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ADVANCED CONTRACT DRAFTING AND NEGOTIATION FOR IN-HOUSE COUNSEL

THE MISSOURI BAR

CONTINUING LEGAL EDUCATION PROGRAM

September 30, 2014

James P. Pryde Marc L. KuemmerleinBryan Cave Sprint

1Copyright 2014 (text only)  Jim Pryde and Marc Kuemmerlein

Overview

Think,thendraft.

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Excellenceinauthorshipisbettermanagement...

andbetter

Leadership.

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Theconceptofbeingalawyershouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelatewithsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.

Lecture“LawandLeadership”,YaleLawSchool,20069

Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.

Lecture“LawandLeadership”,YaleLawSchool,200610

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Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.

Lecture“LawandLeadership”,YaleLawSchool,200611

Whatwe’lldiscusstoday.

•Perspectives;contexts•Principlesandapplications•Resources• Illustrationsandexamples•Thenegotiatingdimension• Integratingideas

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WhyStudyDrafting?

● Effective,productivenegotiating● Improvedassessmentofthedraftingsubmittedbyothers● Effectiveinternalcommunications● Persuasivepositionletters

disputeresolutioncommunicationswithregulatorspubliccommunications(“thecourtofpublicopinion”)

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KeyWordsandPhrases– the“tools”Forexample:

• “Hereby”;herebygrants,transfers• “Shall”– expressesaduty• “Will” ‐‐ futurity• “Must”• “Ispermittedto”• “Willnotpermit”• “Acknowledgements”• “If,then”• “Until”“Aslongas”• “Providedthat” “Ontheconditionthat”• “and/or”

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RecommendedResourcesonDrafting● DraftingContracts:HowandWhyLawyersDoWhattheyDo,TinaL.Stark(WoltersKluwer2014);alsoNegotiatingandDraftingContractBoilerplatewww.starklegaled.com● AManualofStyleforContractDrafting,KennethA.Adams(ThirdAddition2013).www.adamsdrafting.com

● LegalWritinginPlainEnglish,BryanA.Garner(SecondEdition2013),aswellasotherworks.www.lawprose.org.● WritingtoWin,TheLegalWriter,TheCompleteGuidetoWritingStrategiesthatWillMakeYourCaseandWin,StevenD.Stark,(CrownPublishingGroup2012)www.starkwriting.com● AGuidetoContractInterpretation,VincentR.Martorana andMichaelK.Zitelli,ReedSmith(2013);seealsoPracticingLawInstituteprogramonLegalDraftingbyVincentR.Martorana.Also“CriticalThoughtsonContractDrafting”www.draftingpoints.com

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RecommendedResourcesonNegotiation• NegotiatingGenius:HowtoOvercomeObstaclestoAchieveBrilliantResultsattheBargainingTable,DeepakMalhotraandMaxH.Bazerman (HarvardBusinessSchool;Bantam2006)

• 3‐DNegotiation:PowerfulToolstoChangetheGameinYourMostImportantDeals,DavidLaxandJamesK.Sebenius (HarvardBusinessSchoolPublishing2006)

• Dealmaking:TheNewStrategyofNegotiauctions,Guhan Subramanian(W.W.Norton2010) 16

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Notjust“style”,substance

Examples

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“ThePrepaymentPenalty”• LoanDocumentsprovidedforsubstantialprepaymentfee.• Client,theborrower,wantedtorefinance,buttheprepaymentprovisionexactedanonerousfee.• Clientstoppedpayingtheloan.• Lenderacceleratedtheamountdue.• Clientpaidtheamountdue.• Noprepayment.

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TheWondersofOffset• Clientconductedauditofitscommercialleases.• Foundthatpercentagerentnotcorrectlycalculatedandrenthadbeenoverpaidbytenantforpast10years.

• StatuteofLimitationsissues;noattorneysfeesawardedforprevailingparty.

• Reviewofentireleaseyieldedabenefit.• Foundprovisionthatallowedtenanttooffsetrent.“IfattheendoftheLeaseYear,Tenanthasoverpaidrent,TenantmayoffsettheoverpaidamountsfromLeasepaymentsinthesucceedingyear.”

• Tenantbegantheoffset.• Landlordsettledforalmosttheentireamount. 19

TheEmptyShoppingCenter• ShoppingCenterpoorlydesigned;tworemainingtenants;nofoottraffic.

• Tenantlosingalotofmoney;wantedtocanceltheLease.• Leasestated:“Landlorddoesnotguarantythatanytenantoranynumberoftenantswilloccupytheshoppingcenterpremises.”

• Whattodo.• Argument: Tenantdoesnotwantanyparticulartenant oranyparticularnumberoftenants tooccupytheshoppingcenter.Itjustwantsareasonableoccupancyrate– noparticulartenantandnoparticularnumberoftenant– justareasonablenumberoftenants.

• Constructiveeviction;mutualrelease. 20

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TheEmptyShoppingCenter

“Landlord does not guaranty that (a) any tenant or any number of tenants will occupy the shopping center premises, (b) or that any minimum square footage in the shopping center premises will be occupied.”

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TransactionProcess

ReputationConfidentialityAgreement

LetterofIntentDefinitiveAgreementTheLifeoftheContract 22

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ConfidentialityAgreement• Definitionof“ConfidentialInformation”•Materialsmarked“Confidential”?• Tradesecrets?• Ideasasproprietary?• TermofCA?• Theconceptof“needtoknow”• Contractors• JointlydevelopedIP? 23

LetterofIntent/TermSheet• Theoverture‐‐ preparation– the“first10minutes”‐‐ anopportunitytoreviewwithclientthetransactiongoalsandpurposes;thekeybusinessterms;prioritiesandnegotiatingstrategies.Setsthetoneforthedocumentnegotiation.

• Leverage?– “Thosewiththegoldmaketherules.”Ordothey?Whohasthegold?Ismoneytheonly“gold”?Whatisleverage?Negotiatingfromadisadvantagedposition

• IstheLOCbinding?Nonbinding?Oramixtureofboth?ABAmodelLetterofIntentforacquisitionsisagoodresource

• Exclusivityandshiftofnegotiationleverage• Isanagreementtonegotiateingoodfaithbinding?• Damagesforbreach– expectationdamages;Delawarelaw

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TheMainAgreement

Wheredoestheagreementreside?Onpaper?Inthemindsoftheparties?Orboth.TheiterativeprocessEstablishingthedialogueLittlethingscanmeanalotDiscoveringandcreatingvalue 25

Preamble• Knowyourcounterpartyandthosewithinorrepresentingthecounterparty(negotiators;executives;counsel)• Duediligence– reviewfinancialstatements;corporatehistory;industrytrends(knowthecounterparty’splaceintheindustry).• Ifpubliccounterparty,reviewSECfilingsforsimilarcontracts.• Becarefulabouttheidentityofthecompany;payattentiontothename.Somecompaniesusecontractingshells(andjustchangeInc.toLLCorviceversa).• Whatisthesignificanceofrecitals?

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Recitals

• Opportunitytodescribethepurposeandintentofthetransaction• ImportantiflaterthereisadisputeandtheindividualswhonegotiatedthedealarenolongerwiththeCompany

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Definitions

• Theimportanceofdefinitions• Placingdefinitions:atthebeginningofthecontract?Withinthecontract? Orinanappendixattheend?

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KeyBusinessConceptsandTerms

● The“soul”ofthedeal(Canyoustateitinoneortwosentences?)● “businessterms”vs.“legalterms”● the“meetingoftheminds”● discoveringnewissues● “happytalk”– “fluff”

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RepresentationsandWarranties

• Aretheynecessary?• Acquisitions,yes• Commercialcontracts?Ifyes,whatrepsarereallyrelevant?

• Repsspeakasofaspecificdate• Atsigning?• Anytimeelse?•Websiteincorporation? 30

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Covenants• Ongoingagreements• Donotmixrepresentationsandcovenants• Websiteincorporation(“Youwillfollowourproceduressetforthonourwebsiteasmodifiedfromtimetotime.”)

• Remediesforbreach?– damages?(increaseprice?)– specificperformance– terminationofagreement– consequentials?

Lostprofitsthatareforeseeable?• AuditandInspectionRights– Limits?

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MostFavoredNations

• Somedraftingtips

• Areasofpotentialconcern

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Indemnity• Isitnecessary?• defend,indemnifyandholdharmless• Whatifnobreachactuallyoccurred?• Loserpaysattorneyfees?• Controlofdefenses– Normallycontrolledbyindemnifyingparty,butarethereexceptions?– Conflictofinterest(e.g.,differentdefensesareavailable)?– claimagainstcustomer?– potentialinjunctionoradverseeffectonbusiness?– businessreputation?

– Thedeceptivecarve‐out:“exceptwillfulgrossnegligence”

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Waiverofincidentalorconsequentialdamages

• Incidentaldamages•Consequentialdamages•Lostprofits•Diminutioninvalue

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LimitationofLiability

IncidentalandconsequentialdamagesPunitivedamagesIndemnitiesBreachofconfidentialityprovisions

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Boilerplate?

● Whyisitcalled“boilerplate”?● Isanythingreally“boilerplate”?● The“fineprint”GreatResource:TinaL.Stark,“NegotiatingandDraftingContractBoilerplate”,(ALMProperties,Inc.2003)

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AssignmentandDelegation

• “Affiliate”transfers?• Purpose– creditworthycounterpartyorotherreasons(e.g.,competitor;managerialcompetence)?• Cantheconsentbeunreasonably“withheld,conditionedordelayed”?• Is“changeofcontrol”anassignment?• Anti‐assignmentprovisions• Strictlyconstrued• Makingassignmentvoid

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FurtherAssurances• Limits– “takesuchfurtheractionsasmaybe[reasonably]requiredtocarryouttheprovisionsofthisAgreement”• Goodfaithandfairdealing• Aspectsofperformancenotspecificallyincludedbutnecessaryordesirable– the“catch‐all”• Whopayscosts?• Scopechanges?• Transitionservices? 38

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PublicAnnouncements

•Whylimitandcontrol?•Ifpubliccompany,maybeSECrestrictions

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LegalFees;CostsofEnforcement

● Oneofthefirstprovisionstocheckwhenadisputearises.

● Thecostoftheprevailingpartyinlitigation?Orthecostsincurredinconnectionwithenforcingcontractrights.

● Costsincurredforin‐housecounselinvolvement?

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Notices•Mainparty?Whowithintheorganization?• “Copy”‐ issendingthecopyrequiredtobevalidnotice?• Electronicnotices?•Whendeemeddelivered?• catchall– attheveryleastwhenactuallyreceived

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Specialconsiderations

• Draftingunderpressure• Giveyourselfbothtime andspace• Splitthedocumentup• Draftandredraft;findaneditor• Findingexits– endgames;checkwholedocument• Canonsofconstruction• Thebusinessperspective

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Interpretation

• Singular/plural,viceversa• Gender• “Including”means“includingwithoutlimitation”• and/or?• “Agreementisaresultofnegotiation,andthusnotconstruedagainsteitherparty”–enforceable?• Foreignlanguages 43

Severability

• Doyoureallywantunqualifiedseverability?• Istheresomepartofthecontractthatissovitalthatifitisunenforceable,theentirecontractshouldbein“question”?• “EssentialPartoftheAgreedExchange”

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EntireAgreement

• Besuretheclauseisaccurate.• Otherdocumentsmaybepertinente.g.,confidentialityagreement

specifications;schematics;RACI;RFPdocuments

otheroutsidedocuments• Paroleevidence

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NoThird‐PartyBeneficiaries

• Isthestandardclauseaccurate?• Ifindemnitycovers“affiliatesandemployees,”thenaretheaffiliatesandemployeesintendedtobethird‐partybeneficiariesofthemainagreement?• Isaprospectiveassigneeabeneficiary?

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GoverningLaw

• Lawsdodifferinvariousjurisdictions.Thisisasubstantivedecision.

• Delaware?• NewYork?• California?

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Jurisdiction/Venue

• Becarefulwithexclusivejurisdiction(whatifnopersonaljurisdictionisavailable)?• Venue– waiverofchangeofvenue?

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WaiverofJuryTrial

•Desired?•Enforceable?

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ForceMajeure• WhatisforcemajeurebeyondactsofGod?Thisclausecanbeusedtoshiftsignificantrisk!• Changesinlaworregulatorylandscape?• Laborshortage?• Strike?• Unabletogetrawmaterials?• Poweroutages(shouldcounterpartyhaveback‐uppowerespeciallywithcallcentersandserverfarms)?• ActsofWarandcivilunrest?• Changesinbusinessmodel?• Industrytrends?

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DisputeResolution

• Seniormanagement•Mediation•Non‐bindingarbitration•Bindingarbitration•Court

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ImplementationandPerformance

ReframingandrefiningthecontractCoursecorrectionsWhentobeformal;whentobeinformal.AdministrationandDisputesGreatresource:ThePointoftheDeal:HowtoNegotiatewhenYes isnotEnough,DannyErtelandMarkGordon(HarvardBusinessSchoolPress2007)

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