© 2011 Cooley LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306 The content of this packet is an introduction to Cooley LLP’s capabilities and is not intended, by itself, to

provide legal advice or create an attorney-client relationship. Prior results do not guarantee future outcome.

Negotiating Critical Deal Points in Outsourcing and Cloud Agreements

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Not an Effective Contracting Methodology

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What is “Effective Contracting” for Outsourced Services?

Both parties need to share the same vision of the contracting task.Effective “Contracting” is: The process of formalizing the terms and

conditions of the business agreement by putting them into precise, detailed and legally unambiguous language that takes account of, and makes provision for, reasonable foreseeable contingencies, establishes the rules for the day to day provision of services and provides a legal basis for interpreting the intent of the parties in the event that a dispute goes to litigation.

Effective Contracting does:provide both Client and Service Provider with predictable patterns and

results respect the commercial and legal drivers of both Client and Service Providerbalances: Client commercial requirements with Service Provider abilities risks and rewardCultures and values

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Shift in Focus: Contracts that Embody Values

Contract

ValuesContracting Methodology

Equitable

Establish objective measures of quality service (not perfection) Baseline vs. historical / industry performance Simplify service level management Rational termination remedies and exit strategy Governance model to manage change

Accountable

Provide a quantitative measurement to evaluate the service provider’s actual performance

Create an audit trail / trend analysis of service performance Financial risk for service provider for poor performance Root cause analysis

Sustainable

Allow evolution, adaptation, and change with minimal negotiation during the term of the agreement

Promulgate continuous improvement

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Negotiation Management: Key Questions

What are the key constraints? Timing

Event driven (platform issues) Fiscal calendar

Critical positions Approvals

How will the team be structured? Commitment / empowerment of resources Outside expert resources: advisors and legal counsel

Who will play what roles?

How will documents be controlled?

How will progress be measured?

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Negotiation Management: “Style” and its Impacts

Partnering: offer is real position

TransactionEfficiency / Satisfaction

• Increased speed to signatures

• Lower transaction cost

• Market-based terms

• Enhanced goodwill

• Customer favorable terms

• Protracted negotiations

• High transaction cost

• Eroded relationship

Collaborative: offer is close to real position

Positional: offer is not close real position, objective is to get to real position

Leveraged: offer is not close to real position, objective is to get better than real position

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Key Terms:Service Level Methodology

Overview: Methodology for setting, measuring, reporting and managing the service levels applicable to the Services. Scope includes service level type definition, changes to service levels, continuous improvement, service level credit calculation and remedial schemes.

Key Point: At Risk Amount / Pool Percentage

Changes to Service Levels (Mandatory Changes) – CPI promotions

Caps on Pool Percentage Allocations

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Key Terms:Transition / Transformation Methodology

Overview: Describes the obligations of the Service Provider to lead the overall transition/transformation phase(s) with reasonable assistance from Client. Creates a methodology for Client approval and sign-off on all pre-transition activities prior to Service Provider transferring Service delivery to its control.

Key Point: Transition Critical Milestone methodology and remedies

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Key Terms:Compliance with Laws

Sample Provision: Service Provider responsible for:

laws applicable to Service Provider and its business

laws applicable to the performance of the Services

laws applicable to the privacy and security of Customer Data

Negotiation Parameters:

more than just business licensing

privacy / security

monitoring changes in laws and impacts of changes

differing interpretations of compliance

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Key Terms:Master Services Agreement

Data Protection Standard

Sample Provision: Service Provider will maintain and enforce at the Service Provider Locations, to the extent the Service Provider Locations are controlled or provided by Service Provider,

(i) safety and security procedures and equipment which will include reasonable and appropriate technical, organizational and security measures against the destruction, loss, unauthorized access or alteration of all Client Data and Confidential Information, and

(ii) any other procedures and equipment required by Client.

Negotiation Parameters:

Objective standard vs. defined by Client

Changes to Client standards during term (Mandatory Change)

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Key Terms:Master Services Agreement

Client Termination Rights Sample Provision: Client may terminate for cause for:

uncured material breach

numerous immaterial breaches that in aggregate become material

third material breach in rolling 36 months (cured or uncured)

Critical Service failure (shorter cure)

Transition Critical Milestone failure

limitation of liability refresh – 60% threshold

SLA Termination Event

same CPI – Minimum

combo of CPIs – Minimum

Negotiation Parameters: Material breach vs. all others

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Key Terms:Master Services Agreement

Service Provider Termination Right

Sample Provision: In the event that Client fails to pay undisputed Fees by the specified due date, and the total of all such overdue undisputed Fees exceeds, in the aggregate, three (3) times the average monthly Fees invoiced in the prior twelve (12) months, then, if Client fails to pay such amounts within twenty (20) days of receipt of written notice from Service Provider of its intention to terminate…

Negotiation Parameters:

fee total

general termination for cause

IP and confidentiality violations

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Key Terms:Master Services Agreement

Limitation of Liability - Cap

Sample Provision:

Primary cap = 12-24 months of Base Fees

Exclusions from cap: indemnity; willful misconduct / fraud / gross negligence; wrongful termination / abandonment; breaches of confidentiality or data protection

Negotiation Parameters:

Primary cap size

“Super cap” vs. exclusions

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Special Counsel

Broomfield380 Interlocken Crescent

Suite 900Broomfield, Colorado 80021

Phone: 720/566-4111

Mobile: 303/330-5536Fax: 720/566-4099asak@cooley.com

Presenter: Adam Sak

Adam Sak is Special Counsel in the Technology Transactions practice group and a member of Cooley's Business department. He rejoined the Firm in 2010 and is resident in the Colorado office.

Adam's practice focuses on sourcing strategies and events with an emphasis on business process outsourcing (BPO) and information technology outsourcing (ITO) transactions. Adam advises global clients on the structuring, negotiation, and implementation of strategic BPO and ITO transactions spanning North America, Europe, Asia, Latin America and South America. He also advises clients on sourcing event management including RFP development, competitive vendor down-select process, work-plan development, and emerging outsourcing contract standards and trends. In addition, he counsels on contract strategy, production, and negotiations, with an emphasis on content and process optimization. Adam's clients have included prominent global companies in a variety of industries, including consumer goods, financial services, software, telecommunications, insurance, airlines, pharmaceuticals, food and agriculture, energy, oil & gas, apparel, entertainment, and information technology.

Prior to rejoining Cooley, Adam was a Partner leading the outsourcing practices at Greenberg Traurig, LLP, Sonnenschein Nath & Rosenthal LLP, and Wilson Sonsini Goodrich & Rosati, PC.  Previously, Adam was a founding member of the transaction architecture and negotiations management practice at EquaTerra, Inc., a leading outsourcing advisory group and was also a director of legal affairs at Exult, Inc. where he structured and negotiated many of the industry's first human resources business process outsourcing (HR BPO) transactions.  He was also responsible for maintaining Exult's compliance with U.S., European, and Canadian privacy and data protection laws, including HIPAA, the E.U. Privacy Directive/Safe Harbor, and Canada's Personal Information Protection and Electronic Documents Act.

Adam received a J.D. from Boalt Hall School of Law, University of California at Berkeley where he served as an Associate Editor on the International Tax & Business Lawyer journal. He received a Bachelor of Science in Finance from Miami University.

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Partner

Broomfield380 Interlocken Crescent

Suite 900Broomfield, Colorado 80021

Phone: 720/566-4196

Mobile___________Fax: 720/566-4099

kberets@cooley.com

Presenter: Keith Berets

Keith J. Berets is a partner in the Technology Transactions practice group, and a member of the Cooley Business department. He joined the Firm in 2000 and is resident in the Colorado office, where he focuses on transactions involving the acquisition, development and commercialization of technology.

Mr. Berets focuses on the legal and business needs of his clients in connection with their technology and intellectual property transactions. His clients include multinational public companies and start-ups financed by venture capital firms in the renewable energy, wireless communications, software, services and hardware industries. He has counseled clients on, and crafted and negotiated agreements involving, their renewable and clean energy products, systems and solutions; outsourcing, consulting, licensing, distribution, development and technology transfer; electronic commerce, Web and Internet transactions; and other strategic relationships. He has significant experience with both domestic and international matters.

Mr. Berets represents leading clean technology and alternative energy companies, IT firms and Internet companies, software developers and distributors, service providers, information systems, network systems, hardware and communications companies, and other technology companies in connection with the commercialization of their technology products and services. He also counsels clients on the intellectual property aspects of mergers, acquisitions, and financings.

Prior to joining Cooley's Colorado office, Mr. Berets was an associate at Sonnenschein Nath & Rosenthal in Chicago.

He received a J.D., cum laude, in 1997 from the University of Wisconsin Law School where he was elected to Order of the Coif, was a teaching assistant for the Legal Research and Writing Program and the Senior Articles Editor of the Law Review. He also worked as an extern for Judge Barbara Crabb in the United States District Court in the Western District of Wisconsin. He received a B.A. in Psychology from Pomona College in 1990.

Mr. Berets is admitted to practice in the state of Colorado and is a member of the American Bar Association.

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Q & A Session

Thank You.