Contract Drafting (Fall 2019)

By D. C. Toedt III
Attorney & arbitrator — tech contracts & IP
Adjunct professor, University of Houston Law Center

Updated Monday September 16, 2019 15:16 Houston time

Here are links to:

1 Class plan - Day 8 (Mon. Sept. 16)

1.1 Quiz review

  • Learn to spell "usury"
  • Invoices are largely for internal-controls reasons. (Today's paper: UT Law got in trouble.)

1.2 Homework review

  1. Hypothetical example: One student used a hypothetical calculation for prorating the amount due; this went beyond the facts, but it's good thinking and good presentation to make it easier to read.
  2. Late fee: One student imposed a 5% late fee; this could be trouble under the usury laws in some jurisdictions.
  3. Early payment: One student wrote: "1.1.Invoiced payments are due net 30 days from the date that the Buyer receives a correctly stated invoice. 1.2. Invoice payments are due 2% 10 days, net 30 days." This is duplicative in part.
  4. One student wrote: "Unless otherwise agreed and signed in writing, Gigunda will pay Math-Whiz: (1) A flat monthly fee of USD$20,000.00 (the “Fee”)." (Emphasis added.)
    • The phrasing would be "Unless otherwise agreed in writing, …."
    • There WAS no item (2), so delete the numeral (1).
  5. A student wrote: "If Math-whiz fails to provide the Invoice on the tenth day of any particular month, Gigunda will penalize Math-Whiz up to USD$200.00 per day until the Invoice is received. This provision may be altered by written agreement, acknowledged by both parties."
    • This is an interesting use of incentives, but the law frowns on penalties.
    • What exactly does the second sentence mean?
  6. A student writes: "If Gigunda fails to pay Math-Whiz within 7 days from the date of receipt of the Invoice, Gigunda will pay Math-Whiz up to USD$200.00 per day. [¶] In addition, Gigunda will pay 5% interest or the maximum rate permitted by law under the circumstances, whichever is less, on accrued back pay net 30 days from the date of the Invoice." QUESTION: What could be improved here?
  7. A student submitted just the following, which was commendably brief and still got the job done: "(a) Gigunda will pay Math-Whiz a flat monthly fee of USD $20,000 for up to 200 staff hours of work per month. Additional work will be billed at USD $150 per hour. (b) All payments are to be made by wire transfer or ACH to a bank account specified in writing by Math-Whiz. (c) All payments are due on or before [DCT to comment] net30 days from the receipt of a correctly stated invoice. (d) Math-Whiz may charge interest on past-due unpaid amounts at no more than 5% per annum simple interest or the maximum rate permitted by law under the circumstances, whichever is less beginning no earlier than 30 days after the payment due date."
  8. A student writes: "Providing that the invoice is not in dispute, Company will pay Contractor a flat monthly fee of twenty thousand US dollars for up to two hundred “Staff Hours Worked” and one hundred and fifty US dollars per staff hour worked over two hundred staff hours worked, within fifteen business days of receipt of the invoice. Payments may be made by any payment method to which Contractor does not reasonably object." QUESTION: What could be improved here?
  9. A student used the following heading: "4. Penalty for late payments." QUESTION: What could be improved here?

1.3 SCOTX: Reliance disclaimer kills fraudulent-inducement claim

From IBM Corp. v. Lufkin Industries, LLC, 573 S.W.3d 224 (Tex. 2019): IBM told Lufkin that IBM could adapt a particular software system to Lufkin's needs:

In this case involving a contract to purchase a business-management software system, we hold that contractual disclaimers bar the buyer from recovering in tort for misrepresentations the seller made both to induce the buyer to enter into the contract and to induce the buyer to later agree to amend the contract.

Id., slip op. at 1. What did IBM do wrong?

IBM made numerous representations about its Express Solution that turned out to be false.

  • IBM represented that the Express Solution was a preconfigured system that could be implemented for Lufkin within four to six months and meet eighty percent of Lufkin’s requirements without any enhancements.
  • IBM knew, however, that its Express Solution would require extensive customization before it could meet most of Lufkin’s needs.
  • Yet IBM continued to represent the Express Solution as a “fit” for Lufkin, hoping it could land the sale and then figure out how to provide what Lufkin needed.

In September 2009, IBM presented a demonstration of the Express Solution for Lufkin.

  • During this demonstration, IBM’s representatives again represented that the Express Solution would meet eighty percent of Lufkin’s needs without any customization.
  • In fact, the representatives knew that Express Solution was designed for much smaller operations and could not meet Lufkin’s requirements without extensive and costly enhancements.

Relying on IBM’s misrepresentations, Lufkin agreed to a written contract with IBM in March 2010. The contract— called the “Statement of Work,” or “SOW”—gave IBM about a year to finalize and implement the system, projecting that Lufkin could “go live” with IBM’s Express Solution system on March 1, 2011.

The implementation did not go well. …

Id., slip op. at 2-3 (extra paragraphing and bullets added).

What saved IBM from a $21 million verdict for fraudulent inducement was the following reliance-disclaimer language:

In entering into this SOW, Lufkin Industries is not relying upon any representation made by or on behalf of IBM that is not specified in the Agreement or this SOW, including, without limitation, the actual or estimated completion date, amount of hours to provide any of the Services, charges to be paid, or the results of any of the Services to be provided under this SOW.

This SOW, its Appendices, and the Agreement represent the entire agreement between the parties regarding the subject matter and replace any prior oral or written communications.

Id., slip op. at 6 (extra paragraphing added).

1.4 Motivation: "They lied!" is a go-to phrase for trial counsel

When a big contract fails, trial counsel will pretty much always try hard to find opportunities to accuse the other side of having misrepresented facts. Why? Because it can work, sometimes spectacularly well. Jurors and even judges might not understand the nuances of the dispute, but they will definitely undertand the accusation that "they lied!"

Consequently, every contract drafter should be mindful of the possibility that if a serious dispute were ever to arise concerning the contract, the other side might claim that the drafter's client engaged in fraudulent behavior. We see this in the civil complaint filed by the state of Oregon against Oracle, in which the second paragraph said, in its entirety (with extra paragraphing added for readability):

Oracle lied to the State about the “Oracle Solution.”

Oracle lied when it said the “Oracle Solution” could meet both of the State’s needs with Oracle products that worked “out-of-the-box.”

Oracle lied when it said its products were “flexible,” “integrated,” worked “easily” with other programs, required little customization and could be set up quickly.

Oracle lied when it claimed it had “the most comprehensive and secure solution with regards to the total functionality necessary for Oregon.”

As another example, consider BSkyB Ltd. v. HP Enterprise Services UK Ltd., [2010] EWHC 86 (TCC). In that case:

  • British Sky Broadcasting ("Sky") contracted with EDS to develop a customer relationship management (CRM) software system.
  • Things didn't go as planned, and Sky eventually filed suit.
  • In the (non-jury) trial, the judge concluded that EDS had made fraudulent misrepresentations when one of EDS's senior UK executives, wanting very much to get Sky's business, lied to Sky about EDS's analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the system. See id. at ¶ 2331 and ¶¶ 194-196.
  • The judge also concluded that during subsequent talks to modify the contract, EDS made additional misstatements that didn't rise to the level of fraud, but still qualified as negligent misrepresentations. See id. at ¶ 2336.
  • A limitation-of-liability clause in the EDS-Sky contract capped the potential damage award at £30 million.
  • By its terms, though, that limitation did not apply to fraudulent misrepresentations; the judge held that the limitation didn't apply to negligent misrepresentations either. See id. at ¶¶ 372-389.

(One of the most interesting aspect of the judge's opinion, it seems to me, is its detailed exposition of the facts, which illustrate the ‘sausage factory' by which technology deals sometimes get made — and how even just one vendor representative can make a deal go terribly wrong for his employer.)

In early June 2010, EDS reportedly agreed to pay Sky some US$460 million — more than four times the value of the original contract — to settle the case. See Jaikumar Vijayan, EDS settles lawsuit over botched CRM project for $460M, Computerworld, June 9, 2010.

Still another example is Waste Management, Inc.'s lawsuit against SAP over a failed enterprise resource planning (ERP) software implementation, reported to have settled for an undisclosed sum. At the heart of Waste Management's case was its allegation, not just that SAP had breached the contract, but that it was guilty of fraudulent inducement, fraud, and negligent misrepresentation. See Chris Kanaracus, SAP, Waste Management settle lawsuit, Computerworld, May 3, 2010.

1.5 Representations and warranties from Verizon-Yahoo deal

Except (i) as otherwise set forth in the Disclosure Schedules or (ii) as set forth in the SEC Documents filed or furnished and publicly available prior to the date of this Agreement [emphasis added]

(excluding any disclosures set forth under the heading “Risk Factors” and any disclosures included in any “forward-looking statements” section or that are similarly cautionary, predictive or forward-looking in nature),

Seller represents and warrants to Purchaser as follows: [emphasis added]

Disclosure Schedules: Negotiation of the Disclosure Schedules can be of the most time-consuming parts of an M&A transaction.

Schedule numbering: In the paragraphs below, notice how each referenced Disclosure Schedule is numbered to match the Agreement section where it is introduced.

1.5.1 2.01 Organization

(a) Seller is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of Delaware.

Seller is qualified to do business under the Laws of every other jurisdiction in which such qualification is necessary under applicable Law,

except where the failure to be so qualified or otherwise authorized would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) Each of the Business Subsidiaries is a corporation or other entity duly incorporated or organized, validly existing and, to the extent legally applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization.

Each of the Business Subsidiaries is qualified to do business under the Laws of every other jurisdiction in which such qualification is necessary under applicable Law,

except where the failure to be so qualified or otherwise authorized would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

Seller has made available to Purchaser a true and correct copy of the Company's certificate of incorporation and bylaws,

and the comparable constituent or organizational documents for each other Business Subsidiary that constitutes a “significant subsidiary” as defined in Section 1-02 of Regulation S-X under the Exchange Act,

in each case as in effect as of the date of this Agreement.

1.5.2 2.02 Authority and Enforceability

(a) Seller (to the extent related to the Business) and the Business Subsidiaries have all requisite corporate or other organizational power and authority to own, lease and operate their properties and to carry on the Business as now conducted,

except where the failure to have such power and authority would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) Seller has all necessary corporate power and authority to enter into, execute, deliver and, subject to obtaining the Seller Stockholder Approval, perform its obligations under this Agreement, the Reorganization Agreement and the License Agreement.

The execution, delivery and, subject to obtaining the Seller Stockholder Approval, performance of this Agreement, the Reorganization Agreement and the License Agreement by Seller have been duly authorized by all requisite action on the part of Seller.

This Agreement has been duly executed and delivered by Seller and, assuming due authorization, execution and delivery of this Agreement by Purchaser, this Agreement is a legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, general equity principles, other similar Laws of general application affecting enforcement of creditors' rights generally and rules of Law governing specific performance, injunctive relief and other equitable remedies (the “Enforceability Limitations”).

The Reorganization Agreement and the License Agreement have been duly executed and delivered by Seller and are legal, valid and binding obligations of Seller, enforceable against it in accordance with their terms,

except as such enforceability may be limited by the Enforceability Limitations.

(c) The Company has all necessary corporate power and authority to enter into, execute, deliver and perform its obligations under the Reorganization Agreement.

The execution, delivery and performance of the Reorganization Agreement by the Company have been duly authorized by all requisite action on the part of the Company.

The Reorganization Agreement has been duly executed and delivered by the Company and is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by the Enforceability Limitations.

Excalibur has all necessary limited liability company power and authority to enter into, execute, deliver and perform its obligations under the License Agreement.

The execution, delivery and performance of the License Agreement by Excalibur have been duly authorized by all requisite action on the part of Excalibur.

The License Agreement has been duly executed and delivered by Excalibur and is a legal, valid and binding obligation of Excalibur, enforceable against it in accordance with its terms, except as such enforceability may be limited by the Enforceability Limitations.

(d) At a meeting duly called and held, the board of directors of Seller[:]

(i) determined that this Agreement, the Reorganization Agreement and the Sale and the Reorganization Transactions are expedient and for the best interests of Seller and its stockholders,

(ii) approved this Agreement, the other Transaction Documents and the Transactions,

(iii) resolved, subject to the terms of this Agreement, to recommend that the stockholders of Seller adopt a resolution authorizing the Sale and the Reorganization Transactions (the “Seller Recommendation”)

(provided that any change, modification or rescission of such recommendation by the board of directors of Seller in accordance with Section 4.06 shall not be a breach of this Section 2.02(d)),

and

(iv) directed that such matter be submitted for consideration of the stockholders of Seller at the Stockholders' Meeting,

which resolutions, subject to Section 4.06(f), have not been rescinded, modified or withdrawn.

1.5.3 2.03 Capitalization and Title

(a) The Shares represent all of the issued and outstanding shares of capital stock of the Company. Seller is the sole record and beneficial owner of the Shares,

and, at the Closing, Seller will transfer and deliver to Purchaser valid title, in each case free and clear of any Encumbrances,

other than[:]

(i) any Encumbrance arising out of, under or in connection with the Securities Act or any other applicable securities Laws,

(ii) any Encumbrance arising out of or in connection with this Agreement or

(iii) any Encumbrance created by or through, or resulting from any facts or circumstances relating to, Purchaser or its Affiliates.

The Shares have been duly authorized, validly issued, and are fully paid and nonassessable and not subject to preemptive rights.

(b) As of the close of business on July 18, 2016 (the “Capitalization Date”),

(i) 4,959,526 shares of Seller Common Stock were issuable upon exercise of outstanding and unexercised Seller Stock Options and

(ii) 28,427,473 shares of Seller Common Stock were subject to Seller RSU Awards that were held by Employees and were outstanding and unvested,

assuming, in the case of clause (ii), achievement of all applicable performance goals at the maximum level.

Since the Capitalization Date through the execution of this Agreement, there have been no issuances, repurchases or redemptions of any Seller Equity Awards, other than

(A) the issuance of shares of Seller Common Stock upon the exercise of Seller Stock Options or the settlement of Seller RSU Awards, in each case, outstanding as of the Capitalization Date in accordance with their terms,

(B) the acquisition by Seller of shares of Seller Common Stock in connection with the surrender of such shares by holders of Seller Stock Options outstanding on the Capitalization Date to be able to pay the exercise price of such options in accordance with the terms of such options,

(C) the withholding or disposition of shares of Seller Common Stock to satisfy withholding tax obligations with respect to any Seller Stock Options or Seller RSU Awards (collectively, “Seller Equity Awards”) outstanding on the Capitalization Date, and

(D) upon the forfeiture of any Seller Equity Award outstanding on the Capitalization Date pursuant to its terms.

(c) Except as set forth in this Section 2.03, there are no options, warrants, convertible or exchangeable securities or other rights or Contracts obligating Seller or the Business Subsidiaries to issue or sell any shares of capital stock, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock, or other equity or voting interests in, any Business Subsidiary and no capital stock, equity securities or other equity interests of any Business Subsidiaries are reserved for issuance for any purpose. There are no outstanding obligations of Seller or the Business Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock, or other equity or voting interests in, the Business Subsidiaries. Other than as set forth in Section 4.15, none of Seller or the Business Subsidiaries is a party to any voting trust, proxy, voting agreement or other similar Contract with respect to the voting of any shares of capital stock, or other equity or voting interests in, Seller or the Business Subsidiaries.

(d) There are no outstanding bonds, debentures, notes or other indebtedness of Seller or the Business Subsidiaries having the right to vote (whether on an as-converted basis or otherwise) (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which stockholders of Seller or the Business Subsidiaries may vote. Excalibur IP, LLC does not hold or own or otherwise have the right to license any assets other than the Intellectual Property Rights that are the subject of the License Agreement (and any ministerial or miscellaneous assets that are not material and that are ancillary to such Intellectual Property Rights).

(e) Section 2.03(e) of the Disclosure Schedules sets forth a true and complete list, as of the close of business on the Capitalization Date, of (i) each Seller RSU Award that was held by an Employee, (ii) the employee identification number of the Seller RSU Award holder, (iii) the number of shares of Seller Common Stock underlying each Seller RSU Award, (iv) the date on which the Seller RSU Award was granted and (v) the Seller Equity Plan under which the Seller RSU Award was granted.

1.5.4 2.04 Business Subsidiaries

(a) All the outstanding shares of capital stock of, or other equity or voting interests in, each Business Subsidiary (other than the Shares) have been duly authorized and validly issued, are fully paid and nonassessable and are owned, directly or indirectly, as of the date hereof, by Seller, and, as of the Closing, by the Company, in each case free and clear of all Encumbrances, other than (i) any Encumbrance arising out of, under or in connection with the Securities Act or any other applicable securities Laws, (ii) any Encumbrance arising out of or in connection with this Agreement or (iii) any Encumbrance created by or through, or resulting from any facts or circumstances relating to, Purchaser or its Affiliates. Section 2.04 of the Disclosure Schedules sets forth a true and complete list, as of the date hereof, of all Business Subsidiaries and any joint ventures, partnerships, minority investments (other than Excluded Assets) or other arrangements in which Seller or any Business Subsidiary has a limited liability company, partnership or other equity interest (and, to the Knowledge of Seller (except with respect to wholly-owned Subsidiaries), the percentage of any such interest). None of the Business Subsidiaries has any obligation to acquire any equity interest or other security in, or any commitment to make any capital contribution or investment in, or loan to, any Person (other than another Business Subsidiary).

1.5.5 2.05 No Conflicts

Assuming that the Seller Stockholder Approval and all Consents contemplated by Section 2.06 have been obtained, the execution, delivery and performance of this Agreement and the other Transaction Documents by Seller and/or its applicable Subsidiaries (including of the Reorganization Agreement by the Company) do not and will not:

(a) violate or conflict with the organizational documents of Seller or any of its Subsidiaries (including the Business Subsidiaries);

(b) conflict with or violate any Law or Governmental Order applicable to Seller or its properties or to any of its Subsidiaries (including the Business Subsidiaries) or their respective properties; or

(c) violate, conflict with or result in a breach of or default under (with or without due notice or lapse of time or both), require any consent, waiver or approval under or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance, other than a Permitted Encumbrance, upon any of the properties or assets of Seller or any of its Subsidiaries (including the Business Subsidiaries) pursuant to, any Material Contract or other material Contract (other than a lease or sublease of real property) or Lease, except, in the case of clauses (b) and (c), as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

1.5.6 2.06 Governmental Consents and Approvals

Assuming the accuracy of Purchaser's representation in Section 3.04, the execution, delivery and performance of this Agreement and the other Transaction Documents by Seller and/or its applicable Subsidiaries (including of the Reorganization Agreement by the Company) do not require any Consent of any Governmental Authority, except:

(a) pursuant to the requirements of the Antitrust Laws of the jurisdictions set forth on Section 2.06(a)(i) of the Disclosure Schedules;

(b) for any notification, or where appropriate, consultation or negotiations with a labor union, labor board, works council or relevant Governmental Authority concerning the transactions contemplated hereby pursuant to the Contracts set forth in Section 2.14(a) of the Disclosure Schedules;

(c) as required by the Securities Act, the Exchange Act and any other applicable state or federal securities Laws;

(d) as required by Nasdaq; or

(e) to the extent that the failure to obtain any such Consents would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

1.5.7 2.07 SEC Documents

(a) Since January 1, 2014, Seller has filed or furnished with the SEC all material forms, schedules, prospectuses, registration statements, reports and other documents required to be filed or furnished by it with the SEC (the “SEC Documents”).

For the avoidance of doubt, the SEC Documents do not include any forms, schedules, prospectuses, registration statements, reports and other documents filed or furnished by Aabaco Holdings, Inc.

As of their respective dates, or, if amended or superseded, as of the date of such amendment or superseding filing or document so furnished,

(i) the SEC Documents complied in all material respects with the requirements of the Securities Act, the Exchange Act or the Sarbanes-Oxley Act, as the case may be, and the applicable rules and regulations promulgated thereunder and

(ii) none of the SEC Documents[:]

  • contained any untrue statement of a material fact or
  • omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect. [Bullets and extra paragraphing added.]

No executive officer of Seller has failed to make the certifications required by him or her under Section 302 or 906 of the Sarbanes-Oxley Act, with respect to any SEC Document, except as disclosed in certifications filed with the SEC Documents.

As of the date hereof, there are no outstanding or unresolved comments in any comment letters of the staff of the SEC received by Seller relating to the SEC Documents.

(b) The consolidated financial statements (including all related notes and schedules) of Seller included in the SEC Documents[:]

(i) complied as to form, as of their respective dates of filing with the SEC, in all material respects with the published rules and regulations of the SEC with respect thereto,

(ii) fairly present in all material respects[:]

  • the consolidated financial position of Seller and its consolidated Subsidiaries as at the respective dates thereof and
  • their consolidated results of operations and consolidated cash flows for the respective periods then ended [Bullets and extra paragraphing added]

(subject, in the case of unaudited statements, to normal year-end audit adjustments, to the absence of notes and to any other adjustments described therein, including in any notes thereto),

(iii) have been prepared in all material respects in accordance with the Books and Records of Seller and its consolidated Subsidiaries, and

(iv) have been prepared in accordance with GAAP applied on a consistent basis during the periods indicated (except as may be indicated therein or in the notes thereto and subject, in the case of unaudited statements, to normal year-end audit adjustments and to the absence of notes).

(c) Neither Seller (to the extent related to the Business) nor any of the Business Subsidiaries is a party to, nor does it have any commitment to become a party to material “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC).

1.5.8 2.08 No Undisclosed Liabilities

Except[:]

(a) as reflected or expressly reserved against in Seller's financial statements, or the notes thereto, included in the SEC Documents filed with the SEC and publicly available prior to the date of this Agreement,

(b) for Liabilities incurred in the ordinary course of business consistent with past practice since the date of such financial statements,

(c) for Liabilities arising out of or in connection with this Agreement and

(d) Retained Liabilities,

neither Seller nor any of the Business Subsidiaries has any Liabilities that would be required to be reflected or reserved against in a consolidated balance sheet of Seller and its consolidated Subsidiaries prepared in accordance with GAAP, as in effect on the date hereof,

other than those which would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

1.5.9 2.09 Disclosure Controls and Procedures

Seller has established and maintains disclosure controls and procedures and internal control over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act. Seller's disclosure controls and procedures are designed to ensure that information required to be disclosed in Seller's periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Seller's management has completed an assessment of the effectiveness of Seller's internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the year ended December 31, 2015, and such assessment concluded that such controls were effective. Seller is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of Nasdaq. Since January 1, 2014 through the date hereof, Seller has not identified (i) any significant deficiencies or material weakness in the design or operation of internal control over financial reporting which reasonably could adversely affect Seller's ability to record, process, summarize and report financial information or (ii) any fraud or allegation of fraud, whether or not material, that involves management or other employees who have a significant role in Seller's internal control over financial reporting.

1.5.10 2.10 Litigation

As of the date hereof, there are no Actions pending or, to the Knowledge of Seller, threatened against Seller (to the extent related to the Business), any of the Business Subsidiaries or any of their respective assets, rights or properties, by or before any Governmental Authority, and Seller (to the extent related to the Business), the Business Subsidiaries and their respective assets, rights and properties are not subject to any Governmental Orders, in each case which would, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

1.5.11 2.11 Compliance with Laws; Permits

Except with respect to those matters described in Sections 2.12 (Taxes), 2.13 (Employee Benefit Plans; ERISA), 2.14 (Labor Matters), and 2.17 (Environmental Matters):

(a) Since January 1, 2014, each of Seller (to the extent related to the Business) and the Business Subsidiaries has been in compliance with all Laws applicable to Seller or any of its assets and properties (in each case, to the extent related to the Business) and the Business Subsidiaries or any of their assets and properties, and none of Seller or the Business Subsidiaries has received any written notice from a Governmental Authority alleging noncompliance, except in each case as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) Since January 1, 2014, Seller (to the extent related to the Business) and the Business Subsidiaries are and have been in possession of, and in compliance with, all Permits necessary to carry on the Business as currently conducted, and all such Permits are in full force and effect and are not subject to any Action that would result in any modification, termination or revocation thereof, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(c) None of Seller or its Subsidiaries, or to the Knowledge of Seller, any director, officer, employee, agent or other person acting on behalf of Seller or its Subsidiaries has, directly or indirectly, (i) used any funds of Seller or its Subsidiaries for unlawful contributions, unlawful gifts, unlawful entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of Seller or its Subsidiaries; (iii) violated or is in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any other applicable Law that relates to bribery or corruption; (iv) established or maintained any unlawful fund of monies or other assets of Seller or its Subsidiaries; (v) made any fraudulent entry on the books or records of Seller or its Subsidiaries; or (vi) made any unlawful bribe, unlawful kickback or other unlawful payment to any person, private or public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business to obtain special concessions for Seller or its Subsidiaries, except in each case as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

1.5.12 2.12 Taxes

(a) All material Tax Returns required to be filed by Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or any Business Subsidiary have been timely filed (taking into account extensions), and all such Tax Returns are true, correct and complete in all material respects.

(b) All material Taxes required to be paid with respect to the Transferred Assets, the Assumed Liabilities or the Business and all material Taxes required to be paid by or with respect to the Business Subsidiaries (including any consolidated, combined, unitary or affiliated group of which any of them is or has been a member), whether or not shown as due and payable on any Tax Return, have been duly and timely paid.

(c) There are no material audits, claims, proceedings or assessments regarding Taxes pending or threatened in writing as of the date hereof against Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities), the Business Subsidiaries or the Business.

(d) Each of Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) and the Business Subsidiaries has collected, deducted and withheld and timely paid to the appropriate Governmental Authority all material Taxes required to be collected, deducted, withheld or paid in connection with amounts paid or owning to, or received or owing from, any employee, independent contractor, creditor, stockholder or other third party.

(e) There are no Encumbrances for material Taxes on any asset of Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or of any Business Subsidiary other than Permitted Encumbrances.

(f) Neither the Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor any Business Subsidiary is a party to any Tax sharing agreement or Tax indemnity agreement pursuant to which it will have any obligation to make any payments for or in respect of Taxes after the Closing Date.

(g) Neither the Seller nor any Business Subsidiary has been either a “distributing corporation” or a “controlled corporation” in a distribution during the last two (2) years that was purported or intended to be governed in whole or in part by Section 355 of the Code.

(h) During the past three (3) years, no jurisdiction in which neither the Seller nor any Business Subsidiary files Tax Returns has asserted that the Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or such Business Subsidiary is liable for a material amount of Taxes in that jurisdiction.

(i) Neither the Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor any Business Subsidiary has extended or waived the application of any statute of limitations applicable to any claim for, or the period for the assessment or collection of, any material Tax.

(j) Neither Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor any Business Subsidiary is or has been a party to any “listed transaction,” as defined in Treasury Regulations Section 1.6011-4(b)(2).

(k) None of the Business Subsidiaries (i) has ever been a member of an affiliated, combined, consolidated, unitary, loss sharing or similar group for purposes of filing any Tax Return or paying Taxes (other than any such group of which Seller is or was the common parent), or (ii) has any liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), or as a transferee or successor, by contract or otherwise.

(l) None of the assets held by any Business Subsidiary that is not a “U.S. person” within the meaning of the Code is a “United States real property interest” within the meaning of Section 897(c) of the Code.

1.5.13 2.13 Employee Benefit Plans; ERISA

(a) Section 2.13(a) of the Disclosure Schedules sets forth a complete and accurate list, as of the date of this Agreement, identifying each material Benefit Plan and each material Non-U.S. Benefit Plan. With respect to each material Benefit Plan and each material Non-U.S. Benefit Plan, Seller has furnished or made available to Purchaser (or, with respect to Non-U.S. Benefit Plans, will furnish or make available to Purchaser within sixty (60) days following the date of this Agreement), as applicable, accurate and complete copies of (other than any documents that are prohibited from being made available as a result of applicable Laws regarding the safeguarding of data privacy) (i) such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, and all material amendments thereto; and (ii) to the extent applicable, (A) the most recent annual report on Form 5500 filed and all schedules thereto filed with respect to such Benefit Plan, (B) each current trust agreement, insurance contract or policy, group annuity contract and any other funding arrangement relating to such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, (C) the most recent actuarial report, financial statement or valuation report relating to such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, (D) a current IRS opinion or favorable determination letter with respect to such Benefit Plan, (E) the most recent summary plan description, if any, required under ERISA with respect to such Benefit Plan, and (F) all material correspondence to or from any Governmental Authority relating to such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, during the past twelve (12) months; provided, that any such correspondence with respect to Non-U.S. Benefit Plans will be furnished by Purchaser within sixty (60) days following the date of this Agreement.

(b) With respect to each Benefit Plan and Non-U.S. Benefit Plan, as applicable, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect: (i) if intended to be qualified under Section 401(a) of the Code, such Benefit Plan is the subject of an unrevoked favorable determination or opinion letter from the IRS, and, to the Knowledge of Seller, nothing has occurred since the date of the most recent such determination that would adversely affect such qualification, (ii) such Benefit Plan has been established, maintained and administered in accordance with its terms and in compliance with applicable Law, including ERISA and the Code, and (iii) no disputes are pending, or, to the Knowledge of Seller, threatened against such Benefit Plan or such Non-U.S. Benefit Plan (or any assets or fiduciary thereof) other than routine claims for benefits made in the ordinary course of the Benefit Plan's or Non-U.S. Benefit Plan's, as applicable, operations, and there are no current or threatened audits, investigations or non-routine requests for information by any Governmental Authority with respect to such Benefit Plan or such Non-U.S. Benefit Plan.

(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, none of Seller, any of the Business Subsidiaries nor any of their respective ERISA Affiliates sponsors or contributes to, or has any liability (whether actual or contingent) with respect to, (i) a “defined benefit plan” (as defined in ERISA Section 3(35)) that is subject to ERISA; (ii) a “multiemployer plan” (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)) that is subject to ERISA; (iii) a pension plan subject to Section 302 or Title IV of ERISA or Section 412 or 4971 of the Code, in any case, either directly or through any ERISA Affiliate; (iv) a multiple employer welfare arrangement (as defined in Section 3(40) of ERISA) that is subject to ERISA; (v) a “multiple employer plan” (as defined in Section 413(c) of the Code) that is intended to be qualified under Section 401(a) of the Code; or (vi) any plan, program or arrangement that provides for post-retirement or other post-employment health or welfare benefits (other than health care continuation coverage as required by Section 4980B of the Code or similar applicable Law).

(d) During the immediately preceding six (6) years, (i) no Liability under Section 302 or Title IV has been incurred by Seller, the Business Subsidiaries or their respective ERISA Affiliates or their respective predecessors that has not been satisfied in full, and no condition exists that presents a risk to Seller, the Business Subsidiaries or any such ERISA Affiliates of incurring any such Liability; and (ii) no event has occurred and, to the Knowledge of Seller, there currently exists no condition or circumstances that would subject Seller or the Business Subsidiaries to any Controlled Group Liability with respect to any employee benefit plan that is not a Benefit Plan, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(e) All contributions required to be made under the terms of any of the Benefit Plans or Non-U.S. Benefit Plans have been timely made or, if not yet due, have been properly reflected on the most recent consolidated balance sheet filed or incorporated by reference in Seller's financial statements, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(f) The consummation of the Transactions will not (either alone or together with any other event, whether contingent or otherwise, and including a subsequent termination of employment or services) (i) entitle any current or former employee, director or independent contractor of Seller (to the extent related to the Business) or any of the Business Subsidiaries to any material payment or benefit, (ii) accelerate the time of payment or vesting, trigger any material payment of funding (through a grantor trust or otherwise) of compensation or benefits under, or materially increase the amount payable or trigger any other material obligation pursuant to, any Benefit Plan or Non-U.S. Benefit Plan, or (iii) result in any “excess parachute payment” (within the meaning of Section 280G of the Code) becoming due to any current or former employee, director or independent contractor of Seller or any of the Business Subsidiaries, except, in the case of clauses (i) and (ii), as provided in this Agreement or as required by applicable Law.

(g) There is no Contract, Benefit Plan, Non-U.S. Benefit Plan or other plan, policy, program or arrangement by which Seller or any of the Business Subsidiaries is bound to compensate any employee, director or independent contractor for excise taxes paid pursuant to Section 409A or 4999 of the Code.

(h) Each Non-U.S. Benefit Plan (i) has been established, administered and maintained in accordance with all applicable requirements (including applicable Law and the terms of such plan), except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect and (ii) that is intended to qualify for special Tax treatment meets all material requirements for such treatment, and, to the Knowledge of Seller, no condition exists and no event has occurred that would reasonably be expected to result in the loss or revocation of such qualification.

(i) This Section 2.13 and Section 2.14, together with Section 2.03, Section 2.06(b), and the second sentence of Section 2.18, contain the sole and exclusive representations and warranties provided with respect to all matters relating to employee benefits, employment and employment practices with respect to each of Seller, the Business Subsidiaries and the Business.

1.5.14 2.14 Labor Matters

(a) Section 2.14(a) of the Disclosure Schedules sets forth a complete and accurate list, as of the date of this Agreement, of each collective bargaining agreement or other material Contract with any labor organization, works council, union or similar employee representative body with respect to the Employees. Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, (i) there are no strikes, work stoppages, work slowdowns, lockouts, picketing or other similar labor activities pending or, to the Knowledge of Seller, threatened in writing against Seller (to the extent related to the Business) or any of the Business Subsidiaries, and (ii) there are no unfair labor practice charges, grievances or complaints pending or, to the Knowledge of Seller, threatened in writing by or on behalf of any Employee or group of Employees of Seller (to the extent related to the Business) or any of the Business Subsidiaries against Seller (to the extent related to the Business) or any of the Business Subsidiaries before the National Labor Relations Board or any other similar labor tribunal or authority.

(b) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, Seller (to the extent related to the Business) and the Business Subsidiaries are, and since January 1, 2015 have been, in compliance with all applicable Laws respecting employment and employment practices, including all Laws respecting terms and conditions of employment, health and safety, wages and hours, immigration, employment discrimination, disability rights or benefits, equal opportunity, plant closures and layoffs, worker classification, affirmative action, workers' compensation, labor relations, employee leave issues and unemployment insurance.

(c) Prior to the date of this Agreement, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, Seller (to the extent related to the Business) and the Business Subsidiaries have satisfied any legal or contractual requirement to provide notice to, enter into any consultation procedure with or obtain an opinion from any labor or trade union, works council, employee forum or other employee representative body recognized by Seller or any of the Business Subsidiaries for collective consultation purposes in relation to any Employee, in connection with the execution of this Agreement or the Transactions.

(d) Section 2.13 and this Section 2.14, together with Section 2.03, Section 2.06(b) and the second sentence of Section 2.18, contain the sole and exclusive representations and warranties provided with respect to all matters relating to employee benefits, employment and employment practices with respect to each of Seller, the Business Subsidiaries and the Business.

1.5.15 2.15 Real Property

(a) (i) Each material lease or sublease (a “Lease”) pursuant to which Seller (to the extent related to the Business) or any of the Business Subsidiaries leases or subleases real property (excluding all leases or subleases for data centers) (the “Leased Real Property”) is in full force and effect and Seller or the applicable Business Subsidiary has good and valid leasehold title in each parcel of the Leased Real Property pursuant to such Lease, free and clear of all Encumbrances other than Permitted Encumbrances, except in each case where such failure would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect and (ii) there are no defaults by Seller or a Business Subsidiary (or any conditions or events that, after notice or the lapse of time or both, would constitute a default by Seller or a Business Subsidiary) and to the Knowledge of Seller, there are no defaults by any other party to such Lease (or any conditions or events that, after notice or the lapse of time or both, would constitute a default by such other party) under such Lease, except where such defaults would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) (i) Seller and the Business Subsidiaries have good and marketable title to all of the real property owned in fee by Seller (to the extent related to the Business) or any of the Business Subsidiaries (the “Owned Real Property”), free and clear of any Encumbrances other than Permitted Encumbrances; (ii) there are no leases, licenses or occupancy agreements pursuant to which any third party is granted the right to use the Owned Real Property; (iii) there are no outstanding options or rights of first refusal to purchase the Owned Real Property, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect; and (iv) neither Seller nor any of the Business Subsidiaries has received written notice of any default under any restrictive covenants affecting the Owned Real Property and the Leased Real Property that remains uncured, and no event has occurred that, after notice or the lapse of time or both, would constitute such a default, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(c) Section 2.15(c) of the Disclosure Schedules contains a complete and correct list of the (i) Owned Real Property and (ii) Leases. Seller has made available to Purchaser a true, correct and complete copy of each Lease with respect thereto (including all material amendments, modifications and supplements thereto).

1.5.16 2.16 Intellectual Property

(a) To the Knowledge of Seller, Section 2.16(a) of the Disclosure Schedules sets forth a true and complete list of all Owned Business Intellectual Property that, as of the date hereof, is issued by, registered with, or subject to a pending application for issuance or registration with, any Governmental Authority (“Registered Owned Business IP”).

To the Knowledge of Seller, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, Seller (to the extent related to the Business) or one of the Business Subsidiaries exclusively owns the Owned Business Intellectual Property.

(b) To the Knowledge of Seller,

except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

Seller or one of the Business Subsidiaries has the right to use, all Seller Licensed Software.

All material issued Patents and material Mark and Copyright registrations included in the Registered Owned Business IP are

(i) to the Knowledge of Seller, subsisting, valid and enforceable, and

(ii) free and clear of all Encumbrances, other than Permitted Encumbrances;

provided that the foregoing representation and warranty does not apply to any Intellectual Property Rights owned by any Person acquired by Seller after January 1, 2013 that Seller paid less than $100 million dollars of total consideration to acquire such Person

(with any non-cash consideration being valued at the fair market value thereof as of the consummation of such acquisition).

Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, as of the date hereof,

there are no Actions pending, or, to the Knowledge of Seller, threatened in writing since January 1, 2013 and not resolved, against Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or the Business Subsidiaries contesting the validity, enforceability, use or ownership of any Owned Business Intellectual Property.

(c) To the Knowledge of Seller, neither Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor the Business Subsidiaries, nor any of their respective products or services, or the manufacture, use, sale, offer for sale, importation, and other commercial exploitation of any such products and services by or on behalf of Seller or the Business Subsidiaries, nor the conduct of the Business

infringes or misappropriates any Intellectual Property Rights of any third party

(provided that the foregoing representation and warranty does not apply to any third party products or services sold or otherwise provided or made available through any products or services of Seller or any of the Business Subsidiaries).

As of the date hereof, to the Knowledge of the Seller, there are no Actions pending, or threatened in writing since January 1, 2013 and not resolved

(other than any such threatened Actions with respect to which there has been no communication for over one (1) year between Seller or any Business Subsidiary and the threatening party),

against Seller (to the extent related to the Business) or any of the Business Subsidiaries

that involve a claim against Seller (to the extent related to the Business) or any of the Business Subsidiaries

of infringement or misappropriation of any Intellectual Property Rights of any Person.

Notwithstanding any other representation, warranty or other provision in this Agreement, this Section 2.16(c) contains the only representations and warranties made by Seller with respect to infringement or misappropriation by Seller or any of the Business Subsidiaries of any Intellectual Property Rights of any other Person.

Notwithstanding any of the foregoing in this Section 2.16(c), the representations, warranties and other provisions in this Section 2.16(c) do not apply to any Intellectual Property Rights owned by any Person acquired by Seller after January 1, 2013 that Seller paid less than $100 million dollars of total consideration to acquire such Person (with any non-cash consideration being valued at the fair market value thereof as of the consummation of such acquisition).

(d) To the Knowledge of Seller,

except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

as of the date hereof, no Person is infringing or misappropriating any Owned Business Intellectual Property as of the date hereof.

Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

as of the date hereof, there are no Actions pending, or, to the Knowledge of Seller, threatened in writing since January 1, 2013 and not resolved,

by Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or any of the Business Subsidiaries

that involve a claim against any Person of infringement or misappropriation of any Owned Business Intellectual Property.

(e) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

Seller and the Business Subsidiaries have taken commercially reasonable steps to protect and preserve the confidentiality of all Trade Secrets included in the Owned Business Intellectual Property.

To the Knowledge of Seller,

except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

no Trade Secrets included in the Owned Business Intellectual Property have been authorized to be disclosed or actually disclosed by Seller or any of the Business Subsidiaries to any other Person other than pursuant to a written confidentiality agreement that imposes restrictions on the use and disclosure of such Trade Secrets.

(f) To the Knowledge of Seller, the execution, delivery and performance of this Agreement and the Reorganization Agreement and the consummation of the Transactions

will not, pursuant to any Contract to which Seller or any of the Business Subsidiaries is a party, require Seller or any of the Business Subsidiaries to assign or exclusively license to a third party any material Owned Business Intellectual Property.

(g) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, since January 1, 2013,

all Persons (including current and former employees and independent contractors) who have created or contributed to the creation of any Owned Business Intellectual Property

have executed enforceable written agreements that validly and irrevocably assign to Seller or one of the Business Subsidiaries, to the extent permitted under applicable Law, all of their rights in and to such Owned Business Intellectual Property,

or Seller and the Business Subsidiaries own all such Owned Business Intellectual Property pursuant to applicable Law.

Seller and the Business Subsidiaries have taken commercially reasonable actions to maintain the validity and enforceability of any material issued Patent or material Mark or Copyright registration included in the Registered Owned Business IP under applicable Law.

(h) To the Knowledge of Seller, neither Seller nor the Business Subsidiaries has included, incorporated or embedded any Open Source Software that is subject to any Copyleft License in any Owned Business Software that is distributed by Seller or any of the Business Subsidiaries to any Person (other than Seller or any Business Subsidiary).

(i) ["eye"] To the Knowledge of Seller, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

neither Seller nor any of the Business Subsidiaries has disclosed or delivered or authorized to be disclosed to any escrow agent or any other Person (other than an employee) any of the source code for any Owned Business Software

other than pursuant to a written Contract that imposes restrictions on the use and disclosure of such source code.

(j) The Intellectual Property Rights licensed to Seller and the Business Subsidiaries under the License Agreement and the Business Intellectual Property constitute, in all material respects, all Intellectual Property Rights necessary to operate the Business as currently conducted.

(k) Seller and the Business Subsidiaries post policies with respect to Personal Data in their possession or Processed on their behalf on any websites or online services operated by Seller or the Business Subsidiaries in conformance in all material respects with all applicable Privacy Laws.

To the Knowledge of Seller, Seller and the Business Subsidiaries' written public-facing privacy policies fully and accurately disclose how the Business Processes Personal Data except where the failure to disclose would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(l) ["ell"] To the Knowledge of Seller, Seller and the Business Subsidiaries are, and in the past have made themselves, in compliance, in all material respects with: (i) all applicable Privacy Laws; (ii) all of Seller's and the Business Subsidiaries' written public-facing policies regarding privacy and data security; and (iii) any existing and currently effective written contractual commitment made by Seller or the Business Subsidiaries with respect to Personal Data;

in each case (i), (ii) and (iii) except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(m) To the Knowledge of Seller, Seller and the Business Subsidiaries have contractually obligated all third-party service providers, outsourcers, processors, or other third parties Processing Personal Data, in each case on behalf of Seller or the Business Subsidiaries to[:]

(i) comply with applicable Privacy Laws

(except where the failure to obligate such third-party would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect);

and (ii) take reasonable steps to protect and secure Personal Data from loss, theft, unauthorized access, use, modification, disclosure or other misuse.

(n) Seller and the Business Subsidiaries have obtained or will obtain any and all necessary rights, permissions, and consents to permit the transfer of Personal Data in connection with the Transactions, and such transfer will not violate in any material respect any applicable Privacy Laws.

(o) To the Knowledge of Seller, Seller and the Business Subsidiaries have implemented and maintain organizational, physical, administrative, and technical measures applicable to Personal Data that are reasonably consistent with[:]

(i) reasonable practices in the industry in which Seller and the Business Subsidiaries operate,

(ii) any existing and currently effective written contractual commitment made by Seller or the Business Subsidiaries that is applicable to Personal Data, and

(iii) any written public-facing policy adopted by Seller or the Business Subsidiaries related to privacy, information security or data security,

in each case (i), (ii) and (iii) that are intended to protect the integrity, security and operations of Seller or the Business Subsidiaries' information technology systems (and data therein) against loss, theft, unauthorized access or acquisition, modification, disclosure, corruption, or other misuse,

except in each case (i), (ii) and (iii) where the failure to have implemented and maintain any such measures would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

Seller and the Business Subsidiaries maintain,

and contractually require any third parties acting on their respective behalf to maintain,

a written public-facing information privacy and security program that maintains reasonable and appropriate measures to protect the privacy, operation, confidentiality, integrity, and security of all Personal Data against any Security Breach.

Seller and the Business Subsidiaries use reasonable efforts to inform all employees of and consultants to Seller and the Business Subsidiaries who have access to or Process Personal Data of Seller's or the Business Subsidiaries' applicable current written public-facing privacy and security policies.

Seller has delivered or made available true and complete copies of all current written public-facing policies and procedures relating to the Processing and security of Personal Data.

(p) To the Knowledge of Seller, there have not been any incidents of, or third party claims alleging,

(i) Security Breaches, unauthorized access or unauthorized use of any of Seller's or the Business Subsidiaries' information technology systems or

(ii) loss, theft, unauthorized access or acquisition, modification, disclosure, corruption, or other misuse of any Personal Data in Seller's or the Business Subsidiaries' possession, or other confidential data owned by Seller or the Business Subsidiaries (or provided to Seller or the Business Subsidiaries by their customers) in Seller's or the Business Subsidiaries' possession,

in each case (i) and (ii) that could reasonably be expected to have a Business Material Adverse Effect.

Neither Seller nor the Business Subsidiaries have notified in writing, or to the Knowledge of Seller, been required by applicable Law or a Governmental Authority to notify in writing, any Person of any Security Breach.

To the Knowledge of Seller, neither Seller nor the Business Subsidiaries have received any notice of any claims, investigations (including investigations by a Governmental Authority), or alleged violations of Laws with respect to Personal Data possessed by Seller or the Business Subsidiaries, in each case that could reasonably be expected to have a Business Material Adverse Effect.

(q) This Section 2.16, Section 2.05, the second sentence of Section 2.18, Section 2.19 and Section 2.20 contains the sole and exclusive representations and warranties provided with respect to all matters relating to Intellectual Property Rights or the collection, use, storage, retention, disclosure or disposal of personally identifiable information with respect to each of Seller, the Business Subsidiaries and the Business.

1.5.17 2.17 Environmental Matters

Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect: (a) Seller (to the extent related to the Business) and the Business Subsidiaries are, and their activities at the Owned Real Property and Leased Real Property are, in compliance with all applicable Environmental Laws; (b) since January 1, 2012, Seller (to the extent related to the Business) and the Business Subsidiaries have obtained and are in compliance with all Permits required for the operation of the Business under applicable Environmental Laws; (c) since January 1, 2012, neither Seller (to the extent related to the Business) nor the Business Subsidiaries have been subject to any pending or, to the Knowledge of Seller, threatened Environmental Claim; (d) there has been no Release of Hazardous Materials at, from, to, on or under any of the properties that are currently or formerly owned, leased, or operated by Seller or any of the Business Subsidiaries or, any properties to which Seller or any of Business Subsidiaries has sent Hazardous Materials for which Release Seller or any of the Business Subsidiaries could reasonably be expected to have liability under Environmental Laws; (e) since January 1, 2012, neither Seller (to the extent related to the Business) nor the Business has paid any material fine or penalty relating to any Environmental Law, Hazardous Materials or an Environmental Claim; and (f) neither Seller (to the extent related to the Business) nor the Business have entered into any agreement to indemnify, any Person for any conditions or claims involving any Releases of Hazardous Substances into soil or groundwater that remains legally binding. This Section 2.17, Section 2.05, Section 2.06, Section 2.08 and the second sentence of Section 2.18 contain the sole and exclusive representations and warranties in this Agreement relating to environmental matters, including matters arising under Environmental Laws or otherwise relating to Hazardous Materials.

1.5.18 2.18 Absence of Certain Changes

Except[:]

(i) in connection with the negotiation and execution of this Agreement, the Reorganization Transactions, the Debt Tender Offer, or, for the avoidance of doubt, the IP Monetization

or

(ii) as otherwise contemplated or permitted by this Agreement,

since December 31, 2015 through the date hereof, the Business has been conducted in the ordinary course consistent with prior practice.

Since December 31, 2015, there has not occurred a Business Material Adverse Effect.

1.5.19 2.19 Material Contracts

Section 2.19 of the Disclosure Schedules contains an accurate list as of the date of this Agreement of all the Contracts, excluding any Leases, currently in effect of the following types to which Seller (to the extent related to the Business) or any of the Business Subsidiaries is a party or to which any of their assets or properties is subject (the “Material Contracts”):

(a) any Contract that (i) is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the Exchange Act other than any such Contract that is not required to be filed under clause (iii)(C) thereof) or (ii) that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act;

(b) any Contract that restricts or prohibits, or purports to restrict or prohibit, Seller (to the extent related to the Business) or any of the Business Subsidiaries (i) from engaging or competing in any business or soliciting any client or customer in any geographic area (in each case, other than (A) non-exclusive, inbound licenses to Intellectual Property Rights that are subject to territorial limitations and (B) covenants not to assert, sue or challenge), including Contracts that contain a “exclusivity” or similar term, or acquiring or disposing of securities of another person (or that following the Closing would materially restrict Purchaser or its Subsidiaries in any such manner) or (ii) from soliciting individuals for employment;

(c) any loan, guarantee of indebtedness or credit agreement, note, mortgage, indenture or other binding commitment (other than those solely between or among Seller and/or the Business Subsidiaries) relating to indebtedness for borrowed money in an amount in excess of $25,000,000;

(d) (i) any Contract establishing or governing the management of any joint venture or partnership that is material to the operations of the Business, and (ii) any Contract material to the operations of the Business with (A) SoftBank Group Corp. and its controlled Affiliates, (B) Yahoo Japan Corporation and its controlled Affiliates, (C) Seven Network Limited and its controlled Affiliates, (D) Microsoft Corporation and its controlled Affiliates and (E) Alphabet Inc. and its controlled Affiliates, in each case of (A) through (E), other than Contracts entered into in the ordinary course of business consistent with past practice on standard terms;

(e) any Contract pursuant to which Seller (to the extent related to the Business) or the Business Subsidiaries (i) was obligated to pay more than $25,000,000 for the year ended December 31, 2015 or may be obligated to pay such amount for the year ended December 31, 2016 (other than revenue share arrangements) (excluding any Contract covered in the immediately following clause (ii)), (ii) is obligated to pay the counterparty a minimum price or revenue guarantee amount involving amounts reasonably expected to be greater than $25,000,000 annually, or (iii) received, net of traffic acquisition costs, revenues of greater than $25,000,000 for the year ended December 31, 2015 or that is expected to result in the receipt, net of traffic acquisition costs, of revenues of greater than $25,000,000 for the year ending December 31, 2016;

(f) any Contract (i) that contains a “most-favored-nation” clause or similar term pursuant to which Seller or any of the Business Subsidiaries provides preferential pricing or treatment to any other Person or (ii) that grants any put, call, right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of Seller (to the extent related to the Business) or the Business Subsidiaries;

(g) any Contract with a sales representative with expected aggregate annual payments by or to Seller (to the extent related to the Business) or the Business Subsidiaries in excess of $25,000,000;

(h) any Contract providing for the acquisition or disposition, including on a contingent basis, of any assets, business, securities or otherwise outside the ordinary course of business by Seller (to the extent related to the Business) or the Business Subsidiaries or for consideration in excess of $25,000,000, other than Contracts for transactions that have closed for which there are no remaining holdback or deferred purchase obligations, earn-out obligations, pending indemnification obligations that are not secured by funds held in escrow or other contingent or similar obligations (other than obligations with respect to time-based retention) that would reasonably be expected to result in Liabilities in excess of $25,000,000;

(i) any Contract that obligates Seller (to the extent related to the Business) or any of the Business Subsidiaries to make any loans, advances or capital contributions to, or investments in, any Person in excess of $25,000,000;

(j) any Contract that is material to the Business under which Seller (to the extent related to the Business) or any of the Business Subsidiaries: (i) is a party to an express cross-license under or to any Patents that are material to the Business; (ii) has received an express license under or to any Patents that are material to the Business (excluding implied licenses to Patents in connection with the purchase or licensing of Software, hardware or services); or (iii) has received an express license under or to any Software owned by any other Person that (A) is material to the Business and (B) has an annual cost of greater than $15,000,000 (excluding any licenses for generally available, unmodified, commercial Software or “click-wrap,” “shrink-wrap” or freely downloadable Software (including Open Source Software) or licenses included in advertising insertion orders);

(k) any Contract that is material to the Business under which Seller (to the extent related to the Business) or any of the Business Subsidiaries has granted an express license under or to any Patents included in the Registered Owned Business IP that are material to the Business;

(l) any Contract pursuant to which (i) any third Person creates, develops, supports, maintains or customizes for or on behalf of Seller (to the extent related to the Business) or any of the Business Subsidiaries any Intellectual Property Rights or Software material to the Business for aggregate annual or one-time fees in excess of $15,000,000 or (ii) Seller or any of the Business Subsidiaries, for aggregate annual or one-time fees in excess of $15,000,000, creates, develops or customizes any Intellectual Property Rights or Software for any third Person; and

(m) any outstanding commitment or agreement to enter into any of the foregoing.

Seller has made available to Purchaser prior to the date of this Agreement a complete and correct copy of each Material Contract as in effect on the date of this Agreement. Neither Seller nor any Business Subsidiary is in breach of or default under the terms of any Material Contract, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a breach or default thereunder by Seller or any Business Subsidiary, in each case where such breach or default would reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect. To the Knowledge of Seller, no other party to any Material Contract is in breach of or default under the terms of any Material Contract and, to the Knowledge of Seller, no event has occurred that with the lapse of time or the giving of notice or both would constitute a breach or default thereunder by any other party thereto, in each case where such breach or default would reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect. Each Material Contract is a valid and binding obligation of Seller or the applicable Business Subsidiary and, to the Knowledge of Seller, a valid and binding obligation of each other party thereto. Each Material Contract is in full force and effect and enforceable against the other parties thereto, except (i) as would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect, (ii) as such enforceability may be limited by the Enforceability Limitations and (iii) for any Material Contract that has expired or been terminated in accordance with its terms other than as a result of a breach thereof or default thereunder by Seller. Except as would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect, (x) there are no disputes pending or, to the Knowledge of Seller, threatened with respect to any Material Contract or counterparty thereto and (y) neither Seller nor any of the Business Subsidiaries has received any written (or to Seller's Knowledge, oral) notice of the intention of any such counterparty to terminate for default, convenience or otherwise any Material Contract, nor, to the Knowledge of Seller, is any such party threatening to do so.

1.5.20 2.20 Rights and Obligations

Assuming receipt of all Consents that are required in connection with the consummation of the Transactions,

the Business Subsidiaries (for the avoidance of doubt, including (if applicable) SaleCo2 and its Subsidiaries) (after giving effect to the Reorganization Transactions (including the transactions contemplated by Section 1.7 of the Reorganization Agreement))

will have substantially the same rights and obligations (excluding the Excluded Assets and the Retained Liabilities)

with respect to the Business immediately following the Closing

as Seller and the Business Subsidiaries had immediately prior to consummation of the Reorganization Transactions.

1.5.21 2.21 Seller Stockholder Approval

Assuming the Seller Stockholder Approval is obtained, no other vote of stockholders of Seller is required in connection with the consummation of the transactions contemplated hereby.

1.5.22 2.22 Information Supplied

The Proxy Statement will not,

as of the date of filing and at the date it is first mailed to the stockholders of Seller and at the time of the Stockholders' Meeting,

contain any untrue statement of a material fact

or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.

The representations and warranties contained in this Section 2.22 will not apply to statements or omissions included in the Proxy Statement based upon information furnished to Seller by Purchaser specifically for use therein.

1.5.23 2.23 State Takeover Statutes

No “fair price,” “moratorium,” “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal laws in the United States applicable to Seller or the Company is applicable to the Sale and the Reorganization Transactions.

1.5.24 2.24 Brokers

Seller shall be solely responsible for the fees and expenses of any broker, finder or investment banker entitled to any brokerage, finder's or other fee or commission in connection with the Sale and the other transactions contemplated by this Agreement, based upon arrangements made by or on behalf of Seller or the Business Subsidiaries.

1.5.25 2.25 Insurance

Seller and the Business Subsidiaries maintain insurance in such amounts and against such risks in all material respects as is customary for the industries in which Seller (to the extent related to the Business) and the Business Subsidiaries operate and as the management of Seller has in good faith determined to be reasonable. Except as would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect, all material insurance policies maintained by or on behalf of Seller (to the extent related to the Business) and the Business Subsidiaries are in full force and effect, all premiums and other payments due on such policies have been paid by Seller and the Business Subsidiaries and all claims thereunder have been filed in due and timely fashion.

1.5.26 2.26 Disclaimer

Except as set forth in this Article II or the other Transaction Documents, none of Seller, its Affiliates or any of its Representatives makes or has made any other representation or warranty, express or implied, at law or in equity, in respect of Seller, the Business Subsidiaries or their respective Affiliates. Any such other representation or warranty is hereby expressly disclaimed. In particular, without limiting the foregoing disclaimer, except for the representations and warranties made by Seller in this Article II or the other Transaction Documents, none of Seller, its Affiliates or any of its Representatives makes or has made any representation or warranty to Purchaser or any of its Affiliates or Representatives with respect to (a) any financial projection, forecast, estimate or budget of future results or future financial condition relating to Seller, any of the Business Subsidiaries or the Business, or (b) any oral or written information presented to Purchaser or any of its Affiliates or Representatives in the course of their due diligence investigation of Seller, any of the Business Subsidiaries or the Business, the negotiation of this Agreement or in the course of the transactions contemplated hereby.

1.6 Rewriting exercise: Confidential information (Atari agreement)

Rewrite the following to make it more readable; it's from an Atari consulting agreement, at https://goo.gl/ukMKTr (onecle.com via archive.org), between an individual and Atari. START BY BREAKING IT UP.

7.    Confidentiality and Security.

Consultant recognizes and agrees that in the course of performing services hereunder Consultant will generate or otherwise become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations. This information may include, without limitation, plans to introduce new products or services (including in this regard the existence of the Project), methods of doing business, planned transactions, market information, pricing information, supply sources, license and contract terms, information pertaining to customers' businesses, non-public financial data and operating results, system and component designs, specifications, computer software and technical information. Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets, and Consultant will employ Consultant's best efforts to assure the continued confidentiality thereof. Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder. Consultant will take all reasonable measures to prevent any unauthorized person from gaining access to such information and to prevent such information from being accessed, disclosed or used in any unauthorized manner, including complying strictly at all times with all applicable physical and computer system security procedures. Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems, or obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing. Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7, shall purge any and all copies thereof from all files and storage media retained by Consultant, and shall retain no archival or other copies thereof whatsoever. Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

QUESTION 1: If you're representing Consultant, why should the phrases "best efforts" and "all reasonable measures" cause you some concern?

QUESTION 2: How is Consultant supposed to know just what Atari information is subject to the confidentiality restriction?

QUESTION 3: Why should the penultimate sentence be of concern to Consultant?

DCT's first pass: (to show on his computer)

2 Class plan - Day 7 (Wed. Sept. 11)

2.1 Quiz # 1

It should be visible on Blackboard.

2.2 In the news (4 p.m.)

(Kevin Thompson to summarize a UK case)

2.3 In the news (sort of)

Redlining representation negotiation

2.4 Homework exchange

You know what to do. NOTE: When emailing homework to me, please put "Homework" (spelled out) in the subject line so that my filter will pick it up, tag it, and file it for me to look at later.

2.5 Lecture (read along): Guaranties

Follow along in the Tango Terms (p. 241, § 70).

2.6 "Flow" exercise: Carbolic acid and Queen Victoria

From this NPR piece:

[Joseph] Lister was the closest surgeon to [Queen Victoria's] residence in Scotland, Fitzharris says, so she directed Lister to come drain a large abscess growing under her armpit. Before the surgery, Lister's assistant sprayed carbolic acid with a machine Lister invented called the donkey engine all over the operation area, sterilizing it but also accidentally spraying the queen in the face.

QUESTION: How could the italicized text be rewritten to "flow" better? (Hint: Consider rewriting it so that it would sound more-natural if read aloud — which isn't bad advice for any writing.)

2.7 BLUF exercise: Doctor practice bylaws

EXERCISE: Break up the following provision — and put the bottom line up front (BLUF) — from Lynd v. Marshall County Pediatrics, P.C., 263 So. 3d 1041 (Ala. 2018). (Hint: Look for the "then ….")

If any shareholder of the corporation for any reason ceases to be duly licensed to practice medicine in the state of Alabama, accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician, or upon the death or adjudication of incompetency of a stockholder or upon the severance of a stockholder as an officer, agent, or employee of the corporation, or in the event any shareholder of the corporation, without first obtaining the written consent of all other shareholders of the corporation shall become a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama, or if any shareholder makes an assignment for the benefit of creditors, or files a voluntary petition in bankruptcy or becomes the subject of an involuntary petition in bankruptcy, or attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation or if any lien of any kind is imposed upon the shares of any shareholder and such lien is not removed within thirty days after its imposition, or upon the occurrence, with respect to a shareholder, of any other event hereafter provided for by amendment to the Certificates of Incorporation or these By-Laws, then and in any such event, the shares of this [c]orporation of such shareholder shall then and thereafter have no voting rights of any kind, and shall not be entitled to any dividend or rights to purchase shares of any kind which may be declared thereafter by the corporation and shall be forthwith transferred, sold, and purchased or redeemed pursuant to the agreement of the stockholders in [e]ffect at the time of such occurrence. The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975.

DCT's first pass: (to show on his computer)

2.8 Rewriting exercise: Confidential information (Atari agreement)

Rewrite the following to make it more readable; it's from an Atari consulting agreement, at https://goo.gl/ukMKTr (onecle.com via archive.org), between an individual and Atari. START BY BREAKING IT UP.

7.    Confidentiality and Security.

Consultant recognizes and agrees that in the course of performing services hereunder Consultant will generate or otherwise become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations. This information may include, without limitation, plans to introduce new products or services (including in this regard the existence of the Project), methods of doing business, planned transactions, market information, pricing information, supply sources, license and contract terms, information pertaining to customers' businesses, non-public financial data and operating results, system and component designs, specifications, computer software and technical information. Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets, and Consultant will employ Consultant's best efforts to assure the continued confidentiality thereof. Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder. Consultant will take all reasonable measures to prevent any unauthorized person from gaining access to such information and to prevent such information from being accessed, disclosed or used in any unauthorized manner, including complying strictly at all times with all applicable physical and computer system security procedures. Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems, or obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing. Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7, shall purge any and all copies thereof from all files and storage media retained by Consultant, and shall retain no archival or other copies thereof whatsoever. Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

QUESTION 1: If you're representing Consultant, why should the phrases "best efforts" and "all reasonable measures" cause you some concern?

QUESTION 2: How is Consultant supposed to know just what Atari information is subject to the confidentiality restriction?

QUESTION 3: Why should the penultimate sentence be of concern to Consultant?

DCT's first pass: (to show on his computer)

2.9 Ambiguity exercise: Prime rate plus 2%

TEXT (from a dispute that I arbitrated): A contract states that payments remaining past due more than 30 days after the due date will bear interest at “a rate per annum equal to the prime rate published by the Wall Street Journal on the business day before the date on which such interest begins to accrue, changing with each change in such published rate, plus two percent (2%)."

FACTS: On the relevant date, the Journal's published U.S. prime rate was 4.00%.

QUESTION: On its face, from a drafting style perspective, what's wrong with this interest-rate provision?

QUESTION: What interest rate should be applied to the late payment — 6%, or 4.08%?

QUESTON: How could the interest-rate language be clarified?

2.10 Ambiguity and lawyer spin

TEXT: From this comment (by a brilliant lawyer) in an on-line forum: "A classic lawyering tactic is to use the most favorable (to your side) characterization of something you can justify."

EXERCISE: Rewrite this to make it clear that the term "you can justify" applies to characterization and not to something.

3 Class plan - Day 6 (Mon. Sept. 09)

3.1 In the news: Fraudulent inducement

In Harris County District Court, a natural-gas provider was hit with a judgment for some $9 million for fraudulent inducement and negligent misrepresentation for recklessly representing to a customer that the provider had certain capabilities, when the provider "did not do any investigation as to whether [it] could satisfy this obligation …." (At ¶ 54.)

See also: Hewlett-Packard's EDS division had to pay USD $460 million to settle a claim by British Sky Broadcasting; see the Tango Terms commentary at 392-93.

3.2 Homework #2 review

  1. A student wrote in the background section: "For all purposes, the Data is owned by Client and is provided to Contractor for completion of services under this Agreement."

    DCT COMMENT: This shouldn't go into the Background section, but into a substantive section (e.g., concerning IP ownership).

  2. A student used "WHEREAS" several times.

    DCT COMMENT: That's OK if the partner wants it, but it's archaic.

  3. A student described Mary as an "expert."

    DCT COMMENT: As we discussed in class last time, if I were Mary, I wouldn't want that.

  4. A student wrote: "Analyst desires to be retained by Company, and Company desires to retain Analyst, to analyze or cause to be analyzed the seismic data of the OM Field in accordance with the terms and conditions of this Agreement."

    DCT COMMENT: That seems superfluous: It's more or less self-evident, and it makes for one more paragraph for the reviewer(s) to have to read.

  5. A student included a section: "Concurrently with the execution and delivery of this Agreement, the Recipient and the Company are entering into a Service Agreement."

    DCT COMMENT: No, the agreement we're drafting IS the service agreement.

  6. Several students wrote variations on, e.g., "Gigunda desires for MathWhiz to analyze data, and MathWhiz desires to do so."

    DCT COMMENT: I wouldn't phrase it that way; instead, I'd let the rest of the contract speak for itself. (And in any case, the parties' subjective desires don't enter into contract interpretation except in cases of a lack of meeting of the minds or mutual mistake.)

  7. A student wrote that "Gigunda will pay MathWhiz as stated in this Agreement."

    DCT COMMENT: I think I'd leave that out — the payment provisions will speak for themselves, and it's not really needed for an "executive summary" (readers will assume that MathWhiz will be paid).

  8. A student writes: "The parties have agreed that Client will compensate Provider with a flat monthly fee of $20,000 for up to 200 staff hours of work per month, with additional work hours being billed at $150 per hour."

    DCT COMMENT: As long as this is the only place that the specific compensation details are discussed (D.R.Y.), this would work (like the lease details in the Stanford-Tesla lease being up front in the document).

  9. A student writes: "Client and Service Provider enter into the Agreement for the term of one year from the effective date of the Agreement."

    DCT COMMENT: This is another item that would go into a substantive provision further down, not into the Background section.

3.3 Ambiguity: Julia Louis-Dreyfus's early career

From a NY Times piece about Julia Louis-Dreyfus's being awarded the Mark Twain Prize for American Humor:

When she was still in college, Louis-Dreyfus was cast on “Saturday Night Live,” where she played a televangelist with a raunchy retelling of the Nativity. She has said those years were grim — a young woman trying to prove herself in a male-heavy cast — and missing the camaraderie of her work in Chicago. And on Sunday, she said it was not appropriate for her work there to be honored in a celebration of comedy.

(Emphasis added.)

QUESTION: In the italicized portion, which exactly is the "her work there" to which Louis-Dreyfus was supposedly referring — was it her work at SNL, or her work in Chicago?

3.4 Signatures: The Addams family in Hawai'i

FACTS:

  • Your client is Addams Investments, L.P., a "family" limited partnership of the very-wealthy Addams clan in Galveston. The sole general partner of the limited partnership is Addams Operations, Inc.
  • It's 12:00 noon Houston time on March 31. The president of Addams Operations, Ms. Wednesday Addams, is on the phone. It's a bad connection, but she wants to talk about a contract that you and she have been negotiating for Addams Investments, L.P.
  • Under the contract, will buy a large quantity of widgets from Widgets, Inc., a Houston company that recently went public. (Family patriarch Gomez Addams is convinced the family will make a killing in the widget market.)
  • Wednesday Addams says that she has talked by phone with her opposite number at Widgets, Inc.; she reports that Widgets, Inc., has agreed to the last contract draft that you sent over, and that everyone is ready to sign.
  • The Widgets, Inc. people really, really want to get the contract signed and delivered today, March 31. They've told Wednesday Addams that they're willing to make significant pricing concessions to make that happen.
  • There's a problem, though: As you learn from Wednesday Addams over the bad phone connection, she and the rest of the Addams family are at the end of a rugged backpacking vacation on a small, primitive island in Hawai'i. The island has no Internet service and barely has cell phone service.
  • The family has just emerged from the back country. The plan is for everyone, smelly as they are, to take a private plane from a dirt landing strip on the island to the Honolulu airport. A shuttle bus will take them to a nearby hotel for a quick shower and change of clothes. The family will then board a United Airlines "redeye" overnight flight that will land in Houston on the morning of April 1.
  • One more thing, she says: In the interest of traveling as light as possible, no one in the group brought a laptop.

QUESTION: How should the contract signature block for Adams Investments, L.P., be written? INSTRUCTIONS: Develop a consensus, then post your version on the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section ).

QUESTION: Why might the Widgets sales rep be so eager to get the contract signed on March 31? (Hint: It has to do with the fact that Widgets, Inc. is a newly-public company.)

QUESTION: What about just signing it on April 1 when the family gets back to Houston?

QUESTION: Is it physically possible for you to "make it happen" for the contract to be signed and delivered to Widgets, Inc. today, March 31? If so, how might you go about it?

QUESTION: If Wednesday Addams asks you to sign it as the company's lawyer, how should you respond?

3.5 Ambiguity alert: Kellyanne Conway

From the Washington Post: "Tapper said that Conway’s boss, the president, has been the subject of numerous sexual assault allegations and has said that those women lied about them."

Q: Who, exactly, said "those women lied" — was it Tapper, or Conway's boss? How could this be clarified?

3.6 Ambiguity

Consider the following sentence: "Alice says that Bob is cold." Is this more likely to be considered vague, ambiguous, or both?

Consider the following sentence: "Alice says that Bob's forehead feels warm." Is this more likely to be considered vague, ambiguous, or both?

What's a principal danger of an ambiguous contract term?

FACTS: In a contract draft prepared by The Other Side, you see a term that's vague — it says that your client must pay The Other Side a certain amount by a certain date, but doesn't specify the time of day for that deadline. QUESTION: Is this worth asking The Other Side to fix? Discuss your reasoning.

MORE FACTS: In this contract, your client is located in Vancouver, Canada and The Other Side (which drafted the contract) is located in Houston. The contract states that the amount your client must pay is $1 million. QUESTION: Is this an issue? If so, is it worth burning up negotiation time by asking The Other Side to fix it? Discuss your reasoning.

MORE FACTS: In the above situation, your client really wants to get the contract to signature as soon as possible, like yesterday. You've tentatively concluded that it's not worth raising either of the above points (time of day and amount due) with The Other Side. QUESTION: To be on the safe side and keep your malpractice-insurance carrier happy, what might you want to do about these points before sending your markup to The Other Side?

If all else fails in trying to interpret a contract provision, what Latin maxim will courts often follow, and what does it mean?

4 Class plan - Day 5 (Wed. Sept. 04)

4.1 Homework notes: Title and signature block

4.1.1 Title

• One student's title was: "CONSULTING SERVICES AGREEMENT Among Gigunda Energy and Math-Whiz LLC"

What's less-than-ideal here? [1]

• Title: "SEISMIC DATA ANALYSIS SERVICE AGREEMENT BY AND BETWEEN GIGUNDA ENERGY AND MATH-WHIZ LLC"

QUESTION: What could be improved here? [2]

• Title:

CONSULTANT SERVICES AGREEMENT
BETWEEN
GIGUNDA ENERGY,
a California [corporation]
(“Client”)
AND
MATH-WHIZ LLC,
a Texas limited liability company
(“Contractor”)

QUESTION: What's a potential concern here? [3]

4.1.2 Signature block

• One student had MathWhiz's signer as "Mary [Last Name], Member." QUESTION: What could be improved here? [4]

• One student had:

AGREED:
GIGUNDA ENERGY
By: ---------------------–—
Name:
Title:
Date Signed:

QUESTION: What could be improved here? [5]

• One student's MathWhiz signature block read as follows:

AGREED: PROVIDER
MATH-WHIZ LLC, by:
---------------------–—
Signature
---------------------–—
Date Signed

QUESTION: What could be improved here? [6]

• One student had the sig blocks as, e.g.:

AGREED: CLIENT
Gigunda Energy, LLC,
a California limited liability company

By: -----------------–—
            John Snow, Manager

--------------------–—
Date signed

QUESTION: What could be improved here? [7]

• One student's sig blocks were thus:

AGREED:
Gigunda Energy, Inc., by:

-----------------------------
Signature

-----------------------------
Print Name

-----------------------------
Date

QUESTION: What could be improved here? [8]

4.3 Ambiguity exercises

Consider the following sentence: "Alice says that Bob is cold." Is this more likely to be considered vague, ambiguous, or both?

Consider the following sentence: "Alice says that Bob's forehead feels warm." Is this more likely to be considered vague, ambiguous, or both?

What's a principal danger of an ambiguous contract term?

FACTS: In a contract draft prepared by The Other Side, you see a term that's vague — it says that your client must pay The Other Side a certain amount by a certain date, but doesn't specify the time of day for that deadline. QUESTION: Is this worth asking The Other Side to fix? Discuss your reasoning.

MORE FACTS: In this contract, your client is located in Vancouver, Canada and The Other Side (which drafted the contract) is located in Houston. The contract states that the amount your client must pay is $1 million. QUESTION: Is this an issue? If so, is it worth burning up negotiation time by asking The Other Side to fix it? Discuss your reasoning.

MORE FACTS: In the above situation, your client really wants to get the contract to signature as soon as possible, like yesterday. You've tentatively concluded that it's not worth raising either of the above points (time of day and amount due) with The Other Side. QUESTION: To be on the safe side and keep your malpractice-insurance carrier happy, what might you want to do about these points before sending your markup to The Other Side?

If all else fails in trying to interpret a contract provision, what Latin maxim will courts often follow, and what does it mean?

 

5 Class plan - Day 4 (Wed. Aug. 28)

5.1 Syllabus updated with reading assignments

See the revised syllabus (PDF) (updated 8/28)

5.2 Ambiguity: "… was clearly executed" vs. "clearly was executed"

From an email I received from the American Arbitration Association: "For unknown reasons, the reports generated that reflected completions of the Standards & Responsibilities form failed to include your entry even though the form was clearly executed." (Emphasis added.)

QUESTION: What are the two possible meanings for the italicized version?

5.3 Homework exchange

Exchange hard copies with your group mates.

5.4 Vagueness vs. ambiguituy

QUESTION: What is a "vague" term? What is an "ambiguous" term?

5.5 Read-along lectures

6 Class plan - Day 3 (Mon. Aug. 26)

6.1 Ambiguity and traffic signs

See this sign.

6.2 Read-along lecture: Titles, preambles, backgrounds

From the Tango Terms:

6.3 Drafting exercise: Background

§ 169.5.1, page 551: Take a stab at redrafting the "WITNESSETH:" and "WHEREAS:" provisions in Word; each student do it individually.

6.4 Ambiguity exercise: Success

From a Facebook posting: "A man's success has a lot to do with the kind of woman he chooses to have in his life. (Pass this on to all great women.)"

QUESTION: What's a different interpretation of this quote?

6.5 Discussion: Title and preamble (Stanford-Tesla lease)

COMMERCIAL LEASE

THIS LEASE is entered into as of July 25, 2007 (the “Effective Date”), by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California (“Landlord”), and TESLA MOTORS, INC., a Delaware corporation (“Tenant”).

1.  BASIC LEASE INFORMATION. The following is a summary of basic lease information. Each item in this Article 1 incorporates all of the terms set forth in this Lease pertaining to such item and to the extent there is any conflict between the provisions of this Article 1 and any other provisions of this Lease, the other provisions shall control. Any capitalized term not defined in this Lease shall have the meaning set forth in the Glossary that appears at the end of this Lease.

Address of Premises: 300 El Camino Real, Menlo Park, California

Term: Five (5) years

Scheduled Date for Delivery of Premises: August 1, 2007

Commencement Date: August 1, 2007

Expiration Date: July 31, 2012

Base Rent:

Year One: $60,000 ($5,000 per month)
Year Two: $90,000 ($7,500 per month)
Year Three: $120,000 ($10,000 per month)
Year Four: $165,000 ($13,750 per month)
Year Five: $165,000 ($13,750 per month

QUESTIONS FOR CLASS DISCUSSION:

  1. Is "Commercial Lease" the proper term, or should it be "Commercial Lease Agreement"? [9]
  2. Why state that the Lease is entered into "as of July 25, 2007"? [10]
  3. Why do you think the names of the parties are capitalized? [11]
  4. What might be some of the pros and cons of including this kind of "Basic Lease Information" at the beginning of the agreement document, instead of including it "in-line" in the appropriate section(s) of the agreement? [12]
  5. To what extent is the "Each item in this Article 1 incorporates …" worth including? [13]
  6. What could go wrong with the italicized portion, "to the extent there is any conflict …"? [14]
  7. Note the mention of the Glossary in the last sentence of the first paragraph — where are some other places to include definitions for defined terms? [15]
  8. Any comments about the way the "Term: Five (5) years" portion is stated? How about the way that the Base Rent amounts are stated? [16]

7 Class plan - Day 2 (Wed. Aug. 21)

7.1 Syllabus is updated, as a separate document

See the Syllabus (PDF) (added 8/21).

NOTE: The homework instructions have been tweaked somewhat; be sure to read them.

7.2 Review: Course guidelines

1. QUESTION: How many points on your final grade can you earn for turning in all drafting homework? [17]

2. QUESTION: According to the syllabus, what could happen if you didn’t turn in any homework?
A. You could still pass the course, but you'd have to make up the missing points.
B. Your grade will be dropped by one letter, e.g., A- to B- etc.
C. No adverse consequences, other than not getting the benefit of the work.
D. You will not be able to accumulate enough points to pass the course. [18]

3. QUESTION: According to the syllabus, to what extent are you allowed to collaborate with classmates in doing homework, and what are you supposed to do if you do collaborate? [19]

7.3 Demonstration: Drafting problems with a contract

From a contract drafted by The Other Side of an actual deal (sanitized):

Within thirty (60) days of the close of previous quarter term, ABC shall provide XYZ with a revenue report that provides a total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term, minus any associated costs or expenses and customer returns or refunds ("Revenue Report").

QUESTIONS:

  1. Any drafting problems with this?
  2. Ignoring the substance, how might this be otherwise improved to make it more readable?

DCT COMMENTS:

  1. "Within thirty (60) days …" is a mismatch, illustrating the reason for the D.R.Y. (Don't Repeat Yourself) principle.
  2. "Within 30 days of the close …" is ambiguous — it could mean within the 30 days preceding the end of the quarter.
  3. In the first phrase, it should be "… days of the close of the previous quarter term.
  4. "Quarter term" is not a conventional phrase — consider "calendar quarter," or perhaps "fiscal quarter," instead.
  5. "ABC shall provide XYZ with a revenue report" is OK, and some practitioners prefer it, but "ABC will provide" would be softer and more collaborative-sounding.

DCT REWRITE:

(a) Each quarter, ABC will provide XYZ with a revenue report. The revenue report is to state the following:

(1)     the total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term,

(2)     minus any associated costs or expenses and customer returns or refunds.

Each such report is referred to as a "Revenue Report."

(b) Each Revenue Report is due no later than 30 days after the close of the previous quarter term.

7.4 Lecture: Simplifying a contract

[DCT to pull up a PowerPoint deck.]

7.5 Exercise: Selling your laptop

FACTS:

  • You are a new lawyer, licensed to practice in Texas.
  • Here in Houston, "Alice"* is selling her 2012 Macbook Air laptop computer to "Bob" for USD $ 500.
  • You represent Bob, who has asked you to draw up a contract for the sale.

* In the tech world, communications protocols are often illustrated by using fictional characters Alice, Bob, Carol, Dave, Eve, Fred, etc.)

EXERCISE: In your groups, using the the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section ), draft the simplest bare-bones contract you can think of for this transaction that would be reasonably likely:

  1. to be understood and complied with by the parties;
  2. to cover the essential business issues; and
  3. to get Bob to a jury — i.e., past a motion to dismiss for failure to state a claim — if Alice defaults.

7.6 Demonstration: Breaking up a wall of words

From the SEC's Plain English Handbook (at 30):

NLR Insured Mortgage Association, Inc., a Delaware corporation (“NLR MAE”), which is an actively managed, infinite life, New York Stock Exchange-listed real estate investment trust (“REIT”), and PAL Liquidating REIT, Inc., a newly formed, finite life, self-liquidating Delaware corporation which intends to qualify as a REIT (“PAL Liquidating REIT”), hereby jointly offer, upon the terms and subject to the conditions set forth herein and in the related Letters of Transmittal (collectively, the “Offer”), to exchange (i) shares of NLR MAE’s Common Stock, par value $.01 per share (“NLR MAE Shares”), or, at the option of Unitholders, shares of PAL Liquidating REIT’s Common Stock, par value $.01 per share (“PAL Liquidating REIT Shares”), and (ii) the right to receive cash payable 60 days after closing on the first of any Acquisitions (as defined below) but in no event later than 270 days (nine months) following consummation of the Offer (the “Deferred Cash Payment”), for all outstanding Limited Partnership Interests and Depository Units of Limited Partnership Interest (collectively, “Units”) in each of PAL Insured Mortgage Investors, a California limited partnership (“PAL 84”), PAL Insured Mortgage Investors - Series 85, A California Limited Partnership, a California limited partnership (“PAL 85”), and PAL Insured Mortgage Investors L.P. - Series 86, a Delaware limited partnership (“PAL 86”).

THE TASK: Rewrite the above wall of words into shorter sentences and paragraphs — without changing the substance of the provisions.

DCT's VERSION:

(a) This is an offer by two certain companies (the "Offering Companies") to acquire all the "Units" [DCT COMMENT: Does that mean all or nothing?] of certain "Target Companies," in exchange for stock and cash, as set forth below.

(1) The "Offering Companies" are:

(A) NLR Insured Mortgage Association, Inc., a Delaware corporation ("NLR MAE"), an actively managed, infinite life, New York Stock Exchange-listed real estate investment trust ("REIT"); and

(B) PAL Liquidating REIT, Inc., a newly formed, finite life, self-liquidating Delaware corporation[,] which intends to qualify as a REIT ("PAL Liquidating REIT").

(2) The "Target Companies" are:

(A) PAL Insured Mortgage Investors, a California limited partnership ("PAL 84");

(B) PAL Insured Mortgage Investors - Series 85, A California Limited Partnership, a California limited partnership ("PAL 85"); and

(C) PAL Insured Mortgage Investors L.P. - Series 86, a Delaware limited partnership ("PAL 86").

(3) The "Units" of the Target Companies are all outstanding Limited Partnership Interests and Depository Units of Limited Partnership Interest of the respective Target Companies.

(4) The "Shares" are:

(A) shares of NLR MAE’s Common Stock, par value $.01 per share ("NLR MAE Shares"), or,

(B) at the option of Unitholders, shares of PAL Liquidating REIT’s Common Stock, par value $.01 per share ("PAL Liquidating REIT Shares"), and

(b) In accordance with subdivision (c), NLR MAE and PAL Liquidating REIT hereby jointly offer to acquire all the Units in exchange for:

(1) Shares of the Offering Companies, as defined above; and

(2) the right to receive cash[,] payable:

(A) 60 days after closing on the first of any "Acquisitions"; but

(B) in no event later than 270 days (nine months) [DCT comment: So which is it, and how might it matter someday?] following consummation of the Offer (the "Deferred Cash Payment").

(c) The offer in subdivision (b) is made upon the terms, and is subject to the conditions, that are set forth herein in this [document title] and in the related Letters of Transmittal; subdivision (b) and and those terms and conditions are referred to collectively as the "Offer."

8 Class plan - Day 1

8.1 Course startup

  1. Student introductions:
    • Name
    • 2L? 3L? LLM?
    • Career intentions
    • Undergraduate school & degree
    • Work experience
    • Previous contract experience
  2. First in-class exercise: Where did Professor Toedt go to law school? Reason: It's a good idea to look up the people on the other side of a contract negotiation — or for that matter, anyone else you'll be dealing with. Google and LinkedIn are extremely useful for that purpose.
  3. Read-along lecture: Course info
  4. Email addresses in the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section ) for a Google Groups list
  5. PSA requested by the University: Counseling is available (see the course book)

8.2 Exercises

8.2.1 Streamlining the sentence: The team meeting

In your small groups, discuss how to trim out the "fat" from the following sentence:—

Before:  
The team held a meeting to give consideration to the issue.

After: ???

8.2.2 Ambiguity exercise: Lola, by The Kinks

From The Kinks' famous song Lola (YouTube):

Well I'm not the world's most masculine man
But I know what I am and I'm glad I'm a man
And so is Lohhh-lahhh
Lo lo lo lo Lohhh-lahhh. Lo lo lo lo Lohhh-lahhhh

(Emphasis added.)

QUESTION: When the artists sing, "And so is Lola," what exactly is Lola?

EXERCISE: In your small groups, discuss how this could be clarified (don't worry about rhyme or meter).

8.3 Thumbsucker questions: Goals, etc.

For discussion, in small groups:

  1. In your practice, do you expect you'll be doing more drafting of contracts, or more review of drafts that others have prepared? Explain.
  2. What do you think are the main goals of a contract drafter or reviewer?
  3. In abstract terms, what do you think is the client's overarching goal in negotiating a contract?
  4. What do you think is likely to be the worst bottleneck in getting a contract to signature?
  5. What kind of contract language do you think business lawyers should aspire to write?
  6. TRUE OR FALSE: A contract drafter should strive to anticipate and address all harms to the client that might occur in the course of the parties' relationship.

Footnotes:

[1]

For the title of a two-party agreement, I'd use "between" instead of "above."

[2]

"By and between" is overkill; I'd just say "between."

[3]

The title has a bit more information than needed for an index, and there's always the D.R.Y. concern.

[4]

If an LLC member is to sign, you'd want to be sure it's a member-managed LLC, as opposed to a manager-managed LLC. See Tango Terms § 173.3.6

[5]

In the signature block, it's better to have actual underscores for each field of information that needs to be filled in. Otherwise, sure as heck someone will forget to fill in the needed information.

[6]

For MathWhiz's signature block, you'd want to include blank lines for the signer to fill in her (or his) printed name and title, to establish signature authority.

[7]

If we've recited in the preamble that Gigunda is an LLC, then we don't want to repeat that in the sig block in case it gets revised — it might turn out that Gigunda is in fact a corporation, and maybe a Delaware corporation.

[8]

1. In the signature blocks you want the title of each signer, to establish at least apparent authority. 2. I'd say "Date signed" and not just "Date."

[9]

"Commercial Lease" is appropriate — a lease is a contract that creates a leasehold interest. See Black's Law Dictionary, 10th ed.

[10]

A contract can state that it is effective as of an earlier- or later date if that's what the parties want. CAUTION: Signers should never backdate their signatures to make it appear that the contract was signed earlier- or later than it was; doing so sent a number of senior executives to prison.

[11]

Party names are sometimes capitalized in a preamble so as to make them easy for a skimming reader to spot.

[12]

Defining key "business" terms (e.g., "Base Rent") at the beginning of an agreement — and then consistently using those defined terms elsewhere in the agreement — makes it convenient for reviewers and safer for revisers, who need only revised the definitions.

[13]

Including "Each item in this Article 1 incorporates …" is probably unnecessary.

[14]

Including the italicized portion, "to the extent there is any conflict …" is dangerous because it could lead to inconsistencies during revision of the draft during negotiation.

[15]

Defined terms and their definitions are typically set forth (i) in a separate section at the beginning of the agreement; (ii) in a separate section at the end of the agreement; and/or (iii) "in-line" at the place in the agreement that the defined term is principally used.

[16]

Both "Term: Five (5) years" and "Year One: $60,000 ($5,000 per month)" violate the "[BROKEN LINK: DRY]" (Don't Repeat Yourself) rule, which can cause major problems if the words are changed but not the numerals, or vice versa; the linked section tells the sad tale of a bank that lost $693,000 because of such a drafting screw-up.

[17]

Drafting homework is worth 200 points.

[18]

You could still pass the course, but you'd have to make up the missing points.

[19]

Mutual consultation on homework is encouraged, but (1) each student must do his or her own work.