legal advice letter for client

I will send the data of the incident, which is between two American companies and a Chinese company, and I am the lawyer of the American company. The client wants legal advice on what is required in the form of the answer that I will send.

DOING BUSINESS IN THE U.S.
FALL SEMESTER 2019
Terminator Software Corporation Case Study
1. Terminator Software Corporation – California/NYSE Company. Terminator Software
Corporation (Terminator Software) is a company incorporated and headquartered in Palo
Alto, California and registered to do business in most of the states of the United States of
America. It is listed on the New York Stock Exchange and is widely held by individual and
institutional investors. Its latest financial statements are attached.
2. Terminator Software’s Business.
a. Terminator Software is engaged in the development of artificial intelligence software and
hardware for all sorts of uses. Terminator Software has several off-the-shelf applications
for use in diagnosing combustion engine problems, sorting microbes in soil, predicting
traffic patterns in metropolitan areas, predicting rain fall and sun light in geographically
defined areas, and others. Software sales concerning programs that diagnose and predict
failures in combustion engines generates 65% of Terminator Software’s revenues.
Presently in the USA, Terminator Software’s products control 60% of the market for
programs that diagnose and predict failures of combustion engines.
b. With respect to microbe sorting in soils, Terminator Software is in the process of
developing a robotic instrument that will identify, separate, and grow in cultures various
microbes in a sample of soil and recombine them to be maximally beneficial for the crop
intended to be grown in that soil. Presently, it is the only company that has developed
technology for such an instrument and has already received orders for the instrument
once it is ready for commercial use from over 1,200 large acreage farms in the Great
Plains of the USA. If the instrument can be consistently successful in its operations
during the next 12 months of its testing, Terminator Software will be the only supplier of
such an instrument to crop growers. It has seven patent applications covering various
aspects of the technology that Terminator Software has developed for this series of
instruments.
c. Terminator Software has long-term contracts for its combustion engine diagnosticpredictive software (sold as “Combustion Biologics”) with many of the domestic
suppliers of combustion engines in the USA. These contracts have a provision in them
that allows the suppliers to terminate the contract in the event that Terminator Software
assigns or attempts to assign the contact.
d. Terminator Software hopes to become a major supplier of it Combustion Biologics line
of AI software with foreign manufacturers of combustion engines. Recently, the
Departments of Commerce and Defense in the USA have inquired of Terminator
Software about certain aspects of its “deep learning” programming used in its
Combustion Biologics as potentially needing to be controlled for export purposes and as
having use in military applications.
e. 60% of Terminator Software’s workforce are members of the International Brotherhood
of Software Engineers (IBSE). The IBSE has traditionally opposed new ventures with
foreign companies because they have assumed U.S. jobs will be lost to non-U.S. workers.
Terminator Software has a collective bargaining agreement with the IBSE that requires
that no employee be required to travel or work outside the U.S. It also requires
arbitration of all disputes under the contract.
f. Terminator Software has invested heavily in “deep learning” technology and has an
extensive research and development department. Terminator Software owns numerous
patents and patent applications on various aspects of its software and robotics
technologies in the US and Europe. Terminator Software has not licensed its technology
to anyone outside of the USA. Terminator Software also maintains much of its
technology as trade secrets which it has licensed to no one.
3. Terminator Software Officers and Directors.
a. The Chief Executive Officer (CEO) of Terminator Software is Sara Connors, better
known in the industry as “Judgment Day Sara,” a title she acquired by her business
negotiation style of threatening to crush anyone who disagrees with her. Her lack of
manners in conducting business has kept attorneys for Terminator Software very busy.
b. Her management decisions have also been matters of concern for Terminator Software’s
Chief Financial Officer (CFO) Costus Cash, a timid man who tends to withhold his
opinions.
c. The Terminator Software’s Board of Directors has nine members, including:
•
Sara Connors, her sister and brother-in-law
•
Jim Acre, the CEO of a real estate company that leases space to Terminator
Software for its corporate headquarters
•
Two childhood friends of Judgment Day Sara, one of whom has a consulting
contract with Terminator Software for occasional marketing assignments and
•
Three CEO’s from unrelated companies.
d. Judgement Day Sara is Chairman of the Board and Chairman of the Board’s Executive
Committee which also includes her sister and brother-in-law. The Board also has an
Audit Committee whose members include Jim Acre and Sara’s two childhood friends,
none of whom is a CPA or financial expert.
4. AI China Limited’s Business and President.
a. AI China Limited (AI China) is the largest software development company in China that
focuses on artificial intelligence. In fact, AI China has the most advanced technology for
teaching computers to learn and predict outcomes based upon learning through
algorithmic exercises using data from the “internet of things.”
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b. Over 60% of the artificial intelligence software market in China and India that uses data
collected from the internet of things is supplied by AI China. AI China has not yet
entered the US or European markets but has an interest in doing so.
c. AI China’s financial statements are attached. They have already been translated from
RMBs into U.S. dollars in accordance with U.S. Generally Accepted Accounting
Principles (GAAP).
d. AI China’s President, Jun Xiaoyang, is a former Colonel Commandant in the People’s
Liberation Army of China. While a Colonel Commandant, she was responsible for the
army’s research on using artificial intelligence to control military vehicles. Jun Xiaoyang
has a reputation of being very careful and not making decision quickly. She also believes
that AI China needs to expand its operations into Europe and United States. She knows
that the US Government is concerned about foreign ownership of US technology and use
of artificial intelligence. However, she would like to gain access to US and European
markets by acquiring or teaming with companies who have a strong position in those
markets. She also believes that AI China needs to establish a research center in the USA
to keep its position as a leading developer of AI software.
e. AI China, when it started, received certain grants from the Central Government of the
People’s Republic of China that were used to hire software engineers and develop
software involving artificial intelligence. That funding lasted for several years but ended
once AI China became profitable.
f. None of the shares of AI China are owned by the Chinese government. The shares of AI
China are traded on the Hong Kong Stock Exchange.
g. Jun Xiaoyang is also the sister of the First Assistant to the Chairman of the Central
Commission for Discipline Inspection.
5. The Proposed Transaction.
a. Sara Connors would like to use sensors placed in soils, aircraft and satellites to gather
data continuously about the conditions of target farmlands in order to analyze the
microbes in that soil and use that information to design soil implements and additives to
create the optimal soil for the raising the selected crops. She realizes that there has
already been a lot of development of technology in China based upon gathering sensors’
data through the internet, particularly by AI China. Judgment Day Sara believes that the
market for this technology is unmeasurable and would extend into every country in the
world. Before the competition enters this market, she would like to enter into some type
of cooperation agreement with AI China to develop, market and sell whole systems to
farming interests across the globe. She would want the development of these line of
systems to take place in the USA. She would also want AI China to invest in this project.
b. She also sees the transaction as a solution to Terminator Software’s desire to enter into
the agricultural business because she believes that the world will soon face a food crisis
and will need to rely on technologies that optimize crop production.
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c. Judgment Day Sara believes she can entice Jun Xiaoyang to enter into a business
transaction with Terminator Software by offering AI China with an entrance into the US
market for its products and technology.
d. Concerned with mounting debt on Terminator Software’s balance sheet, Sara advises her
CFO, Costus Cash, that she wants him to set up an offshore entity, headed by Mr. Acres,
to act as the holding company for the exclusive rights to sell AI China software in the
USA and perhaps other countries. Sara believes that royalties can be earned by that
company and that the right to these royalties could be used to secure a loan. She thinks
that this loan would not appear on Terminator Software’s balance sheet as a debt, but that
the ownership of this subsidiary would appear as an asset.
e. If she can persuade AI China to enter into such a transaction, Judgment Day Sara believes
Terminator Software, through this arrangement, will become the largest distributor of AI
software using the internet of things in the U.S. She is convinced that a public
announcement of the Terminator Software/AI China transaction will cause the price of
Terminator Software shares to rise significantly. She therefore phones her stockbroker
and directs that as soon as she notifies the broker that Terminator Software has entered
into a binding letter of intent with AI China, the broker is to buy 500,000 shares of
Terminator Software on the open market.
f. Further in the back of her mind, Judgment Day Sara wonders if Terminator Software or
its soon-to-be-formed offshore company can obtain favorable loans from Chinese banks
or financial institutions to finance international farm analysis projects. She believes that
Jun Xiaoyang’s government contacts might be helpful in this regard.
6. Dinner and Advice.
a. You are in your law office in Cleveland when you receive a call from Sara Connors,
stating that she would like you to represent Terminator Software in her efforts to structure
and enter into a business deal with AI China. Sara says she would like to fly to Cleveland
soon to have dinner with you to discuss the alternatives available to Terminator Software.
She says she is a little confused whether he should form a joint venture, partnership or
simply team with AI China in some manner. On all of this, she would like your advice.
b. Following Judgment Day Sara’s call, you receive a call from Costus Cash. He states that
he has heard you have been retained by Terminator Software on the AI China project.
Costus expresses concern about Sara’s directive that he set up an offshore subsidiary for
possible use in this project and would like your advice as to how to proceed. He ends the
call by asking you not to tell Sara that he placed the call to you.
c. You decide that it would be a good idea to prepare a letter to Sara that will explain the
legal options available for a transaction involving Terminator Software and AI China and
that will also identify and explain some the major legal issues of concern that you have
with respect to the structure of the transaction. You intend to provide this letter to Sara at
the end of your dinner with her. Get ready for your dinner with Judgment Day Sara and
GOOD LUCK.
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[Documents to be Separately Provided]
Financial Statements of
Terminator Software Corporation
And
AI China Limited
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[Your Law Firm Name]
[Date]
CONFIDENTIAL: ATTORNEY – CLIENT COMMUNICATION
[Client]
[Address]
Attention: [Name], Chief Executive Officer
Re:
Potential Business Transaction with [name of other company]
Dear [Mr./Ms.] ____________:
[Introduction]
[Potential structures for a transaction]
-License Agreement?
-Supply Agreement – Supply of Goods?
Distribution Agreement – look at the markets
Joint ventures – What form?
General Partnership – Unlimited Liability
Corporation
Shareholding
Board
Officers
Limited Liability Company
Membership interests
Management Structure
Board
Member managed
Something else
Merger and/or acquisition
Samarium Processing Corporation
[Date]
Page 2
Also list other legal issues that you identify
Export-Import issue
FCPA
Environment
Others – look at all the topics we have covered
[Conclusion]
Very truly yours,
[Attorney]