Contracts: The Basics


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Navigating contracts can be treacherous. This presentation highlights the "need to knows" when reading and writing any contract. Specification from the start can help prevent headaches, extra expenses and lawsuits later on whether you´re subscribing to a cloud-based service or doing business with a friend. NDAs, Terms of Use and software licensing are also discussed.

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Contracts: The Basics

  1. 1. CONTRACTS: THE BASICS Andrew T. Mirsky Mirsky & Company, PLLCMirsky & Company, PLLC (“Kenyon”) has provided this presentation for general informational purposes only. It is not intended as professionalcounsel and should not be used as such. You should contact your attorney to obtain advice with respect to any particular issue or problem.
  2. 2. Andrew T. Mirsky, Esq.• Principal, Mirsky & Company, PLLC, DC and NY• Formerly in-house counsel with National Journal and Atlantic Monthly magazines• Clients in new media and technology, including intellectual property, corporate and finance, privacy, joint ventures and partnerships, and employment and HR matters.• Founder, Media Future Now (
  3. 3. What Matters in Contracts?
  4. 4. Limitation of LiabilityGoverning LawArbitrationIndemnification/Hold Harmless Where does this matter? Sales/Mergers, any situation where a contract party faces legal exposure from something the other party didPayment Terms
  5. 5. Specific ResponsibilitiesDeliverables •Why important? Spend time up-front to manage expectations and pre-empt disputes about what you said you would and would not do. •Instead of “we will provide training”, instead define scope of training, what is and what is not covered, time limitations, billings costs beyond scope, etc.Termination • Specifically, what happens upon termination? (HANDOUT: pre-REMS/post-REMS)Buyouts and split-ups •e.g. partnerships, JVs: Who owns jointly-developed assets? (A: The partnership. Ok, but what if partnership splits up?) Integration/“entire agreement” clause •What is this and why is this important?Ownership Rights •Who owns what? If there are important assets at stake, be clear and address in writingIP Ownership •Especially licensed software, but who owns new developments?
  6. 6. Employment/Offer Letters Work-for-Hire•Many states (DC, NY) require written •Must be in writing before work statement of compensation terms. begins; needed for ICs, not needed •Offer letters good to manage for EEs. Independent Contractor expectations, especially about “at- will” employment. Services Agreement NDAs •specification of deliverables •enforceable? Partnership •Turns out YES! Also: VERY important Agreements/LLCs/JVs to make clear no noncompete (e.g. Campaign Grid) Software and Development Agreements
  7. 7. Don’t rely too much on lawyers Know whom you’re Write contracts in plaincontracting with. Do a English. What does thisGoogle search. Check mean? social media.
  8. 8. Company Responsibilities: Company expressly acknowledges that (i)the Services to be provided by Service Provider may be dependent onCompany facilitating the provision of certain data, information and/orassistance by the RPA Participants, and if the parties agree thatcertain Services are to be performed at Company’s facility, suchServices may be dependent on Company providing access toCompany’s facilities and suitable work space, and (ii) suchcooperation may be essential to the performance of Services byService Provider. Company acknowledges and agrees that any delayor failure by Service Provider to provide Services hereunder which iscaused in whole or in part by Company’s failure to timely and fullyfacilitate the provision of such cooperation or assistance reasonablyrequested by Service Provider shall not be deemed to be a breach ofService Provider’ performance obligations under this Agreement.” -If client is expected to provide certain assistance, highly useful to specify in the contract. -Why useful? Manage client expectations. Keeping disputes at the level of business disputes rather than legal.
  9. 9. 1. Specificity on Who Does What2. Spelling out What Happens on Contract Termination3. Big problem with Ambiguous Contract Terms4. Making Clear that NDA Does Not Restrict Your Business Activity (Noncompete)5. Partner Impasses- What to Do if Two Partners Can’t Agree? Buy-Sell6. Very Specific Deliverables
  10. 10.  Example: Specific Duties ◦ (i) X. X shall provide high-level and managerial personnel in information technology (IT) to staff the following three job functions for the Company and for Company clients: A, B and C. X shall have responsibility for managing the provision of business services to the Company’s clients, including (at a minimum) engaging appropriate staffing, directing technology investment and maintenance, and managing client relationships. Subject to and as more fully set forth in an employment agreement between the Company and X, X (individually) shall dedicate an average of at least 32 hours per 5-day work week to servicing projects and portfolio clients of Y and Y affiliates, as directed by Y. ◦ (ii) Y. Y and its affiliates shall direct financing opportunities into the Company, including originating venture capital or other financing on at least as favorable terms as Y concurrently makes available to portfolio companies at any time. Y and its affiliates shall direct client engagements for outsourced IT development and operations into the Company, and shall have responsibility for marketing the business services of the Company.
  11. 11.  Example: Major Decisions – Notwithstanding the grant of authority to the Managing Members as set forth in this Agreement, the written approval of Members with at least sixty-six and two-thirds percent (66 2/3%) of the Percentage Interests, shall be required to authorize each of the following actions of the Company:
  12. 12.  (a) Purchase, sell, lease, convey, exchange or otherwise dispose of any real property owned by the Company or an Affiliate; (b) Finance, refinance, borrow against or otherwise encumber any real property or borrow for any pre- development costs; (c) Submit or materially change any site plan, subdivision or zoning of any real property owned by the Company or an Affiliate; (d) Adopt, materially change or materially deviate from any Development Plan or Operating Plan; (e) Authorize any expenditure that is not otherwise contemplated in any Development Plan or Operating Plan and which exceeds $30,000;
  13. 13.  (f) Enter into any material property management, leasing, development or similar agreements; (g) Set salaries and bonus levels payable to employees and Members alike; (h) Authorize the distribution of cash or property to any or all of the Members; (i) Admit new members to the Company; (j) Enter into any contract, agreement, lease or other arrangement, where the consideration is in excess of $15,000, for the furnishing to or by the Company of goods, services or space with any Affiliate of a Member; and (k) Merge or to consolidate the Company with, or sell substantially all of the Company’s assets to, a Person that is not a Controlled Affiliate of the Company.
  14. 14.  Good Example: Effect of Termination – Upon any termination or expiration of this Agreement or any Statement of Work: ◦ (a) Service Provider shall be compensated for Services performed through the date of termination in an amount equal to the prorated portion of fees due or (ii) hourly fees for work performed as of the date of termination based on Service Provider’s then-applicable rates (consulting services at $XXX per hour and development services at $YYY per hour), and shall be reimbursed for all pre-approved expenses incurred through and up to the effective date of termination. Upon the effectiveness of termination, Service Provider shall promptly invoice Client for such amounts, which invoice shall be payable net thirty (30) days from invoice receipt. (b) Service Provider shall be compensated for all Software license fees for the remaining portion of the then-applicable term of any Software license set forth in a Statement of Work.
  15. 15.  "Contractor shall submit an invoice for each product that is produced and mailed (delivered). Invoice will include actual postage costs accrued for each shipping fulfillment. Initial payment to the contractor will be made based upon pre-sale orders and followed with subsequent payments based on continual orders. Payment of pre-sale orders will be made to contractor once verification is completed that orders have been mailed. Postage would be paid to Contractor prior to mail drop based on $XXX/unit."
  16. 16.  Each party acknowledges that the other party may develop information internally, or receive information from other parties, that may be similar to Confidential Information. Accordingly, nothing in this Agreement shall prevent either party from developing products for itself or others, providing such products are not based on or derived from (in whole or in part) Confidential Information received from the other party pursuant to this Agreement.
  17. 17.  Section 1. Impasse ◦ In the event that the Members cannot reach an agreement with respect to a Major Decision and are at an impasse, the Members shall cause the Company to dispose of all or substantially all of its assets within ninety (90) days of such impasse. If, due to the nature of disposing of real property assets, disposition of all or substantially all of the Company’s assets is not practical within such ninety (90) day period, then the Members may agree by unanimous consent to extend such ninety (90) period for an additional ninety (90) day period in order to effect such disposition. If the Members do not or are unable to agree to extend such ninety (90) day period for an additional ninety (90) day period, any Member may make a Buy-Sell Offer in accordance with Section 2 below.
  18. 18.  Section 2. Buy-Sell Offer for the Company(a) As permitted by Section 1, a Member may make a Buy-SellOffer by delivering an Offer Notice to the other Member inaccordance with this Section 2. The party giving the Offer Noticeis referred to in this Section as the “Offeror” and the partyreceiving the Offer Notice is referred to in this Section as the“Offeree.” The Offer Notice shall state an amount (the “StatedValue”) to be used as the Gross Asset Value of the assets of theCompany in computing the Net Equity of each of the Members’Interests, and shall be given to the Offeree. The Offer Noticeshall also provide:
  19. 19.  (i) The terms and conditions upon which, the Offeror is willing to purchase all of the Offeree’s Membership Interest and to indemnify the Offeree against the liabilities of the Company, if any, for which the Offeree may be personally liable; (ii) A statement that the Offeror is willing either (A) to purchase from the Offeree all of the Offeree’s Membership Interest, or (B) to sell to the Offeree all of the Offeror’s Membership Interest, for the price calculated in paragraph (c) below and upon the terms and conditions stated in the Offer Notice; (iii) A statement of (A) all contingent and unmatured liabilities of the Company of which the Offeror has knowledge and (B) the terms and details of any material business opportunities, including refinancing or proposed sale, pertaining to the Company or the Company’s assets that the Offeror has entertained, negotiated or discussed during the preceding 180 days with any third party; and (iv) A deposit in the amount of five percent (5%) of the Buy-Sell Price.
  20. 20. (b) The Offeree shall have the right, exercisable by delivery of anElection Notice to the Offeror within thirty (30) days from the receipt ofthe Offer Notice, to elect either ◦ (i) To sell to the Offeror all of the Offeree’s right, title and interest in and to Offeree’s Membership Interest for the price calculated pursuant to paragraph (c) below and upon the terms and conditions provided in the Offer Notice; or ◦ (ii) To purchase from the Offeror all of the Offeror’s right, title and interest in and to the Offeror’s Membership Interest for the price calculated pursuant to paragraph (c) below and upon the terms provided in the Offer Notice.
  21. 21. (c) The price at which the interest of any Member is purchased and soldunder this Section 2 (the “Buy-Sell Price”) shall equal the Net Equitythereof, determined as of the date of the Offer Notice as if the GrossAsset Value of the aggregate assets of the Company were equal to theStated Value. Sale of a Membership Interest by a Member (the “Seller”)to the other Member (the “Purchaser”) shall be effected at a closing tooccur no sooner than 120 days and no later than 180 days after thedate the Election Notice is delivered and shall be held at the principaloffice of the Company, unless otherwise mutually agreed.
  22. 22. (c) Continued from previous slide- The purchase price shall be paid tothe Seller in accordance with the terms and conditions of the Buy-SellOffer for the Membership Interest being purchased. The Seller shalldeliver to the Purchaser good title, free and clear of any liens, claims,encumbrances, security interests or options, to such Seller’sMembership Interest thus purchased. At closing, the Members shallexecute such documents and instruments of conveyance as may bereasonably necessary or appropriate to effectuate the transactionscontemplated hereby, including, without limitation, the Transfer of theSeller’s Membership Interest to the Purchaser and the indemnificationby the Purchaser against any personal liability for the debts, claims andobligations of the Company, if any, for which the Seller may bepersonally liable.
  23. 23. (d) The “Net Equity” of a Member’s Interest in the Company, as of anyday, shall be the amount that would be distributed to such Memberupon liquidation of the Company if (i) all of the Company’s assetswere sold for their Gross Asset Value, (ii) the Company paid itsaccrued, but unpaid liabilities and established reserves (as requiredherein) for the payment of contingent liabilities, and (iii) theCompany distributed the remaining proceeds to the Members inliquidation, all as of such day.
  24. 24.  Section 3 ◦ Default; Specific Performance. Any Member shall be entitled to enforce its rights under this Article XIV by specific performance. If the Offeror defaults under this Article XIV, it shall forfeit the five percent deposit required in Section 2(a)(iv) and it shall have no right to make any future Buy-Sell Offer. If the Offeree defaults, then the Offeror shall have the right to purchase the Offeree’s Membership Interest. No Buy-Sell Offer may be made until all periods for making elections and performing obligations under any previous Buy-Sell Offer pursuant to this Article XIV shall have terminated.
  25. 25.  Methodology ◦ Implementation work will be broken down into two phases each consisting of five work streams. The first phase will consist of all modules necessary at the primary launch of the system including ________, _______, ________ and ______. The second phase will focus on Reconciliation and Reporting. [Service Provider] will start Phase 2 after completion of requirements for Phase 1.
  26. 26. Implementation – Phase 1 Information Gathering, Process Development and SOPs (1 Week) i. Meet with key stakeholders ii. Review current process iii. Identify key elements of current system iv. Identify additional features for new system v. Revise process to ensure industry best practice vi. Create Process maps for each module vii. Obtain sign off an approval with small group of Client designees. Pricing includes 2 cycles of approvals
  27. 27.  Requirements Gathering (3 Weeks) ◦ Identify and document requirements for system data and workflow ◦ Identify and document customizations to forms ◦ Identify system communications, lists and users ◦ Sign off on requirements of Client stakeholders
  28. 28.  System Customizations and System Development (4 Weeks) ◦ Customize application as per requirements ◦ Implement form changes ◦ Customize system communications, lists and users ◦ Implement technical requirements ◦ Implement reporting requirements ◦ Develop test scripts
  29. 29.  Test System and Train ◦ System testing ◦ User acceptance testing with Client ◦ Client sign-off system ◦ Develop training material ◦ Deliver training
  30. 30.  Launch System and Support (1 Weeks+) ◦ Go live with system ◦ Provide support for user issues and system bugs ◦ Troubleshoot issues and release enhancement packages as necessary
  31. 31. Andrew T. Mirsky (202) 339-0303 @mirskylegal2301 N Street, NW 318 West 14th StreetSuite 313 4th FloorWashington, DC 20037 New York, NY 10014