Category Archives: Newsletter

How to Protect Long-Term Investments in Operational Contracts (Technology Law Letter #10)

How to Protect Long-Term Investments in Operational Contracts

Consider one of the most difficult issues you’ll ever encounter when negotiating a contract: one party must make a large, long-term investment for the deal to work, but won’t sign the contract unless its investment (and its return on the investment, or ROI) is adequately protected.

I’ve posted an article on my blog that explains three key approaches to protect that investment and get your deal done.

The article covers long-term investments made as part of an agreement concerning a company’s operations, such as an independent contractor agreement, technology development agreement, distribution agreement, or purchase and sale of products or services.

Those operational agreements are different from investment contracts, such as stock purchase agreements or loans to a corporation, partnership or limited liability company (LLC). Investment contracts raise additional questions under corporate/partnership, tax and securities laws. For example, long-term cash investments can be protected using preferred stock in a corporation or special provisions for capital accounts in partnerships and LLC’s. Loans may be protected by taking an interest in collateral, such as real estate (e.g., a mortgage on a commercial building). By contrast, my article focuses on provisions of non-financial contracts used in operations.

The article explains three approaches:

1. Match the contract duration to the investment horizon. If necessary, lay out an early exit path that works, considering termination for convenience with a kill fee, a liquidated damages clause, mediation, a management escalation process and a transition process after termination.

2. Focus the relationship by wisely choosing whether to use exclusivity, semi-exclusivity, a Most Favored Nation (MFN) clause, minimum required purchase or recoupment.

3. Finally, look at other contracts between the parties to see if the parties’ relationship should be strengthened by cross-collateralization or cross-default provisions.

Of course, the article defines and explains all of the “shorthand” words above, such as “semi-exclusivity.” By considering and applying the 3 approaches that I describe, you’ll be far ahead of many other deal makers.

You can read the full article at: www.boadweelaw.com/how-to-protect-long-term-investments-in-operational-contracts-full-article/

 

Using Contracts to Deal with Unknowns: Part 2 “Unknown Unknowns” (Technology Law Letter #9)

Using Contracts to Deal with Unknowns: Part 2 “Unknown Unknowns” In the previous issue of this newsletter, I discussed how to use contracts to protect against “known unknowns,” those events and circumstances for which you know the general category of uncertainty, but not the outcome. This article covers “unknown unknowns,” those events and circumstances that… Continue Reading

Using Contracts to Deal with Unknowns: Part 1 “Known Unknowns” (Technology Law Letter #8)

Using Contracts to Deal with Unknowns: Part 1 “Known Unknowns” Business people deal with unknown facts and circumstances in contracts all the time. Contracts allocate the responsibility for unknowns to one party or the other.  Most often, this means cash out of pocket for a costly unforeseen event. In this article, you’ll learn common ways… Continue Reading

The Three Critical Negotiations in Any Contract (Technology Law Letter #7)

The Three Critical Negotiations in Any Contract Any contract requires not one, but three, critical negotiations. The first is the negotiation between the two parties to the contract.  Without the “main deal,” there can be no agreement. The second and third negotiations are the internal negotiations within each party, or between each party and others… Continue Reading

The Most Useful Contract Provision? (Technology Law Letter #6)

The Most Useful Contract Provision? In my view, the most useful contract provision is the “term” of the contract, in other words, the time period that the contract is legally in force before it expires. Why? Because a very short-term contract (such as month-to-month) can eliminate many issues, shorten negotiations and even reduce legal fees. … Continue Reading

Should You Sign Your Term Sheets? The Power of Commitment and Consistency (Technology Law Letter #5)

Should You Sign Your Term Sheets?  The Power of Commitment and Consistency I recommend using term sheets for most deals other than the simplest ones.  Clients often ask me, “Should we sign the term sheet?” Previously, I told them it really doesn’t matter.   From a legal viewpoint, if the term sheet states that it is… Continue Reading

Contract Provisions for Troubled Times: Myths and Realities of Bankruptcy (Technology Law Letter #4)

Contract Provisions for Troubled Times: Part 4  Myths and Realities of Bankruptcy Bankruptcy is a clear and present danger to many business contracts, especially in our difficult economy.  Of course, companies can go bankrupt at any time and with little warning.  Good negotiators always will plan around this risk, even when times are good.  With… Continue Reading

Contract Provisions for Troubled Times – How Third Parties Can Assure Performance (Technology Law Letter #3)

Contract Protections for Troubled Times: Part 3  How Third Parties Can Assure Performance For practical and legal reasons, you may want a third party to assure the performance of a contract that you have with someone else. The practical reason is that it will give you another place to turn, and another point of leverage… Continue Reading

Contract Provisions for Troubled Times: Making Sure the Other Party Performs (Technology Law Letter #2)

Contract Provisions for Troubled Times: Part 2  Making Sure the Other Party Performs In addition to getting paid, in troubled times, you also want to monitor and manage the other activities of the parties to your contracts. Here’s how to put that approach to work in your contracts: Try to perform your part of the deal… Continue Reading

Contract Provisions for Troubled Times: Part 1 Getting Paid (Technology Law Letter#1)

Contract Provisions for Troubled Times: Part 1  Getting Paid Successful business people know that the activities they monitor and manage are the ones most likely to succeed. Getting paid is the top priority of almost all businesses. In a difficult economy, this means that, more than ever, you have to focus on making sure your… Continue Reading