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					NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Crafting the Right Strategy
to Protect Investments in
Mission Critical Software
Breakout Session #1210
Frank Bruno, Business Strategist, DSI Technology Escrow
Services

Wednesday, April 28, 2004
11:40 am – 12:40 pm




NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Topics for Review

•     Considerations relative to software and escrow
•     Explanation of various agreements
•     Crafting a ―Protection Strategy‖
•     Primary areas of negotiation
•     Verification testing
•     Recap
•     Brief company overview
•     Q&A (anytime during presentation)



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
The Evolving World of
Programming
  Developer enters                               Compiler translates                         System reads the
  human readable                                    to computer                              object code to run
    source code                                  readable language,                             the program
                                                    object code                                  executable




       Newer programming methodologies (i.e., multi-layered application
        designs) make access to key data even more critical than ever
NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
                                                    Escrow Release Rates
    Escrow Release Requests on the
    Rise
        10%

  % of
  Total 5%
Accounts

          0%
           1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
                                  Years 1990 – 2003
    • Release rate reflects evolving software industry
            – Economic conditions
            – Technical trends
    • Past 2 years – increase of 45% over previous decade average


    NCMA World Congress 2004                                                       April 26–28, 2004
                                                                                   Renaissance Orlando Resort at Seaworld
    ―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
   Requests for Release Breakdown
Reason                                      Percentage
Loss of support                             30%                            • Contrary to belief,
Cease business                              22%                              leading escrow agents
operations                                                                   have
Bankruptcy                                  20%                                  – Never been stopped by
Depositor’s request                         9%                                     bankruptcy trustees
Demand release                              6%                                   – Administered to more
Payment                                     2%                                     releases due to other
                                                                                   reasons than bankruptcy
Court order                                 1%
Breach of obligation                        <1%
Merger                                      <1%
Transfer of assets                          <1%


  NCMA World Congress 2004                                                          April 26–28, 2004
                                                                                    Renaissance Orlando Resort at Seaworld
  ―Maximizing Value to Stakeholders…Contract Management in the Business World‖      Orlando, FL
Escrow Release Events

•     Vendor Status
        –    Cessation of business
        –    Bankruptcy (of any type)
        –    Division closed or divested
        –    Mergers and Acquisitions
•     Vendor Support
        – Bankruptcy of subcontractors
        – Lack of support of the
          product/breach
        – Sub-par service levels
        – Loss of key personnel
        – Discontinuation of further
          product development or
          upgrades



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
An Escrow Arrangement Will…

                                       …from the Developer’s Perspective
                             •     Protect their intellectual property rights
                             •     Establish credibility with the marketplace
                             •     Shorten the sales cycle
                             •     Level the playing field
                             •     Satisfy a client requirement
                             •     And, what if they verify their deposits?
                                    – …could they share the report results with their
                                      clients and prospects?
                                    – …would it put them on a higher playing field,
                                      competitively?



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
An Escrow Arrangement Will…

                                       …from the Licensee’s Perspective
                             •     Minimize risk of loss
                             •     Provide timely access to the source code and
                                   maintenance materials
                             •     Avoid litigation and the courts
                             •     Have an option to control the future
                             •     Provide leverage after the license has been
                                   signed
                                     – …if you have an escrow agreement executed
                                     – …if you have the right language written into the
                                       agreement



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
The Leverage of the Escrow
Process
                                   Problem

                            Contact Developer
    not satisfied                                                    Satisfied
   Licensee seeks release                                                  

    Problem                                      Developer
 Unresolved or                                 still operating
  Developer no
longer operating
       escrow
      released

          
NCMA World Congress 2004                                                         April 26–28, 2004
                                                                                 Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖     Orlando, FL
    Types of Escrow Agreements
       Three-Party Agreement                                                      Two-Party Agreement
                                                                      Escrow Agent




All three parties negotiate and sign the escrow
  contract. Terms generally are customized.                                                                        Beneficiary #1

                                                                        Depositor




Depositor                               One Beneficiary                                                             Beneficiary # 2
                                                                          • Signed by Depositor and Escrow Agent.
                                                                          • Standard terms for all beneficiaries.
                                                                          • Depositor names beneficiaries.
                                                                          • Beneficiaries don’t sign and are not a party
                                                                            to the agreement.
                                                                          • Depositor maintains all control over
                   Escrow Agent                                             enrollments and terminations.
   NCMA World Congress 2004                                                             April 26–28, 2004
                                                                                        Renaissance Orlando Resort at Seaworld
   ―Maximizing Value to Stakeholders…Contract Management in the Business World‖         Orlando, FL
Master Depositor Agreement
                                               Master Escrow Agreement
                                               Depositor & Escrow Agent
                                               sign the master agreement



                     Depositor's                        Depositor's                   Depositor's
                     Product #1                         Product #2                    Product #3
              Add beneficiaries below            Add beneficiaries below       Add beneficiaries below
               via 1 page addendum                via 1 page addendum           via 1 page addendum


                    Beneficiary #1                     Beneficiary #1              Beneficiary #1


                    Beneficiary #2                     Beneficiary #2              Beneficiary #2


                    Beneficiary #3                                                 Beneficiary #3


                                                                                   Beneficiary #4

NCMA World Congress 2004                                                          April 26–28, 2004
                                                                                  Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖      Orlando, FL
      Master Beneficiary Agreement

                                                 Master Escrow Agreement
                                                Beneficiary & Escrow Agent
                                                signs the master agreement



  Depositor #1             Depositor #2                  Depositor #3                 Depositor #4                   Depositor #5
     signs                    signs                         signs                        signs                          signs
   Depositor                Depositor                     Depositor                    Depositor                      Depositor
Acceptance Form          Acceptance Form               Acceptance Form              Acceptance Form                Acceptance Form




     NCMA World Congress 2004                                                           April 26–28, 2004
                                                                                        Renaissance Orlando Resort at Seaworld
     ―Maximizing Value to Stakeholders…Contract Management in the Business World‖       Orlando, FL
Crafting a Protection Strategy
                                  • Determine the need for escrow and
                                    verification
                                  • Start early; during the vendor selection
                                    process
                                  • Budget for anticipated costs to protect these
                                    investments
                                  • Create a well-balanced agreement
                                  • Specify the escrow deposit materials
                                  • Verify the deposit
                                  • Use of a reputable and experienced agent
                                  • Properly manage the escrow agreement
                                  • Leverage the escrow to optimize the
                                    relationship



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Determine the Need for Escrow




NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Managing Other Risk

• Intellectual Property Development:
        – Web based technologies (Application Service
          Providers)
        – Joint ventures
        – Employee confidentiality
        – Patents, trade secrets and copyrights
        – Collateral preservation
        – Anything else you might need access to under
          certain conditions that the other party doesn’t want
          you to have right now


NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Start Early; During the Vendor
Selection Process
• Infuse a process to obtain costing information relative
  to escrow and verification
• Use a deposit questionnaire to understand the
  nature, time and investment required to recreate the
  application development environment
• Include this cost in your overall program budget!
• Justify the cost by comparing the time and effort it
  would take to find a new solution if you didn’t have
  access to the code!
• Gain stakeholder buy – in

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Primary Areas for Negotiation
                                 •     Reputable and reliable escrow agent
                                 •     Deposit update process and frequency
                                 •     Verification rights
                                 •     Release conditions
                                 •     Release process
                                 •     Contrary instructions
                                 •     Right to use following a release
                                 •     Third party software
                                 •     Dispute resolution and controlling law
                                 •     Deposit contents
                                 •     Who pays the fees and how they will be paid?



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
A Reputable Escrow Agent
                             • Experience
                                     – Creates agreements and administers
                                       releases and verification testing
                             • Client Services
                                     – Provides ongoing administration of the
                                       arrangement
                             • Reporting Functions
                                     – Notifies parties of compliance failures and
                                       any deposit account activity
                             • Staff Expertise
                                     – In-house legal and technical solutions
                                       available
                             • Facilities
                                     – Uses global media vault(s); not owned and
                                       operated by third-party vendors
NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
What Makes an Ideal Storage
Environment
                                            • Suggested Criteria for Media Vault
                                                    – Security systems throughout
                                                    – Limited access
                                                    – Bonded/insured vault administrators
                                                    – Bar coding inventory
                                                    – Technology-related materials only
                                                    – Constant room temperature and humidity
                                                    – Minimum of 4-hour rated firewalls
                                                    – Non-water based fire extinguishing
                                                      system
                                                    – Documented process for handling
                                                      deposits, problem resolution and disaster
                                                      recovery


NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Deposit Update Process

                             • Specifies the amount of time a
                               depositor has to send in updated
                               materials after a escrow
                               agreement is signed or after a
                               major version release, patch,
                               update, etc.
                             • Clarifies the method of
                               transmitting new update materials
                               to the escrow agent

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Release Conditions

• Should be clearly written
• Supplementary to a condition of bankruptcy
• Should always address areas of concern (i.e., lack of
  support, loss of key personnel, bankruptcy of subs,
  discontinuation of further product development, M&A
  activity, etc.)
• Tied back to the terms and conditions of the licensing
  agreement
• ―Demand Release‖ on super critical applications
• Supported by an ―administratable‖ and ―enforceable‖
  process

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Release Process

• Clearly defines the steps for release, methods of
  communication, timing and contingencies (i.e.,
  ―contrary instructions‖)
• Establishes timeframes relative to the administration
  of terms and conditions
• Clarifies the role and responsibility of the Escrow
  Agent
• Ties in other contingencies relative to the licensing
  agreement, the escalation process and dispute
  resolution, etc.


NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Contrary Instructions

• Provides the depositor with an opportunity to
  validate the release condition
• Establishes clear boundaries relative to what
  the depositor can dispute
• Limits the amount of time the depositor has to
  provide a response to a release request or…
• Provides a timeline for the depositor to cure
  the condition for release and satisfy their
  customer


NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Right to Use Following Release

• Clarifies the rights that a beneficiary has to
  the intellectual property once a release has
  been made
• If there is no provision for rights to use the
  deposit materials, then it is possible that a
  beneficiary may not be able to do anything
  with the deposit materials once a release has
  been made. This is subject to interpretation
• Potential area for dispute resolution

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Dispute Resolution and Controlling
Law
• Often, clients do not like common arbitration
  and would rather settle disputes in court
• Spells out the process, venue and cost
  distribution for settling disputes
• Also specifies which state or country’s law will
  govern the agreement




NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Suggested Deposit Materials
                                • Source code for each version
                                • User and installation documentation
                                • Compilation and execution
                                  instructions/procedures
                                • Third-party embedded software identified or
                                  object code included
                                • Necessary hardware and compilers
                                • Passwords and encryption keys
                                • Names and contact information of key
                                  programmers
                                • Object Code (ASP’s)
                                • Other related IP



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Who Pays and How

• YOU drive the escrow arrangement!
• Understand the component fees associated with
  escrow and verification
• Determine who benefits the most from the services
  covered by these fees in terms of leveraging
  agreements and deposit accounts for future use
• Pay the fees, but share the cost with the other party
• Audit costs on an annual basis (are you still licensing
  this technology?)
• Audit the beneficiary lists and/or deposit accounts to
  make sure they are current

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
     Technical Verification
• Do these items appear to be
  present?                                                Source Code
• Can we re-build the
  executable?
• Does the executable work?
                                                             Compiler




          3rd Party                                                                                   3rd Party
                                                          Object Code
         Object Code                                                                                 Object Code




                                                          Executables

    NCMA World Congress 2004                                                       April 26–28, 2004
                                                                                   Renaissance Orlando Resort at Seaworld
    ―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
 Technical Verification
Level I - Read
Purpose: To ensure that all necessary information
and components to run the code has been
included in the escrow deposit
Level II - Build
Purpose: To ensure that the deposited materials
can be compiled
Level III - Run
Purpose: To test the functionality of the deposit
after compile process is completed
 NCMA World Congress 2004                                                       April 26–28, 2004
                                                                                Renaissance Orlando Resort at Seaworld
 ―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
  Technical Verification

  Is it Necessary?
  • 25% of verifications have
      uncovered major
      deficiencies
  • 40% of verifications have
      uncovered minor
      deficiencies
   Verification strengthens the
  leverage value of the escrow
  Verification enables a quick,
successful deployment of deposit
Verification protects your software
          investment (ROI)
  NCMA World Congress 2004                                                      April 26–28, 2004
                                                                                Renaissance Orlando Resort at Seaworld
 ―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Verification Rights

• Sophisticated businesses reduce their risk
  when making significant investments

        A. Lenders – examine collateral

        B. Purchasers of real estate do environmental
           surveys and appraisals

        C. Life insurance companies do physical
           examinations on every policy written!


NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Verification Best Practices

• Depositors are initiating verification and
  offering the reporting results to their client
  licensees

• Final licensee deliverables (executables) are
  being fulfilled by the escrow agent

• Licensees anticipate this cost and build it into
  the overall program budget

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
The Importance of Contracts and
Codes
                                                   Escrow
                                                   Escrow                               Technical
The T’s and C’s                                                                         Expertise




      Legal
     Expertise                                                      Verification
                                                                           The Deposit Materials


    You need to do both right to make it work!
NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Recap: What’s Your Protection
Strategy?
                        Craft a strategy and gain corporate buy in!

              A fair agreement with enforceable processes in place

          Ensure a usable escrow deposit that is updated regularly

                Periodic verification of the escrow deposit/updates

         Work with a reliable agent to administer to the agreements

                                                 and stay involved!


NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
DSI in a Nutshell
• Iron Mountain (NYSE: IRM) company with over $1.5B in
  revenue last year (Financial Viability)
• Founded in 1982; the world’s largest intellectual property
  protection provider, specializing in technology escrow and
  verification services (Experience)
• 45,000+ clients, including 3/4 of the Fortune 500 and 98% of the
  Software 500 — Command over 85% market share (Brand
  Recognition)
• Own and operate environmentally controlled and secured vaults
  (Reliability)
• 20 year history of non-litigation over release conditions!
  (Reputable)



NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
                                       Any Questions?




                         Comprehensive Intellectual Property Protection Services
                                                 www.dsiescrow.com

NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL
Thank you!




NCMA World Congress 2004                                                       April 26–28, 2004
                                                                               Renaissance Orlando Resort at Seaworld
―Maximizing Value to Stakeholders…Contract Management in the Business World‖   Orlando, FL

				
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