Common use of Mitigating Secured Creditor Risks Clause in Contracts

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor ’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 If the licensee perfects its security interest and 46. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankrupt.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor ’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 contract.49 If the licensee perfects its security interest and 4649. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 creditors.50 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 means,51 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankrupt.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor ’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 contract.49 If the licensee perfects its security interest and 46. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 creditors.50 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 means,51 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine49. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankruptId. § 9-109.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor vendor’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 contract.49 If the licensee perfects its security interest and 46. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 creditors.50 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 means,51 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine49. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankruptId. § 9-109.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor vendor’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 contract.49 If the licensee perfects its security interest and 4649. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 creditors.50 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 means,51 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankrupt.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor vendor’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some certain circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 If the licensee perfects its security interest and 46. Id. U.C.C. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankrupt.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor vendor’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 contract.49 If the licensee perfects its security interest and 46. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 creditors.50 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 means,51 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation3rd Proofs 02/01/18 49. Id. § 9-109. 50. See generally id. §§ 9-317, because a court generally is not required to award specific performance and damages may be difficult to determine9-322. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankrupt51. Id. § 9-601 cmt. 3.

Mitigating Secured Creditor Risks. If either (1) a license is exclusive, or (2) the licensee is not a licensee in the ordinary course of business as described in U.C.C. section 9-321, then prior to execution of the license, the licensee should conduct a search for any perfected security interests in the software. While a complete discussion of search procedures is beyond the scope of this chapter, in general the licensee should search in the central filing office in the state where the licensor is organized or has its chief executive office, using the name of the licensor as determined from its organic documents. If a prior, perfected security interest is found, the customer will need to seek a release from the prior, perfected lien holders. The author has found lenders amenable to this request when the release is narrowly tailored to the specific license agreement at issue. Whether or not a prior security interest is found, the exclusive or non-ordinary-course licensee should consider filing a U.C.C. financ- ing statement against the licensor describing the licensed software and checking the “Licensee/Licensor” box to indicate the nature of the transaction. After the filing of such a financing statement, any subse- quently perfected security interests would clearly not take precedence over the software license agreement. If no such financing statement is filed by the licensee, the licensee would usually prevail anyway over the vendor’s subsequent secured lender on the theory that the vendor vendor’s rights in the underlying software were encumbered by the license prior to the time the secured lender’s security interest attached. However, in certain cases arguments could be made that the licensee’s right should be recharacterized and treated as merely a security interest, and since that interest would otherwise be unperfected, a filing would be necessary for the licensee to have priority. In some circumstances, it may make sense for a customer to obtain a security interest to secure the obligation of the vendor to perform under the contract.46 If the licensee perfects its security interest and 46. Id. § 9-109. Software License Agreements § 1:14.2 obtains first priority, it will have rights over all other creditors.47 Hence, if the licensee is first to file or perfect its interest and later a different creditor attempts to foreclose on the asset, the junior creditor ’s rights to foreclose will be subject to the licensee’s rights in the collateral. Additionally, because article 9 allows the parties to define what “default” means,48 the security agreement may allow default upon any rejection of the license and provide the customer with additional remedies to pursue if its use is interrupted in any way. There is always some difficulty in securing a nonmonetary obligation, because a court generally is not required to award specific performance and damages may be difficult to determine. However, that problem exists whether or not the license obligations are secured and a security interest affords significant protec- tions should the vendor become bankrupt.