De-Constructing Commercial Contracts A presentation to: MCLE Presented by: Kevin J. O'Connell, Esq. Verrill Dana, LLP One Boston Place Boston, MA 02108 (617) 274-2862 koconnell@verrilldana.com

Job=Helping Clients Accomplish Goals & Minimizing Risk IN THAT ORDER! You must be able to : Issue spot Understand the business impact of the various methods of risk minimization Be practical

Where to start? Understand the Client’s goals (see summary of key issues/ pitfalls) Don’t be afraid to explain “you can’t have it all!” Best way for Client to avoid risk is to walk away from opportunity! But that’s not an answer! Nor is: “It’s your call—I can’t/ won’t tell you what to do.” Bring your knowledge/ experience/ judgment to bear on the circumstances.

DRAFTING goals: Express all fundamental and material terms of the contract in a manner that allows not only your Client, but also the other party, to realize the benefits bargained for while allocating risk between the parties fairly.

Key Issues CHECKLIST OF ITEMS TO CONSIDER WHEN NEGOTIATING AND DRAFTING A COMMERCIAL CONTRACT Title Preamble/ Parties, Effective Date Recitals—great opportunity! Describe background/ rationale, define terms, set the scene Definitions—matter of taste. BE CONSISTENT! Nothing worse than defining a term and then not using it consistently throughout. Term Term can be time-based, project based, dependent on related agreement. Address right to renew or not. Beware “evergreen”. Bear in mind renegotiation of agreement. Watch out for price lock in. If Term is renewed, likely need to adjust price. Termination For cause. For convenience. Procedures in either case. Notice. Survival of certain obligations?  Operative provisions- the “guts”/ rights and obligations of the parties. Will be specific to transaction.  Price and Payment Who pays what to whom; when? How? Why? Formulas. Adjustments. Include/ exclude shipping, insurance, taxes. BEWARE the MFN For services—time and materials; fixed price; combo. Setoff rights.   

Key Issues Risk Allocation – (See materials of other presenters) Reps and warranties. Product Warranty (sales of goods) Implied under UCC, Article 2 for sales of goods Conspicuousness of disclaimer Remedies Termination Indemnification Limitation of liability (usually cap and waiver of indirect damages) Exclusivity of remedies/ cumulative remedies/ equitable remedies/ liquidated damages Choice of law; choice of forum Integration/ Entire Agreement KEY!! Beware the battle of forms Watch also for NDAs, confidentiality agreements, term sheets Other/ “Boilerplate” No such thing as boilerplate Waiver Amendment/ modification Assignment Force Majeure Dispute Resolution Insurance—shouldn’t, but can complicate transaction.

Pet Peeves MFN Consistency among remedial provisions, especially indemnification Lack of license language for use of IP (ex: trademarks/ brands) Lack of attention to IP rights (ex: ownership of IP developed during course of parties’ dealings) “Best Efforts” “Fair value” “Consequential” and indirect damages—lost profits/ diminution in value can be “direct”, so beware when waiving indirect damages Passive voice—“by whom”? And how? “Time is of essence” Attachment and Schedules Beware! And watch for inconsistencies or expansion of warranties, rights, etc.