If a biorefining project developer is looking to buy an existing, distressed first-generation biofuel plant with intentions of modifying the process to produce next-generation biofuels and biobased chemicals, here are some licensing considerations that should be addressed.
John Eustermann, partner attorney with Stoel Rives, tells me some technology licenses have clauses that state if any modifications or upgrades are made, the licensor would own the rights to the modified process technology. He adds that there is really a lot involved in buying an existing process facility: signability provisions, contractual assets for technology and feedstock agreements, and the language of licensing regarding upgrades and modifications, to name a few. “If you’re buying assets, what representations are the sellers making, and what warranties are there?” he says. Do your due diligence. Eustermann says get the lay of the land on how to evaluate the deal, maybe get a letter of intent signed, or a nondisclosure agreement from the potential buyer so, if the sale is not public, no undue hardship is caused if others find out. He also says to maybe get a no-shop provision. But, he points out, there’s a cost to that. “Don’t just walk around the plant and say, ‘Okay, it’s running, let’s go!’ Look at the contractual assets and make sure there are no risks, or if there are risks, you know how to deal with them,” Eustermann says.
Dean Edstrom, partner attorney with Lindquist & Vennum, tells me it is a very important part of due diligence work on behalf of potential buyers to scrutinize the terms of the technology license, and determine first if it is transferable. There might be several process technologies under license that a biorefinery project developer may want to continue using in the new, upgraded facility. There are ways to get around this, if the seller and the buyer can agree. For instance, a merger between the selling entity and the buyer, or a subsidiary of the buyer, may allow continued use of the technology license since there technically isn’t any “transfer” of ownership or use rights. If the license is drafted tightly, however, Edstrom says it could terminate on merger and/or bankruptcy. There’s also the possibility of a reverse merger. And, if the buyer is really in a jam, they can try to renegotiate with the technology licensor.
Author: Ron Kotrba
Editor, Biorefining Magazine