1. Global Corporate Group
Refresher on Drafting and Analyzing Key Provisions in Commercial Agreements
Prepared for
Presented by Courtney Murray, Ken Siegel, Nicole Bechtold and Bennett Reed
October 2017

2. Agenda Topic Page I. Introduction 3 II. Key Provisions 4 III.
Common Drafting Pitfalls 42
IV.
Considerations related to Current Events 47 V.
Team Contacts 49

3. Introduction This presentation will cover:
Contract clause interpretation;
Common drafting pitfalls;
Best practices; and
Considerations related to current legal and business topics.
Key Contract Terms
Issues surrounding these key provisions come up in different contexts and for different reasons, such as:
Mergers and acquisitions.
Due diligence analysis of potential risks associated with the target’s commercial contracts.
Understanding contract implications on different structures (e.g., a Reverse Triangular Merger).
Contractual disputes between parties.
Internal stakeholders seeking analysis of legal language.

4. Key Provisions 1 Assignment / Change of Control 2 Force Majeure 3
Indemnification 4
Non-Disclosure 5
Arbitration

5. 1. Assignment/Change of Control
The effectiveness of anti-assignment and change of control provisions can differ greatly depending on the type of transaction and the language used.
At common law
Contracts are generally presumed to be freely assignable barring a provision to the contrary.
Purpose
Often used to prevent parties from being able to assign their contractual obligations.
Also used to provide the non-assigning party the ability to approve or disprove of potential assignees.
Though less common, contractual provisions that specifically allow for assignment may be used in instances where free assignment is not the default assumption.

6. 1. Assignment/Change of Control
Example Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties [a]ny purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns (emphasis added). Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62 (Del. Ch. 2013).

7. 1. Assignment/Change of Control
Explanation
Background
Meso Scale Diagnostics (“Meso” ) granted a non-exclusive intellectual property license to Bioveris.
Under the license, assignments “by law or otherwise” were prohibited without Meso’s consent.
Bioveris later became a wholly owned subsidiary of Roche through a reverse triangular merger.
Holding
Meso attempted to claim that a reverse triangular merger triggered this assignment clause.
The Delaware Chancery Court concluded that such a merger was not an assignment by law since the target company survived and thus did not “assign” its contracts to a new entity.
The Delaware Chancery Court instructed us on the easiest way Meso could have avoided this problem:
“Meso could have negotiated for a ‘change of control provision.’ They did not. Instead, they negotiated for a term that prohibits ‘assignments by operation of law or otherwise.’”
If Meso had been more specific, they would not have had to rely on how broadly a given court construes the term “assignment”.

8. 1. Assignment/Change of Control
Operates similarly to an anti-assignment provision.
Provides a party rights to termination, payment, or consent if the other party undergoes a “change of control”.
Presents an opportunity to craft a broader set of protections than an assignment provision.
Typically a defined term in the contract.

9. 1. Assignment/Change of Control
Example
In Wilmington Sav. Fund Soc'y, FSB v. Foresight Energy LLC, No VCL, 2015 Del. Ch. LEXIS 299 (Ch. Dec. 4, ), the following definition of “change of control” was used:
The consummation of any transaction in one or a series of related transactions, the result of which is that any "person” excluding [the then-current controller and his affiliates] becomes the Beneficial Owner, directly or indirectly, of more than 35% of the voting stock of [the general partner of the issuer] measured by voting power rather than by number of shares, common units or the like [where Beneficial Ownership is defined as it is in the Securities Exchange Act].

10. 1. Assignment/Change of Control
Explanation
Background
Murray Energy sought to purchase control of Foresight Energy.
The companies attempted to work around the ‘change of control’ provision by having Murray Energy only purchase 34% of Foresight Energy, but also receive a de minimis option to purchase an additional 46% of ownership.
Holding
The Court relied on anti-evasion language in the Securities Exchange Act to determine that Murray Energy was the Beneficial Owner of Foresight Energy; therefore, a change of control did in fact occur.

11. 1. Assignment/Change of Control
Best Practices
Consider what types of assignments and changes in control would negatively impact you, and then draft the provision to address those specific issues.
Know the relevant law regarding deal structures.
Be aware of special types of contracts where the ability to assign is not assumed and must be affirmatively included.
For example, employee non-compete agreements in Pennsylvania are presumed unassignable if the language does not specify otherwise. See Hess v. Gebhard & Co., 570 Pa. 148 (2002).
Include a provision stating that assignments are void and/or invalid because many jurisdictions require this specific language to invalidate an assignment, rather than leaving a party with a breach of contract claim.

12. 2. Force Majeure
Protection against the occurrence of disastrous events.
Purpose
To free one or both parties from a contractual obligation upon the occurrence of an extraordinary event.
When contracts are silent
Common law doctrines of impossibility, impracticability, or frustration of purpose may apply.

13. 2. Force Majeure
Example Neither Buyer nor Seller shall be liable for delays or failures in performance of its obligations under this Agreement that arise out of or result from causes beyond such party's control, including without limitation: acts of the Government (emphasis added). Kyocera Corp. v. Hemlock Semiconductor, LLC, 886 N.W.2d 445 (Mich. Ct. App. 2015).

14. 2. Force Majeure Explanation Background
Kyocera agreed to purchase polysilicon annually for ten years at a fixed rate.
The Chinese government illegally subsidized Chinese solar energy companies, which used those subsidies to charge significantly below market prices and gain control of the industry.
Kyocera tried to invoke a Force Majeure clause to avoid payment since the actions of the Chinese government had forced it out of business.
Holding
“The conduct at issue simply does not constitute a force-majeure event.”
“Plaintiff does not allege any ‘act of the Government’ that directly prevented its performance under the contract. It merely alleges that the depression of prices in the solar panel market caused performance by plaintiff to become unprofitable or unsustainable as a business strategy. But plaintiff did not (although, again, it could have) negotiate a contractual force-majeure clause that by its terms would have excused contractual performance resulting from unprofitability due to governmental market manipulation.” (emphasis added)
The Court also suggests that Kyocera could have included price floors and ceilings, beyond which the agreed upon price would be adjusted.

15. 2. Force Majeure
Example The installation of the Permanent Facility shall be completed within eighteen (18) months of execution of this Agreement by the County, subject to delays resulting from weather, strikes, shortage of steel or manufacturing equipment or any other act of force majeure or action beyond Developer's control (emphasis added). Burns Concrete, Inc. v. Teton Cnty., 161 Idaho 117 (2016).

16. 2. Force Majeure Explanation Background
Developer, Burns, entered into development agreement with Teton County whereby Burns agreed to construct a 75-foot tall building within eighteen months.
Teton County initially denied Burns the permit to construct the building.
Burns was unable to complete the structure within the contracted time.
Holding
The Force Majeure clause excused Burns’ non-performance.
According to the Court:
“The wording of the force majeure clause does not limit the clause's application to the types of events mentioned ‘[O]r action beyond Developer's control’ was something other than the type of acts that were previously mentioned in the clause as being an act of force majeure. The County's conduct certainly constitutes an action beyond the Developer's control.”

17. 2. Force Majeure Common Pitfalls Failing to use precise language.
Courts tend to interpret Force Majeure language narrowly so greater specificity may be useful.
Few Force Majeure provisions are closely-tailored to a specific entity’s concerns.
A boilerplate provision will be sufficient in instances of obvious catastrophe, but it will likely be less helpful in more borderline cases.
When evaluating a counterparty’s Force Majeure language, be on the lookout for overly broad language and inclusion of specially tailored terms.
Specifically exclude events that your counterparty may try to rely on as a Force Majeure.

18. 2. Force Majeure Best Practices Be both specific and broad
Courts tend to interpret Force Majeure clauses narrowly.
Anticipate what type of events you would want covered and clearly identify them (particularly when it comes to indirect or economic damage).
However, a sufficiently broad catchall phrase can be successful even in instances where the event was not anticipated.
Remember that it’s generally a two-way street
Be aware that you will likely be providing the same terms to your counterparty.
Don’t forget about process
Include a notice provision, so you can receive and/or provide notice.
Ideally as soon as the party realizes that a Force Majeure event will occur.
Require commercially reasonable mitigation efforts or some similar standard.
If you are worried about potential product shortages, establish standards by which the supplier fills their orders, etc.

19. 2. Force Majeure
Example Upon occurrence of a Force Majeure Event, the Nonperforming Party shall promptly notify the other party of the occurrence of that Force Majeure Event, its effect on performance, and how long that party expects such Force Majeure Event to last. Thereafter the Nonperforming Party shall update that information as reasonably necessary. During a Force Majeure Event, the Nonperforming Party shall use reasonable efforts to limit damages to the Performing Party and to resume its performance under this agreement.

20. 3. Indemnification
Indemnification can be a powerful tool to effectively allocate risk, and it is often the subject of both litigation and negotiations.
At common law
“The obligation resting on one person to make good any loss or damage another has incurred or may incur by acting at his request or for his benefit, or a right which inures to a person who has discharged a duty which is owed to him but which, as between himself and another, should have been discharged by the other."
42 C.J.S. Indemnity § 2 (1991).
In contract law
Provide parties with a clear remedy for recovering damages arising from various breaches.
Breach of a covenant, breach of a representation or warranty, and claims provided by third parties or otherwise related to the agreement.
When contracts are silent
The common law principles of indemnity which will be of limited applicability; and
General claims for breach of contract.

21. 3. Indemnification Example of broad indemnification provision
Acme Company shall fully indemnify, hold harmless and defend Beta Company and its directors, officers, employees, agents, stockholders and Affiliates from and against all claims, demands, actions, suits, damages, liabilities, losses, settlements, judgments, costs and expenses (including but not limited to reasonable attorney’s fees and costs), whether or not involving a third party claim, which arise out of or relate to (1) any breach of any representation or warranty of Acme Company contained in this Agreement, (2) any breach or violation of any covenant or other obligation or duty of Acme Company under this Agreement or under applicable law, in each case whether or not caused by the negligence of Beta Company or any other Indemnified Party and whether or not the relevant Claim has merit.

22. 3. Indemnification Preliminary Considerations What are the risks?
Personal injury? Property damage? Infringement of IP? Costs of litigation?
Tailor the provisions to fit your needs – this provision should not be boilerplate.
Who should be indemnifying whom?
In most transactions the Seller will be indemnifying the Buyer.
Consider reasons for mutual indemnifications.

23. 3. Indemnification Common Pitfalls Failing to include direct claims
Why is this necessary if you can sue the breaching party if any incident arises? Answer: The American Rule.
A winning party generally cannot recover attorney fees and expenses.
Indemnification provisions tend to reverse this standard.
Not just for the Indemnitees however:
This can also be beneficial for the Indemnitor as it may limit the indemnitees’ remedies – e.g., only to a percentage of the purchase price per the terms of the contract.
Not clearly defining indemnification procedures
Indemnification should be integrated with other risk allocation provisions.
Dispute resolution mechanisms.
Governing law.
Disclaimers of consequential and punitive damages.
Assignment – does the indemnification survive?
Survival.
State law statutes of limitation for contract claims (including indemnification) generally run between 3 and 6 years.

24. 3. Indemnification Common Pitfalls (Cont’d)
Combining the duty to indemnify with the duty to defend
The duty to defend is generally interpreted more broadly and may be triggered when there is only a mere chance for potential coverage.
Indemnification generally requires an underlying claim to have merit.
The duty to defend should be explicitly limited to meritorious claims or excluded altogether, when possible.
Leaving remedies ambiguous
When possible a sole remedy provision should be included, but noting additional remedies such as equitable relief as exceptions.
Fraud is a common carve out of sole remedy provisions; be sure to scrutinize how fraud is defined.
It is often a more broad reference/definition than the common law definition of fraud.
Limitations and carve-outs
Limits must bear a reasonable commercial relationship to the contract.
Consider whether the claim must reach a certain threshold similar to M&A-style deductibles.
Consider carve-outs from any limitations for indemnity claims.

25. 3. Indemnification Comparative v. Contributory Negligence
What about when the indemnitor and indemnitee are jointly responsible for the loss? Possible outcomes
The indemnitor pays 100% of the indemnitee’s loss, as a contributing cause of the loss.
The indemnitor must pay only the proportionate share of the loss that it proximately caused.
The indemnitor pays nothing because the indemnitee contributed to the loss.
Avoid leaving it up to the court
Courts have reached opposite conclusions when interpreting general language, even within the same jurisdiction.
See Hernandez v. Badger Construction Equipment Co., 28 Cal. App. 4th 1791 (Cal. App. 1994) and MacDonald & Kruse Inc. v. San Jose Steel Co., 29 Cal. App. 3d 413 (Cal. App. 1972) (finding opposite interpretations of the phrase “in any way caused by”).
Example Comparative Negligence Indemnification Provision
 ”If, due to the joint, concurring, comparative fault, negligence or willful misconduct of the Parties which gives rise to Damages for which the Parties are entitled to indemnification under this Article, then such Damages shall be allocated between the Parties in proportion to their respective degrees of fault, negligence or willful misconduct contributing to such Damages.”

26. 3. Indemnification Negotiating Indemnity The Indemnitor should:
1. Limit the type of claims.
Only cover “meritorious” or “reasonable” claims.
2. Limit the scope of claims.
Indemnification for “known IP infringement” or “environmental violations”.
Most transactions limit indemnification to certain representations & warranties or specific harm.
3. Limit the survival period.
For general representations and warranties, the survival period is usually between 6 months and 2 years.
“Fundamental representations” may be longer or indefinite.
In M&A deals, post-closing covenants may also be indefinite as Sellers tend to be more comfortable with the obligations which they control (e.g., a governmental filing).
4. Include a mitigation provision.
There is a common law duty to mitigate.
Can require via contract that the Indemnitee minimize damages and pursue payments from third parties, which, if recovered, are deductible from any indemnity amounts owed.

27. 3. Indemnification Consequential Damages Purpose
To ensure one or both parties will not be subject to unforeseen damages.
Only being liable for direct damages ensures parties will know their potentially liability.
When contracts are silent
Courts follow the basic principles laid out in Hadley v. Baxendale (1854): a party is only liable for foreseeable consequential damages.

28. 3. Indemnification
Example NEITHER THE CUSTOMER NOR MRP WILL BE LIABLE TO EACH OTHER OR ANY OTHER PARTY FOR ANY LOST PROFITS OR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES RELATING TO THIS AGREEMENT. Imaging Sys. Int'l v. Magnetic Resonance Plus, 490 S.E.2d 124 (Ga. Ct. App. 1997).

29. 3. Indemnification Explanation Background
MRP entered into a contract to provide repair services to NGDI.
NGDI breached the contract following a dispute.
MRP sought to recover its anticipated profits remaining under the contract.
These lost profits were direct damages that would, absent agreement otherwise, be available to MRP.
Holding
MRP could not collect any lost profits, even those that were direct damages.
The limitation of liabilities waiver considered lost profits as a separate category from consequential damages.
All consequential damages were waived and some direct damages (namely, those that consisted of lost profits) were also waived.

30. 3. Indemnification Waiver of Consequential Damages Common Pitfalls
Most problems stem from confusion about the meanings of terms:
Direct Damages: damages that flow directly from the breach of contract (e.g., cost to the non-breaching party of completing the breaching party’s contractual duty).
Consequential Damages: foreseeable damages that do not flow directly from the breach of contract (e.g., lost opportunity for additional work if resources must be incurred remedying the breach).
Incidental Damages: damages incurred while addressing the result of the other party’s breach (e.g., cost of storing non-conforming goods).
Lost Profits: damages in the amount of money the non-breaching party expected to make but for the breach; can be direct or consequential depending on the specifics.
Direct: profits expected from the sale of the product to the breaching party.
Consequential: profits expected in using the contracted-for-product in unrelated commercial transactions.

31. 3. Indemnification Waiver of Consequential Damages Best Practice
Consider what damages present an unacceptable and unforeseeable risk and name them explicitly:
Lost profits;
Personal injury costs;
Repair costs;
Shipping costs;
Etc.
Conversely, when negotiating with your counterpart, ensure that any damages you need to be able to recover are not included in the waiver.

32. 3. Indemnification Interpreting Indemnification Provisions
Courts tend to interpret indemnification provisions narrowly.
“Unmistakably Clear”
Some courts have held that the presumption will be that indemnity provisions only apply to third party claims unless the intention to include direct claims is made “unmistakably clear.”
Factors include:
The indemnification clause language;
Any additional, relevant provisions of the contract surrounding or referring to the indemnification provision and, in certain instances, other agreements executed or drafted contemporaneously with the indemnification provision; and
The circumstances in which the contracting parties entered into the contract and what types of claims were foreseeable at the time of contracting.
Limits on Indemnification Enforceability
Delaware legislation states that indemnification of another person from that person’s own negligence is void as against public policy.
In securities law matters, the SEC takes the position that indemnification for liabilities arising under the Securities Act is against public policy and unenforceable.
Government agencies are limited or prohibited from agreeing to contractual indemnity provisions due to Tort Claim Acts, or similar statutory and constitutional limitations.

33. 4. Non-Disclosure
The first step in many commercial transactions today is completing some form of a confidentiality or non-disclosure agreement.
What kind of information is protected?
Trade secrets, defined by the Uniform Trade Secrets Act as:
information, including a formula, pattern, compilation, program, device, method, technique, or process;
that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and
is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Confidential Information, defined by the parties.
Generally speaking, this is information that does not rise to the level of a trade secret, but is not otherwise too ubiquitous to be prevented by public policy considerations from being restricted (e.g., general employee know- how).
How is the information protected?
Disclosure Restrictions: preserving the confidentiality of the information.
Use Restrictions: limiting the recipient’s ability to leverage the information.

34. 4. Non-Disclosure An abbreviated example of a non-disclosure provision
In connection with determining the value of contracting with Acme Company (the "Purpose"), Acme Company (“Disclosing Party”) may disclose to Beta Company (“Recipient”), or Recipient may otherwise receive access to, Confidential Information (as defined below). Recipient shall use the Confidential Information solely for the Purpose and, subject to this section, shall not disclose or permit access to Confidential Information other than to its [employees, officers, directors, attorneys, accountants and financial advisors] (collectively, "Representatives") who: (a) need to know such Confidential Information for the Purpose; and (b) are bound by written confidentiality agreements/confidentiality obligations no less protective of the Confidential Information than the terms contained herein. Recipient shall safeguard the Confidential Information from unauthorized use, access, or disclosure using at least the degree of care it uses to protect its most sensitive information and no less than a reasonable degree of care. Recipient shall promptly notify Disclosing Party of any unauthorized use or disclosure of Confidential Information and take reasonable care to prevent further use or disclosure. Recipient will be responsible for any breach of this Agreement caused by its Representatives. “Confidential Information" means all non-public, proprietary or confidential information of Disclosing Party, in oral, visual, written, electronic, or other tangible or intangible form, whether or not marked or designated as "confidential," and all notes, analyses, summaries, and other materials prepared by Recipient or any of its Representatives that contain, are based on, or otherwise reflect, to any degree, any of the foregoing ("Notes"); provided, however, that Confidential Information does not include any information that: (a) is or becomes generally available to the public other than as a result of Recipient's or its Representatives' act or omission; (b) is obtained by Recipient or its Representatives on a non-confidential basis from a third party that was not legally or contractually restricted from disclosing such information; (c) was in Recipient's or its Representatives' possession, as established by documentary evidence, before Disclosing Party's disclosure hereunder; or (d) was or is independently developed by Recipient or its Representatives, as established by documentary evidence, without using any Confidential Information.

35. 4. Non-Disclosure Preliminary Considerations When contracts are silent
Information may still be protected by common law / state law when:
The information is clearly a Trade Secret, or
Both parties were aware that the information was confidential, and it was shared in confidence.
Considerations in drafting a non-disclosure provision
What is the purpose of the disclosures?
Are you likely to disclose more or receive more information?
What information will be disclosed?
Of that information, what must be protected?
How should “Confidential Information” be defined?
What may legally be protected/what must be excluded from the definition?
Will there be unilateral or mutual disclosures?
What is the appropriate or necessary duration of the protection?
How may the recipient use the information?
What types of remedies for violation would be sufficient?

36. 4. Non-Disclosure Common Pitfalls
Failing to appropriately limit the purpose
In anticipation of a potential acquisition, the parties executed a non-disclosure agreement.
Included in the permissible use of the confidential information was the use “to evaluate the desirability of acquiring” the target company.
The 8th Circuit held that this language allowed the potential purchaser / defendant to use the provided confidential information to compare the target company with a competing third party, and make an offer on the third party.
Sip-Top, Inc. v. Ekco Group, Inc., 86 F.3d 827 (8th Cir. 1996).
Making provisions overly broad
In AssuredPartners, Inc. v. Schmitt, 44 N.E.3d 463 (Ill. App. Ct. 2015) the court refused to enforce the confidentiality section of an employment agreement that included the following language:
“[I]nformation, observations and data (including trade secrets) obtained by [the Employee] during the course of [his] employment with [the Company] concerning the business or affairs of tThe Company] and their respective Subsidiaries and Affiliates.”
The appeals court stated the provision “purport[ed] to protect virtually every kind of information that [the Employee] learned during the period of his employment even if non-confidential, and [went] far beyond any possible legitimate protectable interest of [the Company].”
The provision was “an impermissible restraint of trade and [was] void as a matter of law.”

37. 4. Non-Disclosure Negotiating Non-Disclosure Provisions
Defining “Confidential Information”
Be sure to include all actual business information (including trade secrets).
Disclosing party will want broad enough language to cover all information shared and to be shared.
Define the exceptions
Information that becomes public without a breach by the recipient.
Recipient was already aware prior to the disclosure.
Information was or becomes available to the recipient through a third party.
It is independently developed by the recipient without using the confidential information.

38. 4. Non-Disclosure Best Practices Be precise
By precisely defining what is confidential and the restricted uses of that information, a company can better ensure specific coverage and potentially expand the amount of information protected.
Courts will generally interpret non-disclosure provisions strictly.
Protect your information
If confidential information is not precisely defined, and a dispute arises as to whether the information in question is covered, taking notable steps to protect your information can help build a stronger case for confidentiality.
Have all key and information-exposed employees complete non-disclosure agreements.
Establish internal procedures for ensuring confidential information remains confidential.
Limit who within the company has access to and knowledge of the information.

39. 5. Arbitration Statutory origin
The United States passed the Federal Arbitration Act (FAA) in 1925, which established a policy in favor of arbitration when parties agreed to such a method.
A written agreement to arbitrate is “valid, irrevocable, and enforceable,” subject only to the traditional defenses to contract formation and enforcement.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 625 (1985).
Purpose
A carefully drafted arbitration provision will allow a party to create the process it deems optimal for the given contract.
Designed to offer both parties a potentially faster, cheaper, more effective, and more customizable alternative method of dispute resolution to traditional trial courts.
When contracts are silent
Parties are free to bring an action in the proper court, though parties are still able to arbitrate if they so wish.

40. 5. Arbitration Best Practices
Consider whether an arbitration provision is desirable.
Consider ways to limit costs.
Specifically limiting the amount of discovery (or eliminating it altogether) is one effective option.
Confidentiality clauses may be beneficial.
Consider including a provision requiring a deadline for the final award.
Tailor your arbitration provision to the reasons you want to arbitrate.
Lower costs.
Faster decisions.
Certain subject-matter experts as arbiters.
Interim rewards to ensure solvency.

41. 5. Arbitration
Example provision limiting discovery “The parties shall be entitled to reasonable production of relevant, non-privileged documents, carried out expeditiously. If the parties are unable to agree upon same, the arbitral tribunal shall have the power, upon application of any party, to make all appropriate orders for production of documents by any party. There shall be no discovery depositions. [or: At the request of any party, the arbitral tribunal shall have the discretion to order the examination by deposition of any witness to the extent the arbitral tribunal deems such examination appropriate [or necessary]. Depositions shall be limited to a maximum of [number] per party]. No party to this Agreement is permitted to make any application pursuant to 28 U.S.C. § 1782.”

42. Common Drafting Pitfalls
Terms to be discussed:
1. Knowledge 2. Materiality
3. “And”, “or”, “and/or”

43. Common Drafting Pitfalls
Knowledge
Often a defined term in a contract and is commonly defined as one of the following:
Actual knowledge (what the person actually knows); or
Constructive knowledge (what the person should know given the circumstances).
Sometimes there is a statutory default definition (e.g., Delaware Limited Liability Company Act):
6 DE Code § (5) "Knowledge'' means a person's actual knowledge of a fact, rather than the person's constructive knowledge of the fact.
In the absence of a contractual definition or statutory default, courts will often broadly impute knowledge of a corporation’s agents to the corporation itself.
For example, in Cromeans v. Morgan Keegan & Co., 69 F. Supp. 3d 934 (W.D. Mo. 2014), a court imputed knowledge of a non-attorney agent of a law firm to the firm itself.
To avoid the this issue, consider defining knowledge as only including the knowledge of certain individuals.
This will allow you to know precisely whose knowledge is relevant for commercial warranties or other provisions.

44. Common Drafting Pitfalls
Example “‘Knowledge’ means, when referring to the ‘knowledge’ of the Seller, or any similar phrase or qualification based on knowledge, the actual knowledge of [named individuals], and the knowledge that each such person would have reasonably obtained in the performance of each such person's duties as [offices of named individuals] of the Company.”

45. Common Drafting Pitfalls
Materiality
Generally considered an element that would affect someone’s decision-making process on the matter.
However, materiality can also be read to mean “significant,” covering a narrower range of items that may not affect a person’s decision-making but would be still be noteworthy.
This definition is used less by courts but is often the meaning contract drafters intend for materiality.
Due to these conflicting interpretations, it is often advantageous to define materiality in a contract to ensure that the meaning is sufficiently broad.
Another option is to include an additional term, such as non-trivial or de minimis, to better cover the concerns a party may have that do not rise to the level of materiality.

46. Common Drafting Pitfalls
“And”, “or”, “and/or”
Courts often complain about ambiguities in the use of “and/or”.
“The phrase ‘and/or’ is semantically and logically contradictory [and] an indolent way to express a series of items ” Carley Foundry, Inc. v. CBIZ BVKT, LLC, No. 62-CV (Minn. Ct. App., Apr. 6, 2010).
The most important consideration with using “and/or,” along with any other conjunctions, is that they often can be used reflexively without confirming that the usage matches the intent of the drafter.
Sometimes the meaning can only be derived from context clues and thus may be ambiguous to a court as well.
Alternatives for “and/or” (aka “inclusive or”):
“A or B or both A and B together”;
“A, B, C, and D together, or any combination together, or any one of them alone”.
Alternatives for “or” (aka “exclusive or”):
“either A or B”;
“A or B but not both”;
“A or B or C or D but not more than one of them”.

47. Considerations Related to Current Events
Topical developments to have on your radar
Cybersecurity
EU Data Privacy
General Data Protection Regulation (GDPR) is set to go into effect in under a year.
Equifax Breach
Equifax estimates that million people were affected by the breach (there are an estimated 126 million households in the U.S.).
Unknown U.S. Government
Uncertainty in administration policies may require a need to focus on potential risks, such as tariff/tax implications.
Executive Scandals
Following Harvey Weinstein's rapid fall from the ‘big screen,’ how should morality clauses factor into your contracts?

48. Conclusion Consider the following as a few best practices:
Establish a plan for regular review and updates to standard forms.
Start a review of initial draft contracts by focusing on the “boiler plate” provisions first.
Reach out to outside counsel if you anticipate any unique concerns or specialty areas to be addressed.
Prior to finalizing a contract, do a final review of the key provisions to determine whether any carve-outs, cross references, exclusions, etc. are needed based on the finally negotiated business terms and risk allocation provisions to ensure the contract provisions work together and are not in conflict.
Maintain logs or summaries of contracts which include unique provisions to ensure compliance.

49. Team Contacts Courtney C. Murray Ken Siegel Nicole Bechtold
Partner
Pittsburgh
Ken Siegel
Partner
Pittsburgh
Nicole Bechtold
Associate
Pittsburgh
J. Bennett Reed
Associate
Pittsburgh