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Contract Analysis Codex FutureLaw Stanford Law School.

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Presentation on theme: "Contract Analysis Codex FutureLaw Stanford Law School."— Presentation transcript:

1 Contract Analysis Codex FutureLaw Stanford Law School

2 Pile of documents How are they organized? What clauses do they contain? What is standard and alternate?

3 DECONSTRUCTION 1. Decomposition into clauses

4 ORGANIZATION Structural classification into a common outline 2. Terms of Employment 1. Definitions 3. Compensation 4. Expenses 5. Benefits 6. Representations and Warranties 7. Covenants 3.1. Base Salary 3.3. Signing Bonus 3.4. Annual Bonus 3.5. Incentive Compensation 3.6. Equity Awards 3.7. Options 3.8. Deferred Compensation 3.2. Overtime Opening Text Employment Agreement

5 COMPOSITION 3. Frequency Analysis What clauses are required and what clauses are optional? 2. Terms of Employment 1. Definitions 3. Compensation 4. Expenses 5. Benefits 6. Representations and Warranties 7. Covenants 3.1. Base Salary 3.3. Signing Bonus 3.4. Annual Bonus 3.5. Incentive Compensation 3.6. Equity Awards 3.7. Options 3.8. Deferred Compensation 3.2. Overtime Opening Text Employment Agreement Required and Optional Clauses Required and Optional Clauses Measure: Commonality

6 Employment Agreement 3. Compensation 3.1. Base Salary (a) Amount. The Company agrees to pay to Executive a base salary ("Base Salary") at the [weekly/monthly/annual] rate of $[BASE SALARY]. (b) Payment. Payments of the Base Salary shall be payable in equal installments in accordance with the Company's standard payroll practices Bonus (a) Eligibility. The Executive shall be eligible to receive, but shall not be required to receive, an annual bonus (the "Bonus") based upon extraordinary performance against a plan to be mutually agreed upon by the Executive Committee and the Executive from time to time. (b) Bonus Amount. The Executive Committee, in its discretion, shall determine the eligibility and amount of the Executive's Bonus, if any. (c) Bonus Payment. Each Bonus shall correspond to the calendar year and shall be paid to the Executive in one lump sum, subject to deductions and withholding, during the calendar year immediately following the calendar year to which the Bonus relates Vacation (a) Entitlement. The Executive shall be entitled to [VACATION VARIATION 4. Consistency Analysis What clauses have standard and what clauses have alternate terms?

7 VARIATION 4. Consistency Analysis What clauses have standard and what clauses have alternate terms? Employment Agreement 3. Compensation 3.1. Base Salary (a) Amount. The Company agrees to pay to Executive a base salary ("Base Salary") at the [weekly/monthly/annual] rate of $[BASE SALARY]. (b) Payment. Payments of the Base Salary shall be payable in equal installments in accordance with the Company's standard payroll practices Bonus (a) Eligibility. The Executive shall be eligible to receive, but shall not be required to receive, an annual bonus (the "Bonus") based upon << More Divergent Less Conforming >> 4. Base Salary. Executive shall be paid an annualized salary, ("Base Salary") payable in accordance with the regular payroll practices of the Company, of not less than $285,000, subject to review for increase at the discretion of the Compensation Committee (the "Committee") of the Company's Board of Directors (the "Board"). Options | All Clauses Source: File 1

8 VARIATION What clauses have standard and what clauses have alternate terms? Language variation Employment Agreement 3. Compensation 3.1. Base Salary (a) Amount. The Company agrees to pay to Executive a base salary ("Base Salary") at the [weekly/monthly/annual] rate of $[BASE SALARY]. (b) Payment. Payments of the Base Salary shall be payable in equal installments in accordance with the Company's standard payroll practices Bonus (a) Eligibility. The Executive shall be eligible to receive, but shall not be required to receive, an annual bonus (the "Bonus") based upon << More Divergent Less Conforming >> (a) During the Employment Period, Executive's base salary shall be not less than $180,000 per year ("Base Salary"), payable in regular installments in accordance with FGI's usual payroll practices and subject to review and increase consistent with practices of FGI in effect from time to time during the Employment Period, but shall not be reduced. Executive's Base Salary shall be reviewed annually by the Chief Executive Officer of FGI with the advice and consent of the compensation committee. Options | All Clauses Source: File 1 Analysis: Consistency Standard and alternative clauses

9 2. Terms of Employment 1. Definitions 3. Compensation 4. Expenses 5. Benefits 6. Representations and Warranties 7. Covenants 3.1. Base Salary 3.3. Signing Bonus 3.4. Annual Bonus 3.5. Incentive Compensation 3.6. Equity Awards 3.7. Options 3.8. Deferred Compensation 3.2. Overtime Opening Text Employment Agreement Frequency Conformity Common + Consistent = Standard Common + Divergent = Negotiated Uncommon + Consistent = Transaction Uncommon + Divergent = Deal ANALYSIS

10 2. Terms of Employment 1. Definitions 3. Compensation 4. Expenses 5. Benefits 6. Representations and Warranties 7. Covenants 3.1. Base Salary 3.3. Signing Bonus 3.4. Annual Bonus 3.5. Incentive Compensation 3.6. Equity Awards 3.7. Options 3.8. Deferred Compensation 3.2. Overtime Opening Text Employment Agreement Frequency REVERSE ENGINEERING LEGAL LOGIC We now know what is required and what is optional. We know what is standard and what is variant. Now, we can induce a term sheet of the configuration questions. Conformity

11 2. Terms of Employment 1. Definitions 3. Compensation 4. Expenses 5. Benefits 6. Representations and Warranties 7. Covenants 3.1. Base Salary 3.3. Signing Bonus 3.4. Annual Bonus 3.5. Incentive Compensation 3.6. Equity Awards 3.7. Options 3.8. Deferred Compensation 3.2. Overtime Opening Text Employment Agreement TERM SHEET Employee Name: _____________ Employee Address: ___________ Employer Name: _____________ Employer Address: ___________ Position: ____________________ Starting Salary: _______________ Bonus: ______________________ Term: _______________________ Grounds for Termination: _______

12 What are the required and optional elements of a clause? What is the best way to draft each element? Merger Agreement ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 3.1 Organization. (a) Each of the Company and its Subsidiaries is a corporation, partnership or other entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization and has all requisite corporate or other power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure (i) other than in the case of the Company, to be so organized, existing and in good standing or (ii) to have such power, authority and governmental approvals, has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) The Company and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company does not own any equity interests in any corporation or other entity, except for its Subsidiaries. OPTIMIZATION

13 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. The Company is duly qualified and in good standing as a foreign corporation authorized to do business in each of the jurisdictions in which the character of the properties owned or held under lease by it or the nature of the business transacted by it makes such qualification necessary. The Company has made available to Parent true, correct and complete copies of the Certificate of Incorporation and Bylaws (or similar governing documents) as currently in effect for the Company and each of its Subsidiaries. What are the required and optional elements of a clause? What is the best way to draft each element? Merger Agreement OPTIMIZATION

14 Does the agreement secure favorable terms? Employment Agreement THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of [EFFECTIVE DATE] (the "Effective Date") by and between [EXECUTIVE NAME], with principal place of residence at [EXECUTIVE ADDRESS] ("Executive"), and [COMPANY NAME], with its principal place of business at [COMPANY ADDRESS] ("Employer"), (sometimes collectively referred to as the "Parties"). 1. Terms of Employment Employment. Employer hereby employs the Executive and the Executive accepts such employment with Employer subject to the terms and conditions of this Agreement Duties. During the term of this Agreement, the Executive shall serve as [POSITION OR TITLE] and perform such other duties as the Employer shall from time to time direct. 2. Compensation 2.1. Base Salary (a) Amount. The Company agrees to pay to Executive a base salary ("Base Salary") at the [weekly/monthly/annual] rate of $[BASE SALARY]. (b) Payment. Payments of the Base Salary shall be payable in DATA EXTRACTION

15 Does the agreement comply with legal requirements? Alignment with statutory and case law Employment Agreement 11. Non-Competition Restrictions. During the term of this Agreement and for a period of [NON COMPETITION PERIOD] immediately following the termination of this Agreement, Executive shall not, directly or indirectly, without the prior written consent Employer, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or consultant of any Entity engaged in the Restricted Business Exceptions. Executive shall not be deemed to be in contravention of the foregoing if Employee participates as a passive investor holding up to 1% of the equity securities of an Entity engaged in the Restricted Business, which securities are publicly traded. 12. Non-Solicitation During the term of this Agreement and for a period of [NON SOLICITATION PERIOD] immediately following the termination of this Agreement, the Executive shall not, either directly or indirectly, on [EXECUTIVE GENDER] own behalf or in the service or on behalf of others, solicit or recruit (or COMPLIANCE

16 Employment Agreement THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of [EFFECTIVE DATE] (the "Effective Date") by and between [EXECUTIVE NAME], with principal place of residence at [EXECUTIVE ADDRESS] ("Executive"), and [COMPANY NAME], with its principal place of business at [COMPANY ADDRESS] ("Employer"), (sometimes collectively referred to as the "Parties"). 1. Terms of Employment Employment. Employer hereby employs the Executive and the Executive accepts such employment with Employer subject to the terms and conditions of this Agreement Duties. During the term of this Agreement, the Executive shall serve as [POSITION OR TITLE] and perform such other duties as the Employer shall from time to time direct. 2. Compensation 2.1. Base Salary (a) Amount. The Company agrees to pay to Executive a base salary ("Base Salary") at the [weekly/monthly/annual] rate of $[BASE SALARY]. (b) Payment. Payments of the Base Salary shall be payable in VALIDATION Legal TermsBusiness Terms Risk of Illegality or unenforceability Risk of failure to meet market terms Risk of controversy or litigation Risk of failure to secure favorable terms

17 Employment Agreement THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of [EFFECTIVE DATE] (the "Effective Date") by and between [EXECUTIVE NAME], with principal place of residence at [EXECUTIVE ADDRESS] ("Executive"), and [COMPANY NAME], with its principal place of business at [COMPANY ADDRESS] ("Employer"), (sometimes collectively referred to as the "Parties"). 1. Terms of Employment Employment. Employer hereby employs the Executive and the Executive accepts such employment with Employer subject to the terms and conditions of this Agreement Duties. During the term of this Agreement, the Executive shall serve as [POSITION OR TITLE] and perform such other duties as the Employer shall from time to time direct. 2. Compensation 2.1. Base Salary (a) Amount. The Company agrees to pay to Executive a base salary ("Base Salary") at the [weekly/monthly/annual] rate of $[BASE SALARY]. (b) Payment. Payments of the Base Salary shall be payable in VALIDATION Legal TermsBusiness Terms Risk of Illegality or unenforceability Risk of failure to meet market terms Risk of controversy or litigation Risk of failure to secure favorable terms Agreement complies with legal requirements Agreement secures favorable terms

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