with best business practices, including prompt response to customer needs;

(g) Perform administrative support functions, including but not limited to placing and managing periodic purchase orders, maintaining a database of customers and sales leads, as well as complete and accurate books and records of all transactions and activities regarding the PartnerB Strategic Products;

(h) Immediately notify each other in writing of any claim that any of the PartnerB Strategic Products infringes any patent, trademark, copyright, trade secret or similar intellectual property right;

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(i) Use only technical and promotional literature and other documentation used in connection with the marketing of the PartnerB Strategic Products which have been furnished or expressly approved by each other;

(j) Offer only warranty terms expressly approved by each for all PartnerB Strategic Products provided to customers;

(k) Take all prudent and necessary steps to develop and protect the goodwill and reputation each other;

(l) Assure compliance with all applicable laws and regulations; and

(m) Maintain customary third-party general liability and automobile liability insurance in commercially reasonable amounts at the sole cost and expense of each Party.

4.11 Ownership Rights in Marketing Materials. Each Party will retain full right, title and interest and ownership of marketing and sales materials developed solely by that Party. New jointly developed marketing and sales materials will be jointly owned by the both parties. Any publication or disclosures of marketing and/or sales materials are subject to the publicity provisions of the Agreement. Upon termination or expiration of this Agreement, all Parties may use the Joint Marketing Material separately for the benefit of their individual businesses.

4.12 Use of Third Parties. PartnerB and PARTNERA may use any of their affiliated companies worldwide (each PartnerB-branded or PARTNERA-branded) in furtherance of the joint business relationship and to support its sales, product delivery, and product support efforts. If either Party decides to use a non-affiliated third party subcontractor, consultant, agent, or other intermediary (“External Contractor”) in connection with selling and/or delivering products and services under this agreement, the Parties shall mutually agree on the process for receiving advance approval from the other Party prior to engagement thereof.

5. Relationship of Parties

5.1 Non-Exclusivity. Unless formally agreed to elsewhere (e.g., in an addendum covering a specific initiative or a teaming agreement for a specific joint sale), the relationship is non-exclusive, but both Parties will consider the other as a preferred alliance partner when selling products and services to address their clients’ needs.

5.2 Provision of Services: Right of First Refusal. In particular, PARTNERA will have the first right of refusal to provide services associated with addressing PartnerB ’s clients’ needs. This right of first refusal will apply to all PartnerB clients approached with a solution, whether the client is an existing PartnerB client, approached only by PartnerB or jointly by PARTNERA and PartnerB. Both parties agree to alert the other of any new opportunities of which they become aware and collaboratively pursue it unless the other party is unable or unwilling, or if the client expresses a conviction that it prefers a different vendor. Sales to clients of PartnerB solution may take place as a “Joint Pursuit” with both PartnerB and PARTNERA participating, or as an “PartnerB Pursuit” with just PartnerB participating (if PARTNERA is unable or unwilling to be involved in a Joint Pursuit).

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5.3 Investment. Unless agreed elsewhere, each Party will independently determine the amount, nature and timing of any and all investments made into this relationship, however a Quarterly Plan has to be agreed upon in advance by the Management Committee and both Parties need to adhere to the investments planned as per the Quarterly plan. Unless specified otherwise in an addendum, each Party will invest its own resources in the relationship with the expectation of profit from sales of its products and/or services. Unless specified otherwise in an addendum, neither Party will be obliged to make the other whole or provide compensation for the other Party’s investment.

5.4 Representation. Neither party will promote this relationship, use the other Party’s name or logo or represent the relationship or other Party, without the express agreement of the other Party.

5.5 Staffing. Both Parties will staff positions necessary for the implementation of this Agreement, including all addenda, in a timely manner and with individuals of appropriate experience, skills, character, and comport. If either Party believes that the other Party has staffed a position with someone lacking the requisite qualifications, that Party can request a joint review. If both Parties are not satisfied with the individual’s qualifications, he or she will be replaced. Each party will be responsible for managing and staffing its own resources for this program. If either Party believes that the other party has staffed a position with someone lacking the requisite qualifications and ability to work as a part of an integrated team by promoting trust and confidence in the joint relationship, it will be handled through an Executive review process by the Management Committee and he or she will be replaced.

5.6 Sponsors. This Agreement will specify the senior-level Sponsors for the relationship and how succession will occur.

5.7 Affiliates. Each Party shall be responsible for ensuring that its Affiliates who receive information pursuant to this Agreement or carry out any tasks pursuant to this Agreement have a copy of this Agreement and that the Affiliates adhere to the terms of the Agreement. Each Party shall be responsible for any obligations that its Affiliate agrees to perform pursuant to this Agreement.

5.8 Publicity and News Releases. Any news release, public announcement, advertisement or publicity concerning this Agreement, released by either Party shall provide the proper and equal credit to the other as a separate and independent corporate entity. No news release, public announcement, advertisement or publicity concerning this Agreement, any proposals, any resulting contracts, or any subcontracts to be carried out hereunder, shall be released by either Party without the prior written approval of both parties, except to the extent required by law. Either Party may describe this Agreement in and append it to regulatory filings made with U. S. and other governmental agencies, provided that the other Party has received prior written notice of any such required regulatory disclosure.

5.9 Hosting and Access to Solution. PartnerB will host the PartnerB Products during the initial development of each successive upgrade and/or addition. At all times, PARTNERA will have access rights to review, demo, use or otherwise access the

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products/solutions either developed or in development. PARTNERA will also have the right to host and deploy the PartnerB Products within PARTNERA’s IT environment.

6. Intellectual Property

6.1 IP General.

6.1.1 Any pre-existing Intellectual Property brought to the relationship by either party and any modifications, improvements and enhancements made thereto remains the property of that party. Each party will grant the other a license to use that Intellectual Property to the extent necessary to perform its corresponding obligations under this agreement. If use of this Intellectual Property is necessary for the execution of the joint initiative, consent will not be unreasonably withheld. A mutually agreeable compensation structure for such license will be established by the Management Committee. PARTNERA Existing IP is set forth in Schedule 6.1.1. PartnerB Existing IP is set forth in Schedule 6.1.1. PARTNERA Existing IP and PartnerB Existing IP included in the Schedules are for clarification purposes, but are not intended to be fully inclusive of all existing IP.

6.1.2 PartnerB will retain full and exclusive ownership to the PartnerB Strategic Product, the PartnerB Product, as well as to PartnerB core technology, software platform, and Form Templates. PartnerB will also retain full and exclusive ownership of all new technology and new software products developed jointly with PARTNERA under this Agreement (the “Covered Products”). Covered Products shall mean any new technology and new software products developed jointly by PartnerB and PARTNERA in furtherance of the Alliance, whether patentable or not, that is not New Solely-Owned IP. For clarity, any IP developed by the Parties in furtherance of the Alliance that could reasonably be classified as New Solely-Owned IP of more than one Party shall be deemed Covered Products. Covered Products shall be confirmed by the Management Committee. Covered Products does not include PARTNERA IP or PartnerB IP. The contemplated Covered Products will include a description of its technical functionality and technology platforms.

6.1.3 Any future enhancements to the specific capabilities and functions of the Covered Products developed during the term of, and in connection with, this Agreement will comply with terms and conditions relating to the Covered Products under this Agreement.

6.1.4 Each Party owns or has rights to its Intellectual Property existing prior to the Effective Date involving including without limitation in the case of PARTNERA methods and systems for analyzing and filing SEC Forms (included in PARTNERA Existing IP). PARTNERA retains all rights, title and interests in and to the PARTNERA Existing IP and PartnerB retains all rights, title and interests in and to the PartnerB Existing IP including any and all modifications and improvements thereto and derivatives thereof. The Parties agree to take commercially reasonable efforts to sign all documents, make all necessary declarations and, generally, do everything in their power to assist the other Party to obtain and enforce proper protection for New Solely-Owned IP.

6.2 Ownership and License Rights.

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6.2.1 New Solely-Owned IP. New Solely-Owned IP shall be solely owned by the Party to whose Background IP or Products the New Solely-Owned IP is a derivative or an improvement. Each Party hereby assigns and if not assigned, agrees to assign all right title and interest it may have to New Solely-Owned IP to the proper owner as described in this section.

6.2.2 Covered Products. Covered Products shall be solely owned by PartnerB .

6.2.3 Security Interest in Covered Products. PartnerB grants to PARTNERA security interest in the Covered Products in accordance with the Security Agreement attached as Schedule 6.2.3. PartnerB shall fully cooperate with PARTNERA in the filing of the Security Agreement for PARTNERA’s security interest in the Covered Products.

6.2.4 Escrow. PartnerB agrees to place the Covered Products in escrow with Iron Mountain Incorporated in accordance with the escrow agreement attached as Schedule 6.2.4. In the event of agreed release provisions, Iron Mountain will be authorized to release the applicable source code for the Covered Products to PARTNERA for use within the scope of applicable Escrow Release provisions. Release conditions will include (i) insolvency of PartnerB , (ii) breach of this Agreement by PartnerB or termination of this Agreement by PartnerB for convenience. Upon release from escrow, PARTNERA will receive a broad, perpetual, worldwide, irrevocble license for the source code for the Covered Products.

6.2.5 License to PARTNERA. Additionally, PartnerB will grant a broad, perpetual, worldwide license to PARTNERA and its third-party contractors for the PartnerB Products for demonstration, testing, internal training for itself and its customers and for such other purposes as mutually agreed upon by the parties on a case by case basis.

6.2.6 Right of First Refusal; Sale. If PartnerB wishes to sell the ownership rights to the underlying software platform needed for the PartnerB Strategic Product, and/or the Covered Products, PartnerB must provide PARTNERA with the right of first refusal to buy the rights with respect to utilization of the underlying software platform in support of the PartnerB Strategic Product solution and/or the Covered Products. The right of first refusal procedure is set forth below. If PartnerB becomes insolvent, PARTNERA will receive the appropriate rights under the Escrow Agreement as set forth above.

6.2.7 Disclosure. Each Party will promptly disclose to the other Party in writing any New Solely-Owned IP or Covered Products conceived, developed, and/or made during the term of this Agreement. The other Party shall have sixty (60) days to comment on or respond to a Party’s disclosure or otherwise the other Party shall be deemed to have accepted the disclosure and the classification of the content in that disclosure (New Solely-Owned IP or Covered Products).

6.2.8 Patent Applications. Each Party shall bear any and all costs associated with preparing, prosecuting, and maintaining any patent applications each Party chooses to pursue and maintain with respect to its portion of the New Solely-Owned IP. However, each Party shall bear the costs of any filing or issuance awards or inventor’s royalties (if any) for its own inventors. All decisions relating to the filing, prosecution and ownership of any of patents embodying Covered Products shall be made by the Management Committee.

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6.3 No Right of Ownership. Each Party will retain full right, title, interest and ownership of its own Background IP and new Solely-Owned IP. By virtue of this Agreement, no rights or licenses are granted to another Party except as expressly stated herein. In particular and except as specifically provided herein, nothing in this Agreement shall be construed as granting, or as an undertaking to subsequently grant, to a Party any license, right, immunity, title or interest in or to any Background IP or New Solely-Owned IP of the other Party.

6.4 Restrictions and Licenses.

6.4.1 Neither Party shall be permitted to sell, distribute, license, or otherwise disclose the Covered Products to any competitors of the other Party (listed in Schedule 6.4.1) without the written consent of the other party for a period of twelve (12) months after the initial development and deployment of the Covered Products. Each Party reserves the right to revise Schedule 6.4.1 on a quarterly basis as their competitors change. Revisions shall be reviewed and agreed upon by the Management Committee. In no case will the introduction of new competitors to Schedule 6.4.1 invalidate prior or on-going sales, distributions, or disclosures of the Covered Products that were initiated prior to agreement to the revision.

6.4.2 PARTNERA and PartnerB may only use the Covered Products within the scope of this agreement. If either Party wishes to use the Covered Products in any other application they must obtain the agreement of the other Party, including any mutually agreeable license or royalty fees.

6.4.3 During the term of this Agreement, and only to the extent necessary for the performance in furtherance of the Alliance, each Party grants to the other Party a non-exclusive royalty-free right to make, use, copy, modify, distribute, license, sublicense, and make derivatives of its Background IP or its New Solely-Owned IP. The rights granted under this paragraph shall survive termination of this Agreement.

6.4.4 The Parties grant each other a fully paid-up, irrevocable, nonexclusive license, with right to sublicense, to make, use, sell, copy, make derivatives, distribute and display all Background IP, New Solely-Owned IP and Covered Products solely for use in providing Services to be used only as a part of the services offered to the customers of the Alliance.

6.4.5 Each Party agrees that its use of the Covered Products shall be limited to using the Covered Products for the sole purpose of conceiving, creating, reducing to practice or otherwise developing, marketing, manufacturing, distributing, and generating revenue from the Alliance in accordance with the terms and conditions of the Agreement. Neither Party has the right to license or sublicense its rights in the Covered Products, in whole or part, except in accordance with the Alliance and upon prior written consent of the other Party.

6.5 Proprietary Filings. The Parties agree that PartnerB may seek patent, copyright and other protections for the Covered Products, as determined from time to time by the Management Committee. The Parties shall execute or have executed by their employees, consultants, or agents patent applications and/or copyright registrations and such other documents considered necessary by the Management Committee to apply for and obtain letters, patents and copyright registrations in the United States, foreign countries, or both, as the

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Management Committee may deem necessary or to otherwise protect the Covered Products. Neither Party shall be required or have any obligation to solely file or prosecute patent applications or maintain patents relating to the Covered Products, except as otherwise expressly agreed upon by the Parties in writing.

6.6 Further Licenses. The Parties agree that upon completion of the Marketing Plan, the Parties will grant each other the necessary licenses and rights in PARTNERA Existing IP and PartnerB Existing IP, as applicable, for the purpose of marketing and commercializing the Covered Products in accordance with the Marketing Plan, and any such license shall be subject to a mutually agreeable license agreement containing customary terms and conditions, including without limitation, a limited, royalty-free license to make, use, import, sell, and license such Covered Products, as applicable. In addition, the Parties will amend the restrictions on Covered Products to the extent necessary to permit the marketing and commercialization of the Covered Products in accordance with the Marketing Plan.

6.7 Trademarks and Tradenames. Each Party recognizes that the name, logo, emblem and marks of the other Party represent valuable assets of that Party and that substantial recognition and goodwill are associated with such assets. Each Party hereby agrees that neither it nor any of its Affiliates shall use, or permit a third party to use, the other Party’s name, logo, emblem or marks without the prior written consent of such other Party. Nothing in this Agreement shall constitute a license or other authorization entitling a Party to use any other Party’s name, logo, emblem or marks.

6.8 No Assignment. Except as expressly stated in this Agreement, nothing in this Agreement shall amount to an assignment, license or transfer of any right or title to or interest in any Intellectual Property owned or licensed by any Party. For the avoidance of doubt, all right and title to and interest in any Party’s Intellectual Property rights and the goodwill associated therewith, shall remain with each Party and/or their licensors. Each Party agrees that it will do nothing inconsistent with such ownership and that all use of the a Party’s trademarks (should such use be permitted) by it shall inure to the owning Party’s benefit and will be on the owning Party’s behalf.

6.9 Right of First Refusal in Event of Sale. In the event that PartnerB contemplates selling some or all of the PartnerB Strategic Product, and/or the Covered Products, or entering into a transaction whereby PartnerB would merge with or be consolidated into another entity, and receives a bona fide offer proposing any such transaction, then, prior to accepting such offer, PartnerB shall first offer to PARTNERA the PartnerB Strategic Product, and/or the Covered Products to be sold, merged or consolidated on substantially the same terms and conditions as those set forth in the bona fide offer. PartnerB must provide sixty (60) calendar days notice to PARTNERA of intent to sell, plus an additional sixty (60) calendar days notice to PARTNERA setting forth the nature of the proposed transaction that is the subject of the bona fide offer, the identity of the offeror, the proposed closing date, and the material terms and conditions of the bona fide offer, including the cash purchase price (or, in the event of consideration other than cash, the actual cash value thereof), and payment terms, which notice shall constitute PartnerB ’s irrevocable offer to sell to PARTNERA, or, in PARTNERA’s discretion, to a designated Affiliate of PARTNERA, on substantially the same material terms and conditions as set forth in PartnerB ’s offer. PARTNERA shall respond in writing to such notice within thirty (30) days of

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receipt of the second notice, accepting PartnerB ’s offer, rejecting the same, or making a counteroffer. In the event PARTNERA fails to accept PartnerB ’s offer, and subject to PARTNERA’s written consent which is required for such sale, then PartnerB may consummate the proposed transaction, which is the subject of the bona fide offer in accordance with the terms of such bona fide offer.

6.10 Joint Access to Technology Platform. PARTNERA and PartnerB will have joint access to the technology platforms that house the PartnerB Products and related Intellectual Property. Due to cost considerations and resource competencies, the Parties expect that PartnerB will host the PartnerB Products during the initial development of each successive upgrade and/or addition. At all times, PARTNERA will have access rights to review, demo, use or otherwise access the PartnerB technology platform either developed or in development.

6.11 Residuals. Either Party may freely use the “Residuals” acquired from the Alliance activity. The term “Residuals” means the ideas, know-how, concepts and techniques in intangible form arising from work performed by such Party, which may be retained by employees (including agents) of such party. Neither party will be obligated to limit or restrict the assignment of its employees, or to pay royalties to the other party for any work resulting from the use of Residuals.

7. Pricing and Level of Value

7.1 Share of License Fees.

7.1.1 During the Term of the Agreement:

(a) PartnerB will pay PARTNERA 30% of license fees received from sales to any client of the PartnerB Strategic Product, and of any “Covered Products”, as a “Royalty Payment”. This revenue share will not apply to maintenance, template subscription fees, and consulting fees charged by PartnerB .

(b) PartnerB will pay PARTNERA 30% of license fees received from sales of the PartnerB Product to any client as a “Royalty Payment”. This revenue share will not apply to maintenance, template subscription fees, and consulting fees charged by PartnerB .

(c) PartnerB will charge license fees consistent with its current practice. For any new setting of license fees, PartnerB will consult with PARTNERA to assure that the license fees accurately reflect the value of the PartnerB Products.

(d) Payments shall be made to PARTNERA within sixty (60) days of PartnerB

signing a license agreement with PartnerB's customer.

7.1.2 After expiration of this Agreement, or after termination thereof by either party for convenience.

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(a) For a period of three (3) years following the date of expiration of the Agreement or the date of termination thereof for convenience, PartnerB will pay PARTNERA 30% of license fees received from sales to any client of the PartnerB Strategic Product, and of any “Covered Products”, as a “Royalty Payment”. This revenue share will not apply to maintenance, template subscription fees, and consulting fees charged by PartnerB .

7.2 Obligation to Share Revenue. Unless expressly stated otherwise in the Agreement or in any other agreement between the Parties, no Party shall have any obligation to share with the other Party any revenues received as a result of activities not related to this Agreement.

7.3 Jointly Established Sales Targets and Anticipated Revenues. The Jointly Established Sales Targets and Anticipated Revenues by the Parties to be received during the first three (3) years of the Alliance are set forth in Schedule 7.3.

7.4 Collections and Revenue Sharing.

7.4.1 Collections from Customers. The prime contractor Party with the customer shall be responsible for quotations, contracting, billing, and collection from each of its customers under customer contracts. Following the receipt of such payments from the customer, the prime contractor Party will remit to the other Party the agreed upon Royalty Payments from the revenues received under the customer contract. The prime contractor Party will use commercially reasonable efforts to collect payments due.

7.4.2 Reporting. Each payment under this Agreement shall be accompanied by a statement indicating (i) the Revenues received by the prime contracting Party, (ii) the resulting shared amount of such Revenue to be paid by the prime contracting Party to the other for such month, and (iii) any other data that the Parties from time to time agree should be included with reports.

7.4.3 Audit Rights. Each Party shall keep and maintain accurate records relating to the data and reports provided by it pursuant to this Agreement. PARTNERA shall be allowed reasonable access to PartnerB ’s books, records and other documentation related to this Agreement or its work with PARTNERA, and PARTNERA shall have the right to audit PartnerB ’s sales of the PartnerB Strategic Product and of PartnerB’s Product on a periodic basis.

8. Costs

Each Party agrees to pay all costs, expenses and other expenditures associated with its development responsibilities, including without limitation, employee and consultant expenses and materials costs, without reimbursement or contribution from the other Party, unless otherwise provided herein or in a separate written agreement. Except as stated otherwise in this Agreement, each Party will be responsible for its own individual costs in conducting its duties and obligations under this Agreement.

9. Management Committee

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9.1 Management Committee. The relationship of the Parties under this Agreement shall be governed by the Management Committee. The Management Committee shall consist of four (4) representatives, two (2) representatives to be appointed by PARTNERA and two (2) representatives to be appointed by PartnerB . Either Party may change its representatives upon ten (10) days notice to the other Party. Any decision of the Management Committee must be unanimous. The Management Committee shall meet at a minimum quarterly or more often as reasonably requested by the Parties. The Management Committee may appoint subcommittees but all decisions shall be made by the Management Committee as a whole.

9.2 Change Management. The Management Committee shall be responsible to implement change management procedures under this Agreement.

9.3 Disclosure of New Management or Ownership. PartnerB will notify PARTNERA of any new Officer, Director and major shareholder (20% or more) of PartnerB within thirty (30) days.

9.4 Dispute Resolution. A party may designate a dispute under this Agreement as an official “Dispute” in writing. All Disputes shall be referred to the Management Committee. If the Dispute is not resolved within thirty (30) days of a Party declaring a Dispute in writing, then either Party may file a lawsuit pursuant to the jurisdictional terms of this Agreement.

10. Confidential Information

10.1 Use and Disclosure. Each Party acknowledges and agrees that it will have access to and become acquainted with Confidential Information of the other Party, and undertakes not to, directly or indirectly, without the prior written consent of such other Party, except as otherwise expressly provided in this Agreement, use Confidential Information of the other Party for any purpose other than performing its obligations under this Agreement; divulge, discuss, provide, transmit, copy, make available or otherwise communicate the Confidential Information to any Third Party; or cause any Third Party to use such Confidential Information. Notwithstanding the foregoing, each Party shall be permitted to disclose Confidential Information (i) to certain Third Parties, namely, employees, authorized representatives, agents and third-party consultants, on a need to know basis who will be assisting such Party to render its obligations under this Agreement, provided that such Third Party executes and delivers a confidentiality agreement including terms and conditions substantially similar as those contained in this Section; (ii) to potential investors in either Party as long as the information is limited to that normally provided in an offering and such potential investors execute and deliver a confidentiality and nondisclosure agreement which includes terms and conditions substantially similar as those contained in this Section; and (iii) as required by law, provided, such disclosing Party shall (a) give prompt notice of such requirement to the other Party so that it will have the opportunity to seek a protective order or other appropriate remedy and (b) cooperate in the other Party’s attempts to obtain confidential treatment of such Confidential Information.

Notwithstanding anything to the contrary set forth herein, no provision in this Agreement or a Statement of Work is or is intended to be construed as a condition of confidentiality within the meaning of IRC sections 6011, 6111, 6112 or the regulations thereunder, or under any similar or analogous provisions of the laws of a state or other jurisdiction. In particular, either Party

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(and each employee, representative, or other agent of either Party) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of any transaction within the scope of the services under a Statement of Work and all materials of any kind (including opinions and other tax analyses) that are provided to the either Party relating to such tax treatment and tax structure. The Parties also agree to use commercially reasonable efforts to inform each other of any conditions of confidentiality imposed by third party advisors with respect to any transaction on which a Party’s advice is requested. Such notification must occur prior to either Party providing any advice with respect to a transaction.

10.2 Non-Disclosure. The Confidential and Proprietary Information will be kept

confidential and shall not, without disclosing Party’s prior written consent, at any time be disclosed by the receiving Party or by its third-party consultants, agents, representatives or employees, in any manner whatsoever, in whole or in part, and shall not be used by the receiving Party, its agents, representatives or employees, other than for the purposes of this Agreement. Moreover, the receiving Party agrees to reveal the Confidential Information only to its third-party consultants, agents, representatives and employees who need to know the Confidential Information for such purposes, who are informed by the receiving Party of the confidential nature of the Confidential Information and who shall agree to act in accordance with the terms and conditions of this Agreement. The receiving Party shall be responsible for any breach of this Agreement by its agents, representatives or employees.

10.3 Legal Disclosure. In the event that the receiving Party or anyone to whom the receiving Party transmits the Information pursuant to this Agreement becomes legally compelled to disclose any of the Confidential Information, the receiving Party will provide the disclosing Party with prompt notice so that the disclosing Party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or that the disclosing Party waives compliance with the provisions of this Agreement which waiver must be in writing to be effective, the receiving Party will furnish only that portion of the Confidential Information which the receiving Party is advised by written opinion of counsel is legally required and will exercise its best efforts to obtain reliable assurance that confidential treatment will be accorded the Confidential Information. The receiving Party acknowledges that remedies at law may be inadequate to protect against breach of this Agreement, and the receiving Party hereby in advance agrees to the granting of injunctive relief in the disclosing Party’s favor without proof of actual damages.

10.4 Sole Purpose. Unless expressly stated otherwise in this Agreement, the terms of this Agreement shall govern any Confidential Information disclosed pursuant to this Agreement. The Parties may use Confidential Information disclosed to the other Party pursuant to this Agreement solely for the purpose of fulfilling its obligations under this Agreement or otherwise contemplated by this Agreement.

10.5 Confidential Information of PARTNERA Clients and PartnerB Clients. Neither Party shall provide Confidential Information of such Party’s clients (“Providing Party”) to the other Party (“Receiving Party”) without notice to and the express written consent of the Receiving Party and assurance from the Providing Party that it has obtained such client’s consent to the disclosure of the information to the Receiving Party.

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11. Term and Termination

11.1 Term. The term of this Agreement will be three (3) years (“Term”) commencing on the Effective Date, unless earlier terminated in accordance with this Section. The Term may be extended upon mutual agreement by the Parties before expiration of the Agreement.

11.2 Termination.

11.2.1 Events of Termination. In addition to other events of termination as set forth in this Agreement, either Party may terminate this Agreement:

(a) if the other Party breaches any material term or condition of this Agreement and fails to cure such breach within thirty (30) days after being provided written notice of the breach and the non-breaching Party’s intent to terminate the Agreement;

(b) if the other Party becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or the like for the benefit of creditors;

(c) if the other Party becomes the subject of an involuntary petition in bankruptcy or any involuntary proceeding relating to insolvency, receivership, liquidation or the like for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing;

(d) if a Party has used its best efforts to negotiate and prepare a mutually agreeable Joint Business Plan and has good reason to believe that the Parties will be unable to negotiate and prepare a mutually agreeable Joint Business Plan, then such Party may provide notice to the other Party of its intent to terminate this Agreement, which shall be effective if the Parties are unable to reach a mutually agreeable Joint Business Plan within sixty (60) days of such notice; or

(e) by either Party for convenience upon ninety (90) days written notice.

11.2.2 Effect of Termination or Expiration. Except as otherwise expressly provided in this Agreement, upon termination or expiration of this Agreement, the Parties agree that:

(a) With respect to Royalty Payments required in accordance with this Agreement for sales of PartnerB Strategic Product, and for any “Covered Products” in accordance with the provisions under “Share of License Fees” set forth above, the PARTNERA security interest in the Covered Products, and the Escrow Agreement will not terminate and will survive any termination for convenience by either Party;

(b) PARTNERA’s right of first refusal with respect to acquiring the Covered Products shall survive for a period of one (1) year following the expiration of the term of this Agreement or four (4) years from the Effective Date of this Agreement if

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this Agreement is terminated by PartnerB for convenience prior to the expiration of the three (3) year term, whichever is later;

(c) except for the rights listed in this Section 11.2, the security interest granted to PARTNERA in the Covered Products, and except for the Paragraphs which survive termination of this Agreement, all rights and licenses granted under this Agreement and all other rights and obligations hereunder shall immediately terminate;

(d) each Party shall immediately cease use of the other Party’s Intellectual Property and Confidential Information except to service customers already using the PartnerB Products; and

(e) each Party shall immediately return to the other Party any and all Confidential Information of the other Party, including without limitation, all tangible and electronic copies that include or reference such Confidential Information, except that each Party’s office of general counsel may retain one (1) copy of the other Party’s Confidential Information for the purpose of identifying the Confidential Information received by such Party.

11.2.3 Possible Licenses Upon Termination. Each Party agrees that upon expiration or termination of this Agreement, that it will consider and evaluate any request for a license to use the PartnerB IP or PARTNERA IP, as applicable, for the sole purpose of allowing the other Party to exercise its rights in the Covered Products, and that any such license shall be a limited, royalty-bearing license subject to a mutually agreeable license agreement containing customary terms and conditions

11.2.4 Continuation to Service Customers. Notwithstanding the foregoing in this Section, in the event of termination, each Party will continue to be allowed to use any IP necessary to service existing customers, and both Parties will cooperate in servicing such existing customers.

12. Indemnification

12.1 Indemnification by PartnerB . PartnerB shall indemnify, defend and hold harmless (including attorneys’ fees) PARTNERA and its Affiliates, and the directors, officers, employees and agents of PARTNERA and its Affiliates (“PARTNERA Indemnitees”) from and against any and all claims, demands, losses, damages, liabilities, lawsuits and other proceedings, judgments and awards, and costs and expenses (including, but not limited to, reasonable attorney’s fees and all court costs), arising directly or indirectly, in whole or in part, from or occurring as a result of: (a) of any breach of any representation, warranty, covenant or other material obligation made in this Agreement by PartnerB ; (b) the negligence or willful misconduct of PartnerB in connection with the performance of its obligations under this Agreement; or (c) the infringement, misappropriation, or other violation of any Intellectual Property of a Third Party (“IP Claim”) arising from the PartnerB Existing IP, or New Solely-Owned IP developed by or on behalf of PartnerB under this Agreement, or (d) negligent acts, errors or omissions of PartnerB or its directors, officers or employees. PartnerB further agrees to indemnify, defend and hold harmless PARTNERA and the PARTNERA Indemnitees against

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any cost, liability, expense, allegation or claim for damages incurred by PARTNERA arising in any manner from the failure of PartnerB , its directors, officers, employees, contractors, subcontractors or agents to comply with any applicable state, federal or local regulation, law or rule in performing its obligations under this Agreement. In no event shall PartnerB ’s indemnification obligations apply to the extent such losses are caused by the negligence or willful misconduct of PARTNERA or a PARTNERA Indemnitee.

12.2 Indemnification by PARTNERA. PARTNERA shall indemnify, defend and hold harmless (including attorneys’ fees) PartnerB and its Affiliates, and the directors, officers, employees and agents of PartnerB and its Affiliates (“PartnerB Indemnitees”) from and against any and all claims, demands, losses, damages, liabilities, lawsuits and other proceedings, judgments and awards, and costs and expenses (including, but not limited to, reasonable attorney’s fees and all court costs), arising directly or indirectly, in whole or in part, from or occurring as a result of: (a) of any breach of any representation, warranty, covenant or other material obligation made in this Agreement by PARTNERA; (b) the negligence or willful misconduct of PARTNERA in connection with the performance of its obligations under this Agreement; or (c) the infringement, misappropriation, or other violation of any Intellectual Property of a Third Party (“IP Claim”) arising from the PARTNERA Existing IP, or New Solely-Owned IP developed by or on behalf of PARTNERA under this Agreement; or (d) negligent acts, errors or omissions of PARTNERA or its directors, officers or employees. PARTNERA further agrees to indemnify, defend and hold harmless PartnerB and the PartnerB Indemnitees against any cost, liability, expense, allegation or claim for damages incurred by PARTNERB arising in any manner from the failure of PARTNERA, its directors, officers, employees, contractors, subcontractors or agents to comply with any applicable state, federal or local regulation, law or rule in performing its obligations under this Agreement or its use of any of the Alliance Equipment & Technologies. In no event shall PARTNERA’s indemnification obligations apply to the extent such losses are caused by the negligence or willful misconduct of PARTNERB or an PartnerB Indemnitee.

13. Limitation of Liability

13.1 NO CONSEQUENTIAL DAMAGES. EXCEPT FOR ANY VIOLATION OF THE CONFIDENTIALITY OR INDEMNIFICATION OBLIGATIONS CONTAINED HEREIN, NEITHER PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES RESULTING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT, TERMINATION OF THIS AGREEMENT OR BREACH BY EITHER PARTY. LOSS OF REVENUE OR PROFITS FROM ALLIANCE CUSTOMERS ARE SPECIFICALLY EXCLUDED FROM THIS LIMITATION.

13.2 LIMITATION OF LIABILITY. EXCEPT FOR A BREACH OF THE CONFIDENTIALITY OBLIGATIONS, INDEMNIFICATIONS, IP LICENSES, REVENUE OR PROFIT SHARE, OR ROYALTY PAYMENTS, THE LIMIT OF EITHER PARTY’S LIABILITY (WHETHER IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY, BY STATUTE OR OTHERWISE) WILL NOT EXCEED $500,000.

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13.3 ACT OF OTHER PARTY. NO PARTY SHALL BE LIABLE FOR ANY LOSSES, INJURIES, OR DAMAGES CAUSED BY OR ATTRIBUTABLE TO THE ACTS AND/OR OMISSIONS OF THE OTHER PARTY, ITS EMPLOYEES, OR ITS AGENTS.

13.4 WARRANTY DISCLAIMER. EXCEPT AS SPECIFIED HEREIN, ALL WARRANTIES ARE SPECIFICALLY EXCLUDED AND DISCLAIMED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND ANY WARRANTY ARISING BY STATUTE, OPERATION OF LAW, COURSE OF DEALING OR PERFORMANCE, OR USAGE OF TRADE. NEITHER PARTY MAKES ANY WARRANTY AS TO THIRD PARTY SERVICES OR THIRD PARTY MATERIALS.

14. Representations, Warrantees and Covenants

14.1 Corporate Representations. As a material inducement for each Party to enter into this Agreement, each Party hereby represents and warrants to as follows:

Each Party has the power and authority (corporate or otherwise) to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by each Party and constitutes legal, valid and binding obligations of each Party, enforceable against the other Party in accordance with its terms and conditions.

(a) Each Party represents and warrants that there are (a) no audits, inspections, actions, suits, claims, investigations or legal, administrative or arbitration proceedings pending or, to the knowledge of such Party, threatened against such Party or any of its Affiliates, nor, to the knowledge of such Party, does any basis exist therefor, whether at law or in equity, whether civil or criminal in nature or whether before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which relates to any matter that could significantly impact such Party’s ability to enter into this Agreement, to grant the rights granted hereunder, and/or perform its obligations under this Agreement; (b) no judgments, decrees, injunctions or orders of any court, governmental department, commission, agency, instrumentality or arbitrator, domestic or foreign, against such Party or any Affiliate of such Party in any way relating to any matter that could significantly impact such Party’s ability to enter into this Agreement, to grant the rights granted hereunder, and/or perform its obligations under this Agreement; and (c) no proceedings under any bankruptcy or insolvency laws against such Party which have not been terminated.

(b) To the best of each Party’s knowledge upon the Effective Date, it has complied, and is currently in compliance in all material respects, with all federal, state, territorial and local laws, ordinances, regulations or orders that may in any way affect such Party’s (a) ability to participate in the Alliance, or (b) its ability to perform its obligations under this Agreement.

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(c) There are no agreements (written or oral), understandings, laws or other restrictions of any kind to which such Party is a party, or subject to, that would prevent or restrict the execution, delivery or performance of this Agreement or such Party’s performance under the Agreement or its participation in the Alliance.

14.2 Inducement. As a material inducement for each Party to participate in the Alliance and/or enter into this Agreement, each Party hereby covenants to the other Party as follows:

(a) Each Party hereby covenants to comply with all laws and regulations of federal, state, regional, local and other governmental bodies in the United States and abroad applicable to the Parties’ rights and obligations under this Agreement.

(b) Each Party hereby covenants to not knowingly infringe, violate or otherwise misappropriate the Intellectual Property, Confidential Information or other proprietary rights of a Third Party in the performance of its obligations under this Agreement. Each Party hereby covenants not to cause or permit any of its Intellectual Property developed or licensed under this Agreement to become subject to any Liens.

(c) Each Party hereby covenants not to enter into any agreement (written or oral), understanding or voluntarily become subject to a restriction of any kind that would prevent or restrict such Party’s performance under this Agreement.

(d) The Parties acknowledge that this Agreement contemplates various actions being taken in furtherance of the Alliance by the Parties. No Party shall, without the express prior written consent of the other Party, take any action for or on behalf of or in the name of the other Party, or assume, undertake or enter into any commitment, debt, duty or obligation binding upon the other Party.

15. Miscellaneous

15.1 Non-Solicitation. Both Parties agree, during the term of the Alliance and for twelve (12) months after, not to solicit any employee of the other party for employment, hire for engagement as an independent contractor.

15.2 Bankruptcy. In the event that any Party to this Agreement should hereafter voluntarily or involuntarily seek relief under the United States Bankruptcy Code (Title 11 U.S.C. §§ 101, et. seq.), the Parties acknowledge and agree that this Agreement constitutes an executory contract under which the licensing Party is a licensor to the licensed Party of a right to use intellectual property within the meaning of 11 U.S.C. § 365. Should a situation arise under which the provisions of such code section would be applicable, the Parties acknowledge and agree that the Party having a license under this Agreement shall have full availability to retain its rights and continue to exercise the rights and licenses granted to the licensed Party hereunder pursuant to the provisions of 11 U.S.C. § 365(n).

15.3 Section Headings. Section headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any

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purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions of this Agreement.

15.4 Binding. Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. The terms, warranties, licenses and other provisions set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the Parties and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns.

15.5 No waiver. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Parties hereto, or in the case of a waiver, by the Party against whom the waiver is to be effective. Any Party’s failure to insist upon the strict performance of this Agreement or to exercise any right to remedy shall not be considered a waiver of that Party’s right to insist upon strict performance of this Agreement or a waiver of any right or remedy with respect to any existing or subsequent breach or default. No waiver of any breach of any provision of this Agreement shall constitute a waiver of any prior or subsequent breach of the same, or any prior, concurrent or subsequent breach of any other provisions under this Agreement.

15.6 Invalid. If any provision of this Agreement is held invalid, illegal or otherwise unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

15.7 Execute Documents. Each Party agree to take such actions and execute such documents as are reasonably requested by another Party (including providing executed documents in such recordable form as is deemed required or necessary by the requesting Party) to effect the purposes of this Agreement.

15.8 Notices. The addresses of the Parties to this Agreement until changed by either Party by written notice to the other Party are:

PARTNERA: PartnerB : Any notice or written statement required hereunder shall be deemed to have been duly given upon the sending thereof by overnight mail, certified mail or federal express mail to the other party at the address above or at such latest address as it may have from time to time designated in writing to the other party.

15.9 Force Majeure. The failure of either Party to perform any obligation under this Agreement solely by reason of causes beyond its reasonable control, including but not limited to acts of God, natural disasters, acts, laws, regulations or rules of any government body or

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governmental agency, war, revolution, invasion, insurrection, riots, mob violence, sabotage or other civil disorders, strikes or other labor disputes (“Force Majeure”), shall not be deemed a breach of this Agreement; provided, however, that the Parties shall promptly meet to determine an equitable solution to the effects of such force majeure, and provided further the Party so prevented from complying herewith shall continue to take all reasonable actions within its power to comply as fully as possible herewith and to resume with the least possible delay compliance with its obligations.

15.10 Export Control. The Parties acknowledge that information they receive under this Agreement may be subject to the laws and regulation of the Government of the United States of America for the export and re-export of technical data (including classified information) and, including, where required, the issuance and renewal of validated export licenses, and each Party agrees to comply with the terms of all applicable regulations, laws and/or licenses. The Parties shall also take necessary precautions to ensure that any disclosure or release of information they receive under this Agreement does not result in a deemed export in violation of the above-mentioned laws and regulations.

15.11 Entire Agreement. This Agreement (which includes all exhibits, attachments, schedules and other documents which have been incorporated by reference) constitutes the entire understanding between the Parties hereto with respect to the subject matter hereof and its terms, including this provision, may not be changed or amended except by an instrument in writing agreed to by the Parties. This Agreement is not intended to confer upon any person other than the Parties any rights or remedies hereunder.

15.12 Relationship of the Parties. No Party has the authority (express, implied or apparent) to represent another Party as to any matters or to incur any obligations or liability on behalf of the other. No Party shall act as, purport to act as, or be deemed to be, the agent, representative, employee or servant of another Party. Except as otherwise provided herein, no partnership, joint venture, association, alliance, syndicate, or other entity, or fiduciary, employee/employer, principal/agent or any relationship is created hereby, expressly or by implication.

15.13 Publicity. Except for any disclosure required by legal, accounting, or regulatory requirements beyond the reasonable control of the parties, all media releases, public announcements, or public disclosure (including, but not limited to, promotional or marketing material) by any Party or by their employees or agents, relating to this Agreement or its subject matter, other than general statements that a contractual relationship exists between the parties, will be coordinated with and approved in writing by the other Parties prior to its release.

15.14 No Third Party Beneficiaries. Except as expressly stated otherwise, no provisions in this Agreement are intended or shall be construed to confer upon or give any person or entity other than the Parties any rights, remedies, or other benefits under or by reason of this Agreement.

15.15 Survival. Specifically surviving any termination or expiration of this Agreement are Sections ___________.

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15.16 Authority. Each person signing this Agreement represents and warrants that he/she has been duly authorized and has the requisite authority to execute and deliver this Agreement on behalf of such Party.

15.17 No Reliance. The Parties represent, acknowledge and expressly affirm that, in entering into this Agreement, they are not relying and have not relied in any way or in any degree whatsoever upon any representation or statement made, or the absence of any representation or statement, by any person or Party or any of their agents, shareholders, representatives or attorneys, with regard to the subject matter, basis or effect of this Agreement or otherwise, other than those representations or statements as specifically and expressly stated in this Agreement.

15.18 Counterparts. This Agreement may be executed in one or more counterparts, including by email and facsimile, each of which shall be deemed an original, but all of which together constitute one and the same instrument.

15.19 Jointly Drafted. The Parties acknowledge that each has participated in the drafting and negotiating of this Agreement. For purposes of interpreting this Agreement, each provision will be deemed to have been jointly drafted by the Parties. The Parties intend for this Agreement to be construed and interpreted neutrally, in accordance with the plain meaning of its language, and not presumptively construed against any actual or purported drafter of specific language contained in it.

15.20 Law and Venue. New York law will govern the interpretation and construction of this Agreement. All disputes unresolved by negotiation will be resolved solely in the State or Federal courts sitting in or for New York City, New York. By entering into this Agreement, the Parties consent to the personal jurisdiction and exclusive venue of these courts. The Parties agree that this Agreement has been negotiated in New York City.

15.21 Cooperation. Each Party agrees to take all reasonable steps necessary and to cooperate fully with one another to effectuate the terms of this Agreement.

15.22 Severability. If any part of this Agreement is contrary to, prohibited by or deemed invalid under applicable law or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder of this Agreement shall not be invalid and shall be given full force and effect so far as possible.

15.23 Assignment. Neither Party may assign, in whole or part, this Agreement, or any rights, licenses, obligations or liabilities hereunder, without the prior written consent of the other Party, which consent may be withheld in the other Party’s sole discretion. Any purported assignment of this Agreement, or any rights, licenses, obligations or liability thereunder shall be null and void and of no force or effect. The rights and obligations of the assignor pursuant to this Agreement shall be assumed by any assignee with any assignment.

15.24 Trademark and Web Linking Agreement. Both Parties will comply with the terms, responsibilities and obligations of the Trademark and Web Linking Agreement attached hereto as Schedule 15.24.

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[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.

PARTNERA LLP PARTNERB INC. By: By:

Name: Name:

Title: Title:

Date: Date:

#35215074_v2

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Portfolio Media. Inc. | 860 Broadway, 6th Floor | New York, NY 10003 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | [email protected]

Negotiating Joint-Venture Management Provisions: A Primer

Law360, New York (January 14, 2014, 3:11 PM ET) -- The management provisions are among the most important and heavily negotiated terms of the joint venture agreement. Regardless of the form of the joint venture, the co-venturers must establish a management vehicle to run the day-to-day activities of the business. The management vehicle may take a variety of forms:

Corporation. A corporate joint venture will have a board of directors whose operations will be governed by the relevant state statute. Counsel should consult the relevant statute, which may have certain requirements for how board members are elected and/or replaced. Management provisions regarding board composition and the election and removal of directors are typically found in both the charter and the bylaws or shareholders' agreement, so that they cannot be changed without a stockholder vote. Provisions regarding procedural matters, like designating directors, are usually found in the stockholders' agreement.

Limited Partnership. A limited partnership is typically governed by an entity formed to act as the general partner, with co-venturers appointing representatives to the general partner's managing board. Note, however, that under some state statutes, a limited partner that gets involved in the partnership's management may lose its limited liability status.

LLC. A limited liability company can be supervised by either a manager or a board of managers comprised of the co-venturers' representatives, under most state limited liability company statutes. In some states, LLCs may be managed directly by their members or by officers appointed for the purpose. There is generally significant flexibility in fashioning the management provisions of an LLC, which is one of the reasons that the LLC is fast becoming the preferred joint venture structure.

What follows is a description of the key aspects of the management provisions of a joint venture agreement. Composition of the Managing Board

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The parties must first agree on the composition of the managing body of the joint venture. In forming a committee or board of managers or directors, the co-venturers must consider the following factors:

Size of the Board. The parties must establish the size of the board, which will usually depend on how many venturers there are, as board representation is typically proportionate to each member's ownership interest in the joint venture. In some cases, board representation may be determined by some other set formula.

Selection of Representatives. There are several ways to approach the selection of representatives to serve on the managing committee or board. The parties may choose to grant one another freedom and flexibility in choosing their respective representatives. In other ventures, the agreement may stipulate that representatives appointed to the managing body must have certain credentials or a certain level of seniority. In some cases, the joint venture parties work together to identify certain individuals from each member of the joint venture who will be granted decision-making authority, and they may also seek some veto rights over successors, as discussed below.

Veto Rights. Venturers do not usually have the right to consent to another partner's nominations for the managing committee or board. However, if they do have veto rights, the agreement usually states that such rights cannot be exercised unless a certain threshold percentage of the co-venturers object to the nominee, or that such consent cannot be "unreasonably" withheld. In lieu of (or in addition to) veto rights, co-venturers may specify criteria that nominees must satisfy in order to be appointed to the managing board.

Replacement of Board Members. Oftentimes, the joint venture party that appoints a director or manager has the exclusive right to remove and/or replace that director upon written notice to the other joint venturers. However, joint venture agreements often provide that a party will lose these rights if it defaults on its obligations under the agreement and/or its equity interest in the venture falls below a certain threshold. Once the default is cured or the interest is increased, the venture will usually regain the right to remove and/or replace its representatives on the managing board.

Minority Partner Rights. Minority joint venture partners may not have any right to representation on the board, but may have observer rights allowing them to designate an individual to attend and observe the meetings without voting.

Defaults. As mentioned above, joint venture members may lose the right to remove and replace their representatives if they default on their obligations under the joint venture agreement. They may also lose their representation on the board entirely in case of a default that remains uncured.

Independent Directors If the joint venture is particularly large or has multiple partners, or may go public in the future, the parties may want to consider placing independent directors on the board in addition to the directors appointed by each of the members. Using independent directors may help:

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resolve conflicts among the parties, especially if the parties have equal voting control and there is a risk of deadlock over certain issues;

facilitate decision-making and compliance with fiduciary duties under applicable law;

give voice to the interests of minority partners who are not entitled to board representation;

provide industry, management, technical or some other expertise that the venture partners do not have but need;

ease the joint venture’s transition from a private company to a public company if the joint venture decides to undertake an initial public offering, as applicable rules and regulations typically require the inclusion of independent directors on public company boards .

Of course, independent directors may not be necessary or appropriate if:

the joint venture will remain a private company;

the members are comfortable with control being consistent with their relative percentage ownership interests in the joint venture; and/or

the venturers wish to forego any claims against each other regarding potential violations of fiduciary duties.

If the co-venturers decide to use independent directors, before selecting nominees, the parties should review:

the rules and regulations of the stock exchange(s) on which the joint venture may list for the requirements for a director to be considered independent; and

applicable state law for any other independence requirements.

If independent directors will be used, the parties should include a mechanism for selecting them in the joint venture agreement:

Identification: Typically, the nominees are identified by one or more joint venture parties that must confirm that each nominee meets all applicable requirements for independence.

Confirmation: The nominees are then presented to the board or governing body of the joint venture and will be confirmed by a designated vote of the remaining joint venturers that did not participate in their selection and identification.

Use of Special Committees

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Joint ventures with large management boards may want to establish special committees to help streamline the decision-making process where possible. Special committees have a number of potential benefits:

Expertise. Special committees comprised of fewer individuals, some of which have specialized knowledge, are often better equipped to handle a variety of issues, including audits, compensation and technical matters.

Resolution of Conflicts of Interest. Venturers may also use special committees to help resolve conflicts of interest between the joint venture and its partners or management.

Compliance with Fiduciary Duties. Special committees may also be formed to ensure that the managing board complies with its fiduciary obligations. For example, the venturers may want a special committee formed to consider and approve an interested party transaction between the joint venture and one or more of its members.

If the managing board will potentially use special committees, it should include a board committee provision in the joint venture agreement, which will typically include the following:

Formation. Typically, the joint managing board may form a committee by a resolution passed by a majority of the board.

Members. To preserve flexibility, the provision will often stipulate that any board committee will consist of one or more directors or managers of the joint venture, and that the board will designate the members of any special committee.

Alternates: If a member of the committee is disqualified or otherwise absent, the members present at any committee meeting may vote unanimously to choose another member of the board to serve on the committee.

As with independent directors, if special committees will be formed, before selecting committee members, the co-venturers should review:

the rules and regulations of the stock exchange(s) on which the joint venture may list for the requirements for a director that will sit on the committee to be considered independent; and

applicable state law for any other independence requirements.

When selecting nominees for a special committee, it is also important to consider the purpose for which the committee was formed in order to ensure that the proper persons are chosen. For instance, if a special committee is formed to ensure that certain decisions are made on an independent basis as required by the directors' fiduciary duties, then state laws regarding director independence will govern selection of the committee's members as opposed to requirements under applicable stock exchange rules. State law may apply a tougher standard than those under applicable

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stock exchange rules. Appointing Officers and Executives As mentioned previously, the management board may choose to appoint executives to run the day-to-day business of the joint venture. Officers will usually include a president, chief executive officer or general manager who will manage operations, and may also include a chief financial officer and secretary, among others. When drafting provisions that provide for the selection of these officers or executives, the joint venture partners and their counsel should consider the following:

Selection of Officers. The parties should consider how these executives will be chosen. Will a majority vote by the management board be enough to appoint a nominee? Do the CEO and other officers need to be chosen unanimously by the joint venture parties? If one party has experience in the industry or business in which the joint venture operates and could easily supply employees with the right experience, perhaps that partner should choose the officers of the joint venture. Much will depend on the size and nature of the joint venture and the number of parties involved.

Veto Rights. As with management board selections, joint venture partners may be granted the right to veto officer selections under certain circumstances. If they do have such veto rights, often the agreement will stipulate that they cannot "unreasonably" withhold their consent.

Replacement of Officers. If the managing board chooses an officer, his or her replacement will often require supermajority approval, or the board will be unable to terminate the employee without "cause" under the terms of the agreement. In this case, "cause" should be particularly well-defined in the joint venture agreement, and usually includes things such as: (1) criminal convictions, (2) willful and continued failure to substantially perform duties (potentially including failure to perform related to an illness if such illness and failure to perform continue beyond a specified period of time); (3) fraud, embezzlement, theft or other material violations of law; (4) material violations of company policies (including with respect to confidentiality) and/or (5) damage to company assets. If one joint venture partner chooses a particular officer, then that partner usually has the exclusive right to remove and/or replace that officer. If a joint venture partner has reasonable concerns that another venturer's selection may not be appropriate, then such partner may have some ability to remove that officer for a limited period of time after selection (usually one to two years). This right to remove another member's officer is most likely to be awarded to those joint venture parties holding a significant ownership stake in the venture.

Limits on the Officers' Authority. Even if the officers will be running the day-to-day affairs of the joint venture, there are still some major decisions that are typically reserved for the managing board (or all of the joint venture partners, depending on the management structure chosen), which are discussed in more detail under "Reserving Key Decisions for the Management Committee or Board" below.

Managing Day-to-Day Business of the Joint Venture Once the governing body of the joint venture has been formed, the parties must decide who will handle the day-to-day affairs of the joint venture. They can choose one or more representatives from the

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managing board to handle daily operations, or, as discussed above, they can appoint separate officers and executive employees to manage the venture's affairs. A very simple management structure might provide that one joint venture party acts as the managing member, while officers and/or executive employees handle day-to-day decision-making. If all joint venture parties have committed significant cash, assets and other resources to the joint venture, and if the venture requires significant management expertise from each party, then the day-to-day issues may be handled by the management committee, by all of the joint venturers or by a majority of the co-venturers. Regardless of how ordinary-course business operations are managed, management will usually be required to act consistent with the business plan or budget crafted by all of the joint venturers on an annual or regular basis. The joint venture agreement should clearly set out which matters or decisions are within the purview of the day-to-day managers of the business. These items will vary depending upon the venture, but they are typically more ministerial in nature and often include the following:

actions necessary or advisable to comply with existing contracts;

actions necessary or advisable to carry out items set forth in the relevant budget or business plan, including the payment of fees and expenses and entering into necessary contracts;

actions necessary or advisable to comply with existing laws and ordinances, including communications and dealings with government officials, that are consistent with the relevant business plan or budget; and

maintaining the books and records of the joint venture.

Reserving Key Decisions for the Management Board or All Joint Venture Members As mentioned previously, regardless of who is managing the day-to-day affairs of the joint venture, there is usually a subset of key matters that will be reserved for the managing board (if executive officers are managing the daily affairs of the joint venture) or all of the joint venture partners to decide. The joint venture agreement usually sets forth an extensive list of items that constitute key or major decisions that are reserved for the board. The list varies depending on the form and nature of the venture, but it usually includes the approval of, and amendments to, the budget and business plan, and other matters involving a certain dollar magnitude or materiality threshold that are not otherwise covered in that budget and plan. Major decisions may also be further divided into categories, some of which require only a majority vote and others that require supermajority approval. Key decisions that require the input of the management board or all or a majority of the co-venturers typically include:

approval of the annual business plan and budget and any amendments thereto;

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amendments to the governing documents of the joint venture;

admission of additional joint venture members;

a change of the name of the joint venture entity;

any material change in the scope of the business of the joint venture;

establishment of and/or change in the management board or committee;

hiring and firing of the managing officers or executives;

compensation of the management team;

creation of subsidiaries;

the sale, license, exchange or other disposal of joint venture property;

entering into material contracts valued above a certain dollar threshold;

lending funds, incurring indebtedness, or granting security or guarantees in excess of a specified amount;

hiring or firing certain identified employees of the joint venture or employees at or above certain management levels of the joint venture;

initiation or settlement of claims;

the purchase of property or assets;

consummating mergers, acquisitions or other business combinations involving the joint venture (excluding ordinary course acquisitions of assets);

the selection of accounting or law firms or other key outside advisors;

bankruptcy filings; and

entering into transactions with a joint venture party and any of its affiliates.

It should be noted that the amendment provisions of the joint venture contract also impact the management of the joint venture because some amendments may require unanimity, others a supermajority and others a simple majority. Conflicts of Interest and Codes of Conduct A critical issue facing co-venturers is the balancing of the interests of the joint venture with those of their individual businesses, especially when the joint venture enters into arrangements with one or more of its members to supply certain goods and services. A joint venture may:

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permit the managing member or board to resolve these conflicts on a case-by-case basis as they arise; or

develop codes of conduct and/or policies governing business dealings between the joint venture and its members and/or affiliates that must be applied uniformly in all cases.

Regardless of which approach a joint venture takes, the joint venture agreement will usually require the following:

Full Disclosure. The agreement will require full disclosure of the terms of all interested party transactions to the joint venturers or managing board.

Approval. The terms of such transactions must be approved by a specified vote of the joint venture members or managing body who are independent and uninvolved in the transaction.

It may be prudent to develop codes of conduct or policies to deal with conflicts because they: (1) shift burdens of proof and (2) may also provide some initial protection against alleged violations of certain laws, such as the Foreign Corrupt Practices Act (78 USCS §78a) or the Investment Advisers Act of 1940, among others. If a joint venture party has a reasonable concern that the provisions of a particular code or policy may materially or disproportionately affect its interest in the joint venture, it may seek to set forth the principal terms or provisions of such code or policy in the joint venture agreement or an exhibit to the agreement. Otherwise, such codes and policies will be developed in the ordinary course of business and, if material, approved by a majority vote of the board or other governing body. Other Procedural Matters The management provisions of a joint venture agreement should also clearly lay out the procedural details of how the board or other managing body will operate, including, but not limited to, the following:

Deadlock. If there is an even number of representatives on the managing board, the co-venturers will need to decide how to deal with the possibility of deadlock. One solution is granting the chair of the board a casting vote. Another solution would be to appoint a certain number of independent directors to the board, as discussed above, or to trigger exit rights.

Board Meetings. The joint venture agreement should set forth how frequently the board will meet, who can call special meetings and under what circumstances. A joint venture agreement may call for a specific number of meetings to be held each year at a specific place. An agreement may also offer more flexibility by providing that regular board meetings will be held at least a certain number of times each year at a time and place of the board's choosing. Typically, special meetings may be called by the chair of the board or committee any time by giving the required notice.

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Notice Requirements. The agreement should set forth any notice requirements for special meetings. Generally, joint venture agreements require written notice at least five to 10 days before the special meeting. Notice requirements can usually be waived in writing.

Voting and Quorum Requirements. The terms of the agreement should detail voting procedures and the quorum required to conduct business at a board or committee meeting. The venturers must decide if all decisions by the board can be decided upon a simple majority vote, or if some matters need to be decided by a supermajority.

Action by Written Consent. The co-venturers must also decide whether the board should have the power to act via telephonic meetings or by written consent without holding a board meeting. Typically, joint venture agreements allow action by written consent to allow the board flexibility to take action in the face of emergencies or unanticipated events, and generally to make conducting business easier as a practical matter. Look to the appropriate state statute to see if action by written consent must be unanimous, and be sure to indicate this in the provision.

Meeting Minutes. The agreement should set forth procedures for the preparation, delivery and approval of minutes of meetings of the members.

Compensation. The co-venturers must decide whether or not to compensate managers for overseeing the joint venture, and whether that compensation will consist of equity awards in the joint venture. By giving the directors or managers equity or opportunities to earn equity, the managers' interests will be more aligned with those of the joint venture. However, if the joint venture is intended to remain operative or be unwound without a sale, a bonus plan would be a better means of reaching this objective.

Removal and Replacement of Managers. As discussed above under "Composition of the Managing Board," the joint venture agreement will also set forth procedures for the removal and replacement of members of the management board. Often, a joint venture agreement will provide the party that appointed a member of the board the exclusive right to remove and replace such member or director, with notice to the other joint venturers. A co-venturer who defaults on its obligations under the joint venture agreement or whose interest in the venture falls below a certain threshold may lose its right to appoint members to the managing board.

Note that the joint venture agreement will need to set forth many of the same procedures for meetings of the members of the joint venture, including when and how often they will meet, notice requirements for such meetings, quorum requirements, and other similar provisions as described above. —By Rashida K. La Lande, Gibson Dunn & Crutcher LLP Rashida La Lande is a partner in the firm's corporate transactions practice in New York. This article is excerpted from Lexis® Practice Advisor, a comprehensive practical guidance resource providing insight from leading practitioners on the topics critical to attorneys who handle transactional matters. For more information on Lexis Practice Advisor or to sign up for a free trial please click here. Lexis is a registered trademark of Reed Elsevier Properties Inc., used under license.

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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

All Content © 2003-2014, Portfolio Media, Inc.

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The Key Benefits Of Forming A Joint Venture

Law360, New York (January 21, 2014, 2:07 PM ET) -- In general, parties come together to form joint ventures when all involved believe that they will have greater success working cooperatively on a specific project, product or business than they would have if they each undertook the endeavor on their own. More often than not, each of the parties individually lacks all of the requisite practical knowledge, resources and/or funding for the venture's success. Below are the key benefits of forming a joint venture:

Sharing Assets. Creating a joint venture allows the participants to share their collective tangible and intangible assets in pursuit of a common goal. For example, two or more parties may collectively own the intellectual property required to develop a new product or technology, but none of the parties individually has all of the necessary IP rights to pursue the project. In another example, one party may supply the cash funding, while another party supplies real property or property rights, equipment, supplies, and/or access to other assets.

Sharing Critical Expertise and Experience. By forming a joint venture, the parties can share management experience and expertise, industry knowledge, technological capabilities and any other expertise or experience necessary to the business. For instance, one party may have the knowledge and experience to develop a product and may then look for joint venture partners to contribute the funding, or one of the joint venture parties may have more experience in a particular industry than the others.

Sharing Costs. Another key benefit of entering into a joint venture is sharing costs. Joint ventures often allow their participants to undertake a venture that neither could afford independently. Research and development, labor and management, distribution, supply and administrative costs as a percentage of revenues may be significantly reduced for each party relative to what they would have been had each party tried to pursue the venture on its own. In addition, economies of scale may also be reached in which per-unit costs may be reduced due to efficiencies reached at larger joint production levels.

Sharing Business Risk. A joint venture enables the participants to share the business risk of creating a new product or service or entering into or expanding a business. Individually, neither party may have the risk appetite to develop the necessary assets or resources that it currently lacks, especially in light of the possibility that its new investment may not yield enough revenue to make the development costs worthwhile. Sharing resources and costs can help ease the burden of the risk.

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Access to New Markets. Forming a joint venture can enable the participants to access geographic or high-growth markets that they would not otherwise have access to individually. The parties may also pool their access to suppliers or customers. For example, one joint venture member may have the required intellectual property for a venture while the other has the infrastructure or distribution networks to access markets and customers. Given the size of the joint venture, the parties may also find that they have greater bargaining power in negotiating contracts for the distribution or supply contracts, or agreements for the purchase of goods, supplies and services than they would have individually.

Diversification. Another key reason that parties enter into joint ventures is to diversify their own businesses. As mentioned above, a joint venture may help participants gain access to markets or businesses that they could not enter individually. Diversification helps reduce a participant's business risk across its product or service lines, and may also increase the participant's access to resources (such as superior talent) and more capital if the profits and/or assets of the joint venture grow significantly. Diversification also has the potential to improve cash flow and profitability of the co-venturers, either directly through the venture or indirectly via improvements or enhancements to their own products, services or operations.

Flexibility. There are many ways to structure a joint venture, which offers co-venturers maximum flexibility in creating the entity and establishing a relationship that works for them. For example, if multiple parties are involved, an M&A transaction could prove costly and difficult to manage and would usually require one or more of the parties to cease to exist and/or cede control of their businesses. In contrast, a joint venture structure allows each party involved to undertake a new business opportunity while maintaining their respective identities and existing business operations. In another example, different structures also yield different tax and accounting treatment. If the venturers choose to form a company, they can protect their individual earnings and profits from the vicissitudes of a startup venture, provided that no one partner owns 50 percent or more of the venture and is required by applicable accounting rules to consolidate the financials of the joint venture with its own for reporting purposes. If they choose to form a partnership, they can allow the earnings, profits and losses of the joint venture to flow through partners' financial statements, which would allow the joint venture's earnings or losses to provide benefits to the partners from an income or tax perspective, so long as such earnings and profits are treated consistently among the partners. Alternatively, the venturers could also simply form a strategic alliance, which would allow them to manage their financial positions in the joint venture individually.

Favorable Tax Treatment. Unincorporated joint ventures, such as general partnerships, can provide favorable tax treatment for their parties. They allow profits to flow through to co-venturers' financial statements without the double taxation that would occur, first, on a corporation's profits and, then, on the dividends paid to its shareholders. They also allow losses to flow through to co-venturers that can be used to offset income from the co-venturer's other operations. Limited liability companies can also be treated as partnerships for tax purposes and can provide the same flow through income, loss and tax benefits of general partnerships even though they are otherwise treated as separate, stand-alone entities for purposes of limiting the liability of co-venturers for the acts of the joint venture.

—By Rashida K. La Lande, Gibson Dunn & Crutcher LLP

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Rashida La Lande is a partner in the firm's corporate transactions practice in New York. This article is excerpted from Lexis® Practice Advisor, a comprehensive practical guidance resource providing insight from leading practitioners on the topics critical to attorneys who handle transactional matters. For more information on Lexis Practice Advisor or to sign up for a free trial please click here. Lexis is a registered trademark of Reed Elsevier Properties Inc., used under license. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

All Content © 2003-2014, Portfolio Media, Inc.

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Business Divorces – Plan Aheadby Mark Rosencrantz, Partner

Introduction

For many people, starting a new business ranks as one of the most exciting things they will everdo. Visions of large sales, huge profits, and a long period of financial prosperity are oneveryone’s mind.

However, even with the best of intentions on everyone’s part, change is inevitable. People maywish to cash out, partners you thought would be honest and reliable turn out not to be, and peoplecan have honest yet irreconcilable disagreements on the best path forward for the company.

In such cases, there may not be a good way for the owners to continue in business together.However, unless companies planned ahead – and most do not – there is frequently no easy wayfor one party to extricate themselves from a company. In such situations, not only might theowners lose the value of their equity in a business they invested a great deal of time and effort tobuild, but also the retirement security inherent in owning a business.

Such cases are often referred to as “business divorces.” The term covers a wide range ofscenarios from a company being shut down and dissolved and the owners and employees goingtheir separate ways, to the departure of a founder and a dispute over whether employees andcustomers can follow.

Business divorces are often necessary when an officer or managing member of a company iseither failing to comply with required business obligations or is engaging in financialimproprieties. Other red flags include companies failing to keep up with normal obligations suchas paying employees and vendors, filing tax returns, responding to mandatory audit requests,holding meetings, or filing required materials with the SEC or state agencies. Customersreporting a continuing inability to get service needs addressed, calls returned, or the like shouldalso generate increased attention.

Put simply, if the person in charge refuses to both remedy problems and provide appropriateexplanations as to why the problems occurred (which may very well not exist), a businessdivorce may need to be considered. In today’s legal climate a variety of situations exist in whicheven if one officer or director does not participate in wrongful activities, knowing of them butnot stopping and correcting them can result in personal liability.

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Regardless of the cause, without appropriate advance planning business divorces are generallyexpensive and contentious, and frequently leave all parties in financial and legal positions theydo not like.

A Case Study

Consider the following scenario. Two people working at a large technology company come upwith a great idea for a new software program that will fill a clear need. They eventually bothresign and set up a new corporation in which they each own half of the company, they are eachofficers, and they are the new company’s only two directors. Because one of the founders ismuch better at writing software he takes over responsibility for programming and technologyissues, while the other, whose background is more grounded in marketing and sales, takes overresponsibility for sales, marketing, and general day-to-day business operations.

The company is a success, and quickly gains a Fortune 100 company as a client. The company’sfounders are soon able to stop working out of their homes and rent office space. Over the nextyear the company’s client list expands, and adds large and prestigious clients. The future seemsto be bright.

However, the company never seems to generate quite as much income for the founders as itshould. Further, the technology partner grows concerned when he begins receiving emails andcalls from third parties that the company is failing to, among other things:

Pay vendors and subcontractors in a timely manner;

Pay employees and independent contractors in a timely manner;

Generate and file income tax returns as they become due; and

Attend to other business obligations in a timely manner.

The technology partner then realizes that despite having been in business for three years, thecompany has never conducted a board meeting. Efforts to set up a meeting are ineffective,because the sales and marketing partner refuses to attend, and he holds 50 percent of the votinginterest, which means the company cannot achieve the quorum necessary to vote on anything.Moreover, the sales and marketing partner generally never seems to be available, and seemsalways to be on the road on sales calls, at industry conferences, or at marketing events. Worse, astime passes the technology partner has more and more trouble reaching the sales and marketingpartner by phone, or even getting responses to emails or text messages.

The final straw comes when the technology partner, who has not taken a vacation during theentire three years the company has been in existence, attends an industry conference, and decides

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to stay in a luxury hotel as a reward for three years of non-stop work. Upon checking in, thehotel staff extends a warm welcome and indicates they are happy to finally meet the other half ofthe company’s brain trust. When asked, the staff indicates that the sales and marketing partner isa frequent guest who often throws lavish parties and always tips well.

Upon returning home, the technology partner is able to get a copy of the company’s bank andother financial records, and retains an independent accountant to review the company’s finances.The accountant reports that the sales and marketing partner has been using the company’s bankaccount as if it was his own to finance a lavish bi-coastal lifestyle complete with parties in LosAngeles, Miami, and the Hamptons, as well as attendance at events such as the Super Bowl andthe World Series.

The technology partner reaches a decision that he can no longer continue to do business with thesales and marketing partner. However, the company’s governing documents do not allow thetechnology partner to simply walk away from ownership responsibilities, which include, amongother things, his personal guarantee of the company’s lease and line of credit, as well as his legalresponsibility as an officer and director that the company file accurate tax returns when they aredue. Similarly the company’s governing documents do not have provisions allowing for onefounder to fire the other, force a buyout of shares, or force a sale of shares. Equally problematic,the software, which the technology partner spent three years writing and perfecting, and is thecompany’s greatest asset, belongs to the company, which means that the technology partner hasno right to take the software with him if he leaves.

As a result, the technology partner is left with several choices, none of which are particularlyappealing:

Hire an attorney and sue the sales and marketing partner for breaching duties to thecompany, and improperly using money. This might solve some monetary issues but notfix the underlying problems.

Hire an attorney and sue the sales and marketing partner and the company and ask that athird-party receiver be appointed to run the business at least on a temporary basis.

Hire an attorney and sue the sales and marketing partner asking that the company bedissolved, and the assets sold off to pay the company’s creditors, and if anything is left tobe distributed to the owners.

Plan Ahead

With careful advance planning the technology partner’s options after discovering thewrongdoing described above could be much different. For everyone’s protection, and regardlessof whether the company is a corporation, a limited liability company, a limited liability

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partnership, or any other business entity, the following should be considered well in advance ofany problems arising:

Are there an odd number of directors or other managers to avoid deadlocks? Directorsand other managers do not need to be owners, so consideration should be given to havingat least one neutral, disinterested director who can act solely in the best interests of thecompany. Agreements can even be structured such that a neutral director only votes tobreak deadlocks.

Is there a provision allowing for one owner to either require that the company buy backhis shares and/or allow the company to require an owner to sell their shares back? Partiescan agree well in advance on specific wrongdoing that can trigger a forced buyout, aswell as a method to select a valuation expert and a valuation methodology the expertshould use.

Are there provisions explaining who gets to use company assets such as customer lists,software, and trade secrets following the departure of a founder or other owner?

Do all owners, or at least all directors or managers, have equal access to bank accountsand records, accounting records, and the company’s other financial records? One ownernot having access to such records can create problems, and having access can be a criticalfirst step in identifying and proving wrongdoing.

In the event a partner is forced to sell their interests as a result of wrongdoing, are theyprohibited from competing against the company for a period of time? Even in states likeCalifornia, which generally prohibit non-compete agreements, such a provision wouldlikely be enforceable, and give the company a chance to recover from the departingowner’s wrongdoing.

Conclusion

Like their name indicates, business divorces are not fun, and can be destructive to companies.With advance planning, however, protections can be built in to make the process significantlyless expensive and destructive.

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Mark RosencrantzPartner

p: (206) 204-5800 | email: [email protected] Fourth Avenue, Suite 2210, Seattle, WA 98161

Mark Rosencrantz’s practice focuses on solving construction, business, and commercial disputesfor clients throughout the United States. He understands that litigation is a distraction to hisclients that prevents them from living their lives and profitably running their businesses. Withthat in mind, Mark approaches each matter by first working with his clients to identify theirissues and goals, and then mapping out an approach designed to accomplish those objectives,whether that be negotiating an early settlement, getting ready for a “bet the company” trial, oranything in between.

Mark has successfully handled cases involving a wide array of large-dollar business andcommercial disputes, with particular emphasis on construction, trade secret misappropriation,violations of non-compete agreements, fraud, bankruptcy, unfair trade practices, real estate, andpartnership and corporate disputes. He has obtained multiple multi-million dollar recoveries forhis clients and helped others extricate themselves from potential judgments of the same size.Mark has done so before state and federal courts in Washington, Oregon, Nevada, Texas,Arizona, Idaho, Hawaii, Illinois, and New York.

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Recent Disputes between Parties to Joint Ventures

By: Richard Raysman and Peter Brown*

Joint ventures are important business strategies for entrepreneurs and companies to consider. According to the Harvard Business Review, the first five years of the 21st century brought the formation of more than 5,000 joint ventures. However, in a separate study, when senior JV practitioners in 20 S&P 100 companies with involvement with over 250 JVs were polled, they estimated that between 40 and 60 percent of completed JVs either underperformed or failed. Problems besetting JVs noted in this study include: excessive hurry, and a lack of adumbration of the variety of risks and adverse operational realities intrinsic to the JV.

Which party owns the intellectual property (IP) in a Joint Venture and how those rights can be protected, are often central issues in the formation of a JV. Risks abound. For example, how does a rights owner protect its IP after assignment to the JV, or when the JV is wound up. In addition, frequent parties to JVs consistently cite the loss of background IP rights as a major risk. What form of legal instrument – be it a license, assignment, or otherwise – will optimize the rights holders’ ability to protect its IP? Finally, though jointly owned IP is often essential to the JV, it is recommended in one instance to the IP owner to “avoid like the plague.”

And yet, in recent years, IP is often the impetus for the JV, as shrewd use of IP can enhance the market value, expand existing relationships, discover new value and provide opportunities for further innovation and profit. With fastidious legal planning, JVs can be an extremely helpful way to bring companies together to pool capital, technical, management and IP resources.

However, given the high stakes and systemic risks, disputes frequently arise between partners to a JV. This article features two prominent disputes that resulted in decisions at the federal level; one case deals with the legal implications of a conflict between two agreements signed by joint venturers on the same day; and in the other, a federal appellate court confronts a question of first impression in copyright law after a joint venture goes awry.

What happens when a Software License is Alleged to Conflict with a Joint Venture Agreement?

A notable case in which a joint venture to license software went awry is Instep Software LLC v. InStep (Beijing) Software, 2013 WL1343874 (N.D. Ill. Apr. 2, 2013). Instep Software (“Instep”) develops and licenses engineering software for governmental entities and other industries. In 2006, Instep entered into a “Co-Operation Agreement” (the “Joint Venture Agreement”) with Instep (Beijing) Software (“Instep Beijing”). Instep Beijing was a successor company to an earlier joint venture between the two companies that permitted Instep Beijing to sell Instep Software (the “Software”) to entities in China. The Joint Venture again permitted Instep Beijing to promote and sell the Software in China. In addition, as part of the Joint Venture, Instep Beijng transferred to Instep a one-third-equity stake in the joint venture.

On the same day as the joint venture was formed, Instep and Instep Beijing entered into a Software License Agreement (the “License”). The License included a provision mandating the

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use of a royalty and pricing schedule to be reviewed annually. In 2011, Instep Beijing rejected the proposed schedule. In response, Instep terminated the License.

Instep Beijing disputed that the License was validly terminated, and therefore, Instep was in violation of the Joint Venture Agreement. Instep moved for summary judgment on the grounds that its termination of the License was valid. In its answer, Instep Beijing claimed that the alleged anticipatory breach by Instep of the Joint Venture Agreement superseded the License’s requirements vis a vis renewal and pricing, even though the agreement governing the Joint Venture never mentioned the License.

The court rejected a variety of arguments proffered in support of this assertion. On a pure textual basis, the court placed significant emphasis on the fact that the License included an integration clause. That is, the License contained a clause stating that it embodied all of the terms and conditions and usurped all previous agreements regarding the subject matter of the License. See also TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625 (7th Cir. 2007) (holding that an integration clause exists to explicitly protect a party against misrepresentations emanating from extrinsic evidence). Instep Beijing disputed the integration clause on the grounds that the Joint Venture imposed fiduciary obligations on both parties. The court summarily rejected this argument, as the “four corners” of a contract rule applied, thereby precluding any use of extrinsic evidence.

Instep Beijing tried to circumvent the integration clause in arguing that because the Joint Agreement and the License were consummated contemporaneously, therefore the two agreements should be “considered in tandem.” Again, the court dispensed this argument by relying on the integration clause in the License to conclude that parol evidence is excluded from any interpretation of the License. As a doctrinal matter, it also noted that when related agreements do not incorporate either by reference, they cannot be construed or interpreted in accordance with each other. Accordingly, Instep had validly terminated the License.

To mitigate this type of risk, an arbitration clause or liquidated damages provision could prevent the costs of litigation or in the case of litigation, require the infringing party to face the maximum possible penalty.

A Conflict Arises over Ownership of Copyrights Created By a Joint Venture

In January 2014, the United States Court of Appeals for the Third Circuit decided a copyright case that presented, by the court’s observation, two issues of first impression. See Brownstein v. Lindsay, 742 F.3d 55 (3d Cir. 2014). Tina Lindsay (“Lindsay”) and Peter Brownstein (“Brownstein”) worked together to create an “ethnic identification system” designed to develop rules for categorizing names by ethnicity via a computer program (“LCID”). Lindsay devised the idea and worked initially to formulate rules to categorize the names, while Brownstein was enlisted to turn her rules into computer code. Lindsay’s contribution to the LCID was the Ethnic Determinate System (“EDS”) and the code created by Brownstein to render the LCID operational became known as the ETHN programs (“ETHN”).

In June 1996, Lindsay and Brownstein incorporated TAP Systems, Inc. (“TAP”), as equal owners, to commercialize the LCID. They were equal owners of the TAP and the LCID became

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the “TAP System.” A brief time later, Lindsay registered the copyright to an updated version of EDS on her own and without the involvement of Brownstein, thereby making her the sole author. However, the application for registration included a ”deposit copy” of ETHN and referenced a “computer process” and “codes” associated with the copyright. This second registration of the updated version of EDS was characterized as a derivative work. Lindsay then unilaterally attempted to grant TAP ownership of the LCID. Lindsay was the only signatory to the document and she signed it as the “Copyright Holder.”

Later in 1997, Lindsay and Brownstein decided to form a joint venture agreement with one of their former employers (“CMR”) to combine the LCID with CMR’s technology to create the “E-Tech” system. A later agreement between TAP and CMR superseded the original agreement, though the relationship between CMR and TAP remained a joint venture (the “Joint Venture Agreement”). Brownstein did not sign this agreement, which provided that TAP owned the LCID.

Years later, Brownstein left E-Tech on bad terms. He then filed an oppressed shareholder lawsuit against Lindsay and E-Tech. This litigation settled (the “Settlement Agreement”). The Settlement Agreement stipulated that: (1) the terms of the settlement would not affect the instant case, which was then pending; and (2) forced Brownstein to relinquish his interest in E-Tech. Specifically, the Settlement Agreement vitiated Brownstein’s “right, title and interest” in TAP and E-Tech.

In March 2010, two months prior to the completion of the Settlement Agreement, Brownstein took affirmative steps to protect his joint authorship of the LCID by filing the instant lawsuit seeking declaratory judgment of his authorship of the LCID. Brownstein also filed a registration for copyright to the ETHN programs. However, since Lindsay had submitted Brownstein’s ETHN programs with her registration of the updated version of EDS, Brownstein had thus waited 14 years from the date of this registration to initiate this suit. Brownstein countered that 2010 was when he learned that Lindsay had claimed to be the sole author of the LCID.

The District Court ruled for Lindsay in finding that Brownstein’s claim of initial notification of Lindsay’s claim of sole authorship in 2010 was contradicted by the evidence, and even if the evidence had swayed in his favor, his claim was barred by the three-year statute of limitations under the Copyright Act.

On appeal, the court confronted first the question of whether Brownstein was a co-author of the LCID for copyright purposes. In analogizing to the joint work created when one person writes the lyrics to a song and another writes the music, the court found that with respect to LCID, Lindsay wrote the lyrics and Brownstein wrote the music. It came to this conclusion after finding that Brownstein’s contribution to the LCID was a non-trivial amount of creative expression, as his contribution via ETHN and Lindsay’s were inseparable towards the functioning of the LCID. Lindsay similarly argued that Brownstein had no rights in the derivative version of LCID created after the second registration of EDS in 1997 as a “derivative work.” This argument was similarly rejected, as the court concluded that Brownstein retained co-ownership in the post-1997 versions of the LCID that were based on any version of the LCID to which he was a coauthor.

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Finally, Lindsay claimed that Brownstein transferred his rights to LCID via the License to TAP, or alternatively, through the Settlement Agreement. However, because of the “statute of frauds” provision in the Copyright Act, Lindsay could not transfer the rights of her co-author to LCID absent written consent, consent that she did not receive from Brownstein prior to completing the License. At best, Lindsay could have conveyed only a non-exclusive license to the LCID to TAP. See 17 U.S.C. § 204(a) (“statute of frauds” provision of the Copyright Act). Likewise, the Settlement Agreement only nullified Brownstein’s interests in TAP and E-Tech, and not as the co-author of LCID.

The court then turned to the question of whether Brownstein’s claims were barred by the statute of limitations. It adhered to the “discovery rule,” a general inquiry notice rule which states that a claim accrues when the plaintiff discovers or should have discovered with due diligence that his rights had been violated. See William A. Graham Co. v. Haughey, 568 F.3d 425 (3d Cir. 2009) (further discussion of the “discovery rule”). However, the discovery rule holds that the clock only starts running “once a cause of action arises since a plaintiff cannot experience storm warnings of a violation until his rights have been violated.”

How this rule applies to a cause of action for declaration of authorship was the aspect of this case found to be sui generis. As a result, the Third Circuit turned to its sister appellate courts to conclude that in assessing the accrual of time in a joint authorship claim, the discovery rule applies once the co-author has expressly repudiated the author’s rights. See Zuill v. Shanahan, 80 F.3d 1366 (9th Cir. 1996) (a case described to have “spawned” the express repudiation rule).

In applying this standard, the court found that nothing Lindsay had done prior to this litigation could be fairly labeled as an express repudiation of Brownstein’s co-authorship in the LCID. For one, Lindsay’s registration that listed herself as the sole author was not an express repudiation because co-authors are not expected to scour the registry for competing registrations. Likewise, the License averred to transfer ownership to LCID to TAP was invalid because Lindsay could only transfer a non-exclusive license that did not negate Brownstein’s interest as the co-author. Finally, the Settlement Agreement did not extinguish Brownstein’s co-authorship in the LCID because its express terms only forfeit Brownstein’s rights as a shareholder, officer, employee or director of TAP or E-Tech. As such, “[t]here is no basis to argue that Brownstein’s … ownership” was subsumed by the consummation of the Settlement Agreement.

All told, the District Court was reversed in its ruling on judgment in favor of Lindsay, and the case was remanded for a new trail.

Conclusion

These cases illustrate that when JVs deviate from an expected amicably course, the results for the parties thereto often depend on how the relevant agreements are drafted. In the Instep case, an unequivocal integration clause in the license agreement served to render complaints based on the contemporaneous joint venture agreement irrelevant. In contrast, in the Lindsay case, Lindsay’s claim to sole authorship of the software could not be buttressed by an explicit grant of authorship by Brownstein in the language of the myriad agreements referenced. This argument failed most obviously because although Brownstein was forced to relinquish a lot in his settlement agreement, Lindsay did not specifically reference the joint work Brownstein had helped create.

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IP should be a focal point in the litigation and construction of JVs going forward. After all, as a Fortune 500 CEO once said: “I’m convinced the management of intellectual property is how value” will be created.” Moreover, the CEO declared that “Companies that are good at managing IP will win. The ones that aren’t will lose.”

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* Richard Raysman is a partner at Holland & Knight LLP and Peter Brown is the principal at Peter Brown & Associates. They are co-authors of "Computer Law: Drafting and Negotiating Forms and Agreements" (Law Journal Press).

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Recent Disputes between Parties to Joint Ventures

By: Richard Raysman and Peter Brown*

Joint ventures are important business strategies for entrepreneurs and companies to consider. According to the Harvard Business Review, the first five years of the 21st century brought the formation of more than 5,000 joint ventures. However, in a separate study, when senior JV practitioners in 20 S&P 100 companies with involvement with over 250 JVs were polled, they estimated that between 40 and 60 percent of completed JVs either underperformed or failed. Problems besetting JVs noted in this study include: excessive hurry, and a lack of adumbration of the variety of risks and adverse operational realities intrinsic to the JV.

Which party owns the intellectual property (IP) in a Joint Venture and how those rights can be protected, are often central issues in the formation of a JV. Risks abound. For example, how does a rights owner protect its IP after assignment to the JV, or when the JV is wound up. In addition, frequent parties to JVs consistently cite the loss of background IP rights as a major risk. What form of legal instrument – be it a license, assignment, or otherwise – will optimize the rights holders’ ability to protect its IP? Finally, though jointly owned IP is often essential to the JV, it is recommended in one instance to the IP owner to “avoid like the plague.”

And yet, in recent years, IP is often the impetus for the JV, as shrewd use of IP can enhance the market value, expand existing relationships, discover new value and provide opportunities for further innovation and profit. With fastidious legal planning, JVs can be an extremely helpful way to bring companies together to pool capital, technical, management and IP resources.

However, given the high stakes and systemic risks, disputes frequently arise between partners to a JV. This article features two prominent disputes that resulted in decisions at the federal level; one case deals with the legal implications of a conflict between two agreements signed by joint venturers on the same day; and in the other, a federal appellate court confronts a question of first impression in copyright law after a joint venture goes awry.

What happens when a Software License is Alleged to Conflict with a Joint Venture Agreement?

A notable case in which a joint venture to license software went awry is Instep Software LLC v. InStep (Beijing) Software, 2013 WL1343874 (N.D. Ill. Apr. 2, 2013). Instep Software (“Instep”) develops and licenses engineering software for governmental entities and other industries. In 2006, Instep entered into a “Co-Operation Agreement” (the “Joint Venture Agreement”) with Instep (Beijing) Software (“Instep Beijing”). Instep Beijing was a successor company to an earlier joint venture between the two companies that permitted Instep Beijing to sell Instep Software (the “Software”) to entities in China. The Joint Venture again permitted Instep Beijing to promote and sell the Software in China. In addition, as part of the Joint Venture, Instep Beijng transferred to Instep a one-third-equity stake in the joint venture.

On the same day as the joint venture was formed, Instep and Instep Beijing entered into a Software License Agreement (the “License”). The License included a provision mandating the

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use of a royalty and pricing schedule to be reviewed annually. In 2011, Instep Beijing rejected the proposed schedule. In response, Instep terminated the License.

Instep Beijing disputed that the License was validly terminated, and therefore, Instep was in violation of the Joint Venture Agreement. Instep moved for summary judgment on the grounds that its termination of the License was valid. In its answer, Instep Beijing claimed that the alleged anticipatory breach by Instep of the Joint Venture Agreement superseded the License’s requirements vis a vis renewal and pricing, even though the agreement governing the Joint Venture never mentioned the License.

The court rejected a variety of arguments proffered in support of this assertion. On a pure textual basis, the court placed significant emphasis on the fact that the License included an integration clause. That is, the License contained a clause stating that it embodied all of the terms and conditions and usurped all previous agreements regarding the subject matter of the License. See also TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625 (7th Cir. 2007) (holding that an integration clause exists to explicitly protect a party against misrepresentations emanating from extrinsic evidence). Instep Beijing disputed the integration clause on the grounds that the Joint Venture imposed fiduciary obligations on both parties. The court summarily rejected this argument, as the “four corners” of a contract rule applied, thereby precluding any use of extrinsic evidence.

Instep Beijing tried to circumvent the integration clause in arguing that because the Joint Agreement and the License were consummated contemporaneously, therefore the two agreements should be “considered in tandem.” Again, the court dispensed this argument by relying on the integration clause in the License to conclude that parol evidence is excluded from any interpretation of the License. As a doctrinal matter, it also noted that when related agreements do not incorporate either by reference, they cannot be construed or interpreted in accordance with each other. Accordingly, Instep had validly terminated the License.

To mitigate this type of risk, an arbitration clause or liquidated damages provision could prevent the costs of litigation or in the case of litigation, require the infringing party to face the maximum possible penalty.

A Conflict Arises over Ownership of Copyrights Created By a Joint Venture

In January 2014, the United States Court of Appeals for the Third Circuit decided a copyright case that presented, by the court’s observation, two issues of first impression. See Brownstein v. Lindsay, 742 F.3d 55 (3d Cir. 2014). Tina Lindsay (“Lindsay”) and Peter Brownstein (“Brownstein”) worked together to create an “ethnic identification system” designed to develop rules for categorizing names by ethnicity via a computer program (“LCID”). Lindsay devised the idea and worked initially to formulate rules to categorize the names, while Brownstein was enlisted to turn her rules into computer code. Lindsay’s contribution to the LCID was the Ethnic Determinate System (“EDS”) and the code created by Brownstein to render the LCID operational became known as the ETHN programs (“ETHN”).

In June 1996, Lindsay and Brownstein incorporated TAP Systems, Inc. (“TAP”), as equal owners, to commercialize the LCID. They were equal owners of the TAP and the LCID became

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the “TAP System.” A brief time later, Lindsay registered the copyright to an updated version of EDS on her own and without the involvement of Brownstein, thereby making her the sole author. However, the application for registration included a ”deposit copy” of ETHN and referenced a “computer process” and “codes” associated with the copyright. This second registration of the updated version of EDS was characterized as a derivative work. Lindsay then unilaterally attempted to grant TAP ownership of the LCID. Lindsay was the only signatory to the document and she signed it as the “Copyright Holder.”

Later in 1997, Lindsay and Brownstein decided to form a joint venture agreement with one of their former employers (“CMR”) to combine the LCID with CMR’s technology to create the “E-Tech” system. A later agreement between TAP and CMR superseded the original agreement, though the relationship between CMR and TAP remained a joint venture (the “Joint Venture Agreement”). Brownstein did not sign this agreement, which provided that TAP owned the LCID.

Years later, Brownstein left E-Tech on bad terms. He then filed an oppressed shareholder lawsuit against Lindsay and E-Tech. This litigation settled (the “Settlement Agreement”). The Settlement Agreement stipulated that: (1) the terms of the settlement would not affect the instant case, which was then pending; and (2) forced Brownstein to relinquish his interest in E-Tech. Specifically, the Settlement Agreement vitiated Brownstein’s “right, title and interest” in TAP and E-Tech.

In March 2010, two months prior to the completion of the Settlement Agreement, Brownstein took affirmative steps to protect his joint authorship of the LCID by filing the instant lawsuit seeking declaratory judgment of his authorship of the LCID. Brownstein also filed a registration for copyright to the ETHN programs. However, since Lindsay had submitted Brownstein’s ETHN programs with her registration of the updated version of EDS, Brownstein had thus waited 14 years from the date of this registration to initiate this suit. Brownstein countered that 2010 was when he learned that Lindsay had claimed to be the sole author of the LCID.

The District Court ruled for Lindsay in finding that Brownstein’s claim of initial notification of Lindsay’s claim of sole authorship in 2010 was contradicted by the evidence, and even if the evidence had swayed in his favor, his claim was barred by the three-year statute of limitations under the Copyright Act.

On appeal, the court confronted first the question of whether Brownstein was a co-author of the LCID for copyright purposes. In analogizing to the joint work created when one person writes the lyrics to a song and another writes the music, the court found that with respect to LCID, Lindsay wrote the lyrics and Brownstein wrote the music. It came to this conclusion after finding that Brownstein’s contribution to the LCID was a non-trivial amount of creative expression, as his contribution via ETHN and Lindsay’s were inseparable towards the functioning of the LCID. Lindsay similarly argued that Brownstein had no rights in the derivative version of LCID created after the second registration of EDS in 1997 as a “derivative work.” This argument was similarly rejected, as the court concluded that Brownstein retained co-ownership in the post-1997 versions of the LCID that were based on any version of the LCID to which he was a coauthor.

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Finally, Lindsay claimed that Brownstein transferred his rights to LCID via the License to TAP, or alternatively, through the Settlement Agreement. However, because of the “statute of frauds” provision in the Copyright Act, Lindsay could not transfer the rights of her co-author to LCID absent written consent, consent that she did not receive from Brownstein prior to completing the License. At best, Lindsay could have conveyed only a non-exclusive license to the LCID to TAP. See 17 U.S.C. § 204(a) (“statute of frauds” provision of the Copyright Act). Likewise, the Settlement Agreement only nullified Brownstein’s interests in TAP and E-Tech, and not as the co-author of LCID.

The court then turned to the question of whether Brownstein’s claims were barred by the statute of limitations. It adhered to the “discovery rule,” a general inquiry notice rule which states that a claim accrues when the plaintiff discovers or should have discovered with due diligence that his rights had been violated. See William A. Graham Co. v. Haughey, 568 F.3d 425 (3d Cir. 2009) (further discussion of the “discovery rule”). However, the discovery rule holds that the clock only starts running “once a cause of action arises since a plaintiff cannot experience storm warnings of a violation until his rights have been violated.”

How this rule applies to a cause of action for declaration of authorship was the aspect of this case found to be sui generis. As a result, the Third Circuit turned to its sister appellate courts to conclude that in assessing the accrual of time in a joint authorship claim, the discovery rule applies once the co-author has expressly repudiated the author’s rights. See Zuill v. Shanahan, 80 F.3d 1366 (9th Cir. 1996) (a case described to have “spawned” the express repudiation rule).

In applying this standard, the court found that nothing Lindsay had done prior to this litigation could be fairly labeled as an express repudiation of Brownstein’s co-authorship in the LCID. For one, Lindsay’s registration that listed herself as the sole author was not an express repudiation because co-authors are not expected to scour the registry for competing registrations. Likewise, the License averred to transfer ownership to LCID to TAP was invalid because Lindsay could only transfer a non-exclusive license that did not negate Brownstein’s interest as the co-author. Finally, the Settlement Agreement did not extinguish Brownstein’s co-authorship in the LCID because its express terms only forfeit Brownstein’s rights as a shareholder, officer, employee or director of TAP or E-Tech. As such, “[t]here is no basis to argue that Brownstein’s … ownership” was subsumed by the consummation of the Settlement Agreement.

All told, the District Court was reversed in its ruling on judgment in favor of Lindsay, and the case was remanded for a new trail.

Conclusion

These cases illustrate that when JVs deviate from an expected amicably course, the results for the parties thereto often depend on how the relevant agreements are drafted. In the Instep case, an unequivocal integration clause in the license agreement served to render complaints based on the contemporaneous joint venture agreement irrelevant. In contrast, in the Lindsay case, Lindsay’s claim to sole authorship of the software could not be buttressed by an explicit grant of authorship by Brownstein in the language of the myriad agreements referenced. This argument failed most obviously because although Brownstein was forced to relinquish a lot in his settlement agreement, Lindsay did not specifically reference the joint work Brownstein had helped create.

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IP should be a focal point in the litigation and construction of JVs going forward. After all, as a Fortune 500 CEO once said: “I’m convinced the management of intellectual property is how value” will be created.” Moreover, the CEO declared that “Companies that are good at managing IP will win. The ones that aren’t will lose.”

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* Richard Raysman is a partner at Holland & Knight LLP and Peter Brown is the principal at Peter Brown & Associates. They are co-authors of "Computer Law: Drafting and Negotiating Forms and Agreements" (Law Journal Press).

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Faculty Biographies

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