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Lecture IV: Advanced English Language Contracts:

Structure and Wording of Common Law Contracts Introduction – The English speaking world not only share a common language, they also share another thing: the “Common Law”! Whether you are in Britain, Canada, Australia, or America; the people of these countries all speak English and have a legal system that is very different from that of continental Europe. This English speaking legal system is known as the “Common Law”, while the Continental European legal system is known as the “Civil Law”. Unlike the Civil Law system of Germany, which has fat code books full of specific laws and rules, the Common Law is based on historic usage and custom of the people since ancient times. The Common Law finds its start in the Germanic tribes (Angles, Saxons, Frisians and Jutes) that came to the British Isles in the 5th and 6th Centuries. These Germanic tribes replaced the native Celtic population of the Island, living in what is now England and Southern Scotland. They brought with them their language and their laws. The control of the Anglo-Saxons in Britain would end in 1066 when the Normans invaded. Under the Normans, a more organized, centralized legal system was put in place. But the new legal system still kept most of the old Germanic legal folk traditions of the Anglo-Saxons. These traditions would form the basis of the Common Law legal system. (It might even be argued that, with the rise of the Civil Law system based on Roman Law and the Napoleonic Code throughout Europe, the Anglo-American legal system is even today more “German” than the German legal system!) Over the centuries, the development of the Common Law based on old traditions, common sense, and new necessities continued. In a similar way, the English language evolved, grew and changed. So as the legal system changed, so did the language used within the legal system. As a result, a modern legal contract written in English will necessarily reflect this Common Law legal tradition. The meaning of “legal words” written in English will depend on how it is used in the Common Law legal system. Thus, in order to fully understand an English language contract, it is necessary to understand what words are used to represent certain legal ideas and why those words are used. Copyright – aa legal consulting 2006

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We will work through the following outline in class, so you do not necessarily have to read the outline before class, however: BE SURE TO READ OVER THE CONTRACT (attached at the end of the outline) BEFORE THE LECTURE AND BRING IT WITH YOU (ALONG WITH THIS OUTLINE) SO THAT WE CAN WORK WITH THEM BOTH IN CLASS OVER THE NEXT FEW LECTURES !!!!!

THE BASIC STRUCTURE OF A ENGLISH LANGUAGE CONTRACT In order to understand a contract, we must first gain an understanding of the structure of the contract itself. By discussing the structure, we will be better able to find our way around the document. We will also learn to separate the standard elements of the contract found in every contract written in English from the ones unique to the contractual relationship. The ability to separate these two parts of the contract, and to increase our understanding of each part, will increase our knowledge, and thus comfortableness, in dealing with English language contracts. Lets First Look at the Structure of a standard English Language contract: When discussing the structure of a contract, it is common to discuss it in what is termed the “Front”, “Middle”, and “Back” of the contract: THE “FRONT” OF THE CONTRACT

1. DESCRIPTION OF THE INTRUMENT

A. At the top of the page, you will find the ‘description of the instrument’.

This heading has no legal importance, but can be useful to quickly identify the type of agreement covered by the contract.

2. CAPTION

A. The purpose of the caption is to identify the names of the parties and the

legal action they are taking: B. For example: “John Doe as landlord and Richard Roe as tenant agree to a

residential lease on the following terms.”

3. DATE – just remember that in the USA, we REVERSE the day and month in dates, God Bless America! This is not usually a problem, but can be! – Is 08/09/2005 August 9th or September 8th ?!?!? – something to be aware of):

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4. TRANSITION (LANGUAGE OF AGREEMENT) – Your agreement will contain language signifying that the parties have entered an agreement. Words of agreement can be added in a number of ways.

Copyright – aa legal consulting 2006

5. RECITALS: Contracts often begin by giving some background information. This ‘introductory paragraph,’ known as a _____________ or the ______________ in English, also may help make clear the parties’ intentions or to resolve problems of interpretation. Recitals may also be used to secure a remedy (a solution for a problem with the contract) by informing the court of the importance of a term. When a judge decides a contract dispute, the central issue in his or her mind is “what was the intent of the parties?” The parties can express that intent in the recitals. An explanation of the why the parties wrote the contract, and what the parties want to get out of the contract, may assist the court in understanding the contract or in determining damages.

For Example: In a Seller/Buyer contract for the sale of an antique book, the attorney for the Buyer might include in the recitals that Buyer needs this particular book to complete a collection of books that will be worth considerably more with the addition than without it.

If the recital contains this information, it could be used to establish Buyer’s damages in case of breach (breaking the contract) or even provide the grounds for specific performance (not money damages, but the book itself).

6. Definitions - Because the Common Law is organic in nature, it is controlled by very general, often very abstract and nuance, legal concepts and rules. While the Civil Law system depends on volumes and volumes of codes and definitions, the Common Law depends on traditional usage and legally understood meanings. Therefore, if the parties want something special or specific done in a contract, it is always best to define the exact term clearly at the beginning of the contract.

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Some things to remember about contract definitions:

i) When the parties create their own definition, they have to make sure that it is being used consistently! A good way to test whether you have used a definition consistently is to use your word processor’s “find and replace” function to replace each of the defined terms with the definition. You can then determine whether the definition has been properly used!

ii) Lastly, and most importantly, relating to definitions and the use of language

throughout the contract - When learning to write, most of us were instructed to consult a thesaurus so that we would use a variety of words. In the writing of contracts this can be disastrous! It is a contract, not a novel, remember?! When reviewing contracts NEVER forget the following rule of drafting:

THE GOLDEN RULE OF DRAFTING!: . This rule should be followed by the person who writes the contract (the drafter), and caught by careful reader if it has not been followed in the document!!! For example: an agreement states that “the parties shall use reasonable efforts to timely perform this contract”. A later provision in the same contract states that “the seller shall use best efforts.” This change in language may suggest that the parties intended the meaning of best effort to be something different than reasonable efforts, leading to confusion and ambiguity!

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THE ‘MIDDLE’ OF THE CONTRACT: OPERATIVE LANGUAGE AND BOILERPLATE

OPERATIVE LANGUAGE AND BOILERPLATE - When we read a contract, we must always discover what is the “standard” language found in all contracts (_________________________), and what is the “new” language that shows the relation between the parties in this specific contractual relationship (__________________________). A responsible contract reader must know: 1. The difference between Operative Language and Boilerplate. 2. What each type of Boilerplate looks like and how to identify it. 3. Why the Boilerplate language is in the contract in the first place. Let’s first look at some very common Boilerplate contract language, as it is found in nearly every contract. BOILERPLATE The term “Boilerplate” is often used to describe the all-purpose language that is found in every contract, often under the heading ‘_______________________’. Boilerplate terms are statements by the parties that clarify what general law that will govern the contract. Many people who work regularly with contracts tend to just dismiss it as ‘just boilerplate’, but you should not assume that you know what the term means without reading it, and you should never underestimate its importance! Standard Boilerplate terms include all of the following:

1. Severability Clause: Most parties do not want an entire contract to become void (no longer legally binding) because a single part of the contract is not enforceable under the law. In order to avoid this problem, a clause (section/paragraph) is normally placed in a contract that allows the void clause (or clauses) to be “cut out” of the contract, so that the rest of the contract is valid. A typical Severability Clause looks similar to the following:

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Example: The invalidity, in whole or in part, of any term of this agreement does not affect the validity of the remainder of the agreement

2. Merger Clause: Many times contracts involve a lot of discussion and negotiation; as a result there are many promises made over the phone and lots of paper (or at least e-mails) flying around!

In order for the parties to make it clear to a reader of a contract that this contract represents THE agreement between the parties, a merger clause is often included.

Example: This agreement signed by both parties and so initialed by both parties in the margin opposite this paragraph constitutes a final written expression of all the terms of this agreement and is a complete and exclusive statement of those terms

3. Force Majeure Clause– Also known as an “Act of God” clause, it protects both parties from being found in breach of contract due to factors beyond the parties personal control.

Example: Force majeure. Deliveries may be suspended by either party in case of acts of God, war, riots, fire, explosion, flood, strike, lockout, injunction, inability to obtain fuel, power, raw materials, labor, containers, or transportation facilities, accident, breakage of machinery or apparatus, national defense requirements, or any cause beyond the control of such party, preventing the manufacture, shipment, acceptance, or consumption of a shipment of the goods or of a material upon which the manufacture of the goods is dependent.

4. Modification and Waiver Clause – The parties are always free to modify (change) the contract at a later date, but often such modifications causes major problems. This is particularly true when a contract is modified (changed) orally. If later problems arise between the parties, such oral modification can be both difficult to prove or disprove. In order to avoid this problem, most contracts contain a “modification and waiver clause.”

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Example: All Modifications to be in Writing. This contract may be modified or rescinded only by writing signed by both of the parties

5. Remedies - A well drafted (written) contract should always contain remedies in case one of the parties does not fulfill their side of the contract. Normally, money damages are awarded by a court. If the parties do not want money, but the actual item or other “relief” (action by the court), they must provide for that in the contract. Here are some common options:

a. Specific Performance – requires the party to do what was promised in the

contract, rather than just pay money damages.

Example: Uniqueness of Goods. Seller and Buyer affirm that the goods sold under this contract are unique and cannot be purchased on the open market or manufactured specially

b. Consequential Damages – Sometimes a party will try to limit the amount of damages they will have to pay if the contract is breached:

Example: In the event of a breach or repudiation of this contract by Seller, Buyer shall not be entitled to any consequential damages, in excess of $________. This limitation shall not apply, however, to damages for injury to the person if the goods are consumer goods.

c. Liquidated Damages – The Common Law does not allow a contract to

have a “penalty clause”, which punishes a party for not doing something it promised. Often though, parties can agree beforehand that, since the exact damages from a breach would be very difficult to determine, a set amount of damages is written into the contract. If one party does not perform according to the contract, they have to pay the fixed amount set out in the contract.

While it is not technically a “penalty”, it often serves a similar purpose!

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Example: For each and every day work contemplated in this contract remains uncompleted beyond the time set for its completion, Contractor shall pay to owner the sum of $__________, as liquidated damages and not as a penalty. This sum may be deducted from money due or to become due to Contractor as compensation under this contract

6. Assignment and Delegation- The Common Law generally allows a party to assign (give) responsibilities under a contract to a 3rd party. If the parties do not want this to happen, they have to be sure to put a clause in the contract forbidding it! Examples:

Either Seller or Buyer may assign its rights under this agreement in whole or in part Either Seller or Buyer may delegate its duties under this contract in whole or in part. If any delegation is made, the delegating party must give notice to the non-delegating party at least 5 days prior to the delegation. The delegating party remains fully liable for performance of the delegated duties. No right or interest in this contract shall be assigned by either Buyer or Seller without the written permission of the other party, and no delegation or any obligation owed by either Buyer or Seller shall be made without the written permission of the other party. Any attempted assignment or delegation shall be wholly void and totally ineffective for all purposes

7. Choice of Law – In international contracts, it is extremely important to write in the contract whose legal systems is going to govern the contract! In order to make this clear, the parties normally include a “Choice of Law” clause.

Example: In a contract between a California Company and a Canadian Company, where the parties want California law to govern: The validity, interpretation, and performances of this Agreement shall be controlled by and construed under the laws of the State of California, as if performed wholly within the state and without giving effect to the principles of conflict of law. The parties specifically disclaim the UN Convention on Contracts for the International Sale of Goods.

8. Choice of Forum – This clause controls not what law will be used, but what court will here the case. This is known as “jurisdiction”. In international

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contracts, or any contract where there is large physical distance between the parties, this clause can be important.

Example: Any legal suit, action or proceeding arising out of or relating to this Agreement shall be commenced in a federal court in the state of Colorado, and each party hereto irrevocably submits to the non-exclusive jurisdiction and venue of any such court in any such suit, action or proceeding. A. OPERATIVE LANGAUGE – The “operative Language” is the language that

shows the legal relationship between the parties. It is the language that sets up the rules as to who has to do something under the contract, and who has the right to receive something under the contract. The drafter must choose language with care.

In giving you guidance in this area, unlike other areas, I am afraid it is not possible to say, “it is done this way, it is done that way” (Sorry!). Contracts are for the parties to make and the first rule of interpretation is to carry out the parties’ intentions (what they want). Therefore, in order to understand the Operative Language of a contract, we must explore the language used in creating the “core” of the contract. This will be our task in the next section of the seminar when we discuss the language used to create legal consequences. But first we must wrap-up our discussion of the structure of the contract, by looking very briefly at the “Back” of the contract. THE ‘BACK’ OF THE CONTRACT: CLOSING – A brief discussion of the “Back” of the contract is necessary. This is were the signatures are put on the document and dated. Though a very basic process, they can have important legal consequences!

6. CLOSING

A. The closing of the agreement (formally called the testimonium) should demonstrate that the parties agree to it. They do this by signing the document.

For example:

____________ _____________ Buyer Seller

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B. It is important that the parties who sign the agreement are the same parties

that are in the caption. For example, if Buyer and Seller are corporations, the corporations must sign the agreement, of course through an authorized person (known as an “agent”). A business contract closing thus would take the following form:

ABC Corporation XYZ Corporation by ____________ by ____________

CREATING LEGAL CONSEQUENCES

THE LANGUAGE OF CONTRACT LAW

It is important to learn the fundamental language of contract law; to have an understanding of why English-language legal documents use certain words, and what impact these words have on the rights and duties within a given contract.

Creating Legal Consequences – The whole point of a contract is to create legal consequences. What a party is to do under a contract, what the other party has a right to receive, and what other options both parties may exercise under the contract are all controlled by specific words and phrases. As mentioned earlier, the words we are going to now discuss might already be familiar to you, but “at law” (as we say!) they mean very different things than you learned from your Elementary School English teacher! Even more importantly, these often small, seemingly unimportant words have HUGE legal consequences on the parties. Such words as shall, may, must, if, when, etc. are the key words on which the legal relationship between the parties to a contract depend! Therefore, it is important to explore the meaning of these words in the context of English language contracts, and what legal consequences these words have on the relationship of the parties entering into a contract.

DUTIES A contract duty is something that, if not performed by the party, will be considered a breach (a breaking of the contract). The following words are most commonly used to create duties and rights in contracts. Whatever word is used to express this in the contract, it should always be possible to replace the word with the phrase “has an obligation to”.

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Contract duties are usually be created by using either is obliged to, shall, must or will:

1. Many drafters prefer the word shall because it is a term of

command – and because will might be seen as simply referring to the future. The weakness with the word shall is that it is very often used in two different ways in a single document.

a. As a term of command: “The buyer shall…” (The buyer has an obligation to …)

a. As a substitute for is, should, must, is required to:

“The computer shall…”, “The products shall…”, “The contract shall…”. (“Shall” sounds very lawyer-like so many lawyers use it every chance they get !)

2. Because shall is often misused and will does not sound very

obligatory, some drafters use the word must and must not. But the word must also causes problems: it tends to sound a bit “strong” and causes most people to have flashbacks of their childhood (“You must eat your Spinach!”). . Therefore, in my humble opinion, must is better used to create conditions (see below).

3. Regardless, whichever language is used, when these words of

duty (shall, must, will, is obliged to) appear in a contract, it is extremely important to pause and analyze how the word is being used and what duty (if any) is being created.

4. Duties to not act are created by the words shall not, must not,

will not or is not required to, as follows:

Seller shall deliver the goods by no later than 10 days after the date of this contract. Seller is not required to provide notice of the exact day of delivery.

RIGHTS A contract right is simply the other side of a duty. If Seller has a duty to do X, then Buyer has a right that Seller does X.

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5. Rights are usually created by using the words: is entitled to or has the right to. For example:

If Buyer is late in making payments on three consecutive shipments, Seller is entitled to impose a surcharge of 5% on the amount due for the fourth and all subsequent shipments.

6. The negative form is: is not entitled to. For example: Employee is entitled to speak publicly about any matters, without fear of recrimination from the Company, but Employee is not entitled to publicly disparage the Company, its practices, its policies, or its products. [Both denying the right and making it a duty not to].

PRIVILAGES –

A privilege differs from a right only in the sense that it does not have a direct duty-corollary. The corollary, rather, is a ‘no-right’. To say that Seller has a privilege of doing X, means that Buyer does not have a right that Seller do or not do X.

1. The word may is used to create privileges.

2. Two Forms, each with a slightly different legal consequence:

a. The first gives the privilege-holder an option to choose

between several alternatives, as in selecting how the duty of delivery will be satisfied. For example:

Seller may deliver by truck, rail, or air.

b. The second, gives the privilege holder the power to unilaterally create legal consequences. For example: Seller may terminate this contract on 10 days notice to Buyer.

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CONDITIONS Conditions differ from duties in that a breach of a condition is not a breach of contract, though there can be legal consequences. Also, conditions often trigger contract rights and duties.

i. The seller’s duty to deliver may be conditioned on the buyer first doing something. This is called a condition precedent.

ii. The seller’s duty to deliver may be discharged by the

buyer’s failure to do something. This is called a condition subsequent.

iii. A condition may consist of conduct or non-conduct by one

of the contracting parties. In this case, the term must should be used.

For Example:

To revoke acceptance, Buyer must do the following:

iv. When the condition relates to an external event, several

words may be used, depending on the circumstances. The most common terms are if, when, should and after.

For example:

If a building permit is not granted, Buyer is entitled to a price reduction in the amount of … When an embargo is in effect, Seller’s duties are suspended. After the expiration of 10 days, Buyer is entitled to a 10% reduction in the sales price.

5. In order to stress the importance of a condition, a cautious drafter sometime expressly labels a condition as such: The insured must notify the company of all claims within 5 days of the injury. This notification is a condition precedent of the company’s duty to pay and strict compliance is required.

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WARRANTIES- Most contract promises impose an obligation to do or not do something. Another kind of promise relates to the quality of the goods. This is a warranty or a guarantee, and we use these words to create them. For example: Seller warrants that the air conditioner is in working condition. Seller guarantees the seeds to be weed free. OTHER LEGAL CONSEQUENCES – Some other words used to create legal consequences are: is, is not, or some other verb. For example: Buyer’s option to renew expires at 10:00 p.m. on October 23, 2005. {Not shall expire, which is a false imperative) The interpretation and enforcement of this contract is governed by the laws of California. {Not shall be governed, which is another false imperative}.

Reading and Analyzing Contracts: Putting All the Elements Together

Having explored the theory, structure, and wording of English language contracts, you now have the tools needed to properly analyze English-language contracts. The following is a general guideline of how a person might approach the reading of a contract written in English, given the knowledge you now possess. There are FIVE basic stages to proper Contract analysis: I have divided contract-reading into five different explorations of the text. I call each of these explorations a “pass”, in the sense of a sweep over the document rather than reading every word. The boundaries between passes are, of course, somewhat artificial, and there is considerable overlap between them.

1. First pass (reading): Orientation: In the Orientation pass, you will discover the general theme of the contract and the legal relationship of the parties. You will also begin to see the structure around which the contract is built. You should then

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pause to consider the goals of the parties and how those goals might be reflected in the contract.

We don’t read contracts for pleasure (not even me!), so you probably have an interest in the transaction. Note which party is your client, useful questions to get the general theme are:

- What is this transaction about? - Who are the parties? Which one am I? - What is the relationship between the parties?

To answer the questions, look to the following sources:

1. Figure out the general theme of the contract. Look to: a. The description of the instrument b. The caption c. Recitals d. The primary exchange of promises

Just to review:

- The description of the instrument –(like title of book, idea of content) - The caption (usually found directly below description, names of parties, legal

relationship (is it two corporations ?, an individual and a corporation? , two individuals?)

- Recitals (statements of background) – tells you why the parties entered the

contract and what they want to get out of the contract relationship. - The primary exchange of promises – usually toward beginning of the contract,

remember, it is a primary exchange of promises that gives the essence of the agreement. Since parties rarely use the word ‘promise’, look for: shall, will, must, or – agrees to

Next - Determine the Structure of the Contract – also known as the architecture of the contract. One reason contracts are intimidating is that they appear monolithic – a giant wall that does not allow easy entrance! But when you get to know the document, you may see that it has a structure, a pattern that allows you to make distinctions.

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a. Is the agreement a Stepping Stone or Final Agreement? – “Memorandum of Understanding” or “Letter of Intent” = not consider it binding yet.

b. What are the parts of the contract? = allows you to break the contract down into smaller parts. As discussed earlier in the seminar, the common structure frequently includes the following parts, in this order:

i. Description of the instrument ii. Caption iii. Language of transition iv. Recitals v. Definitions vi. Operative Language vii. Boilerplate terms – “Misc.” viii. Closing

c. See transaction against larger background:

i. What are the goals of the parties? ii. What are the applicable rules of contract law? – what is discussed? If not discussed, what are the DEFAULT rules?!?!?!

2. Second pass: Explanation: In this pass the goal is to identify Boilerplate and focus on the Operative Language, the rights and duties of each party (keeping in mind our discussion of what makes up the boilerplate, and what language is used to impose right and duties). You should also detect when those rights and duties are expressly conditional on the happening of some event.

1. Identify the Boilerplate terms: Remember: The Boilerplate terms do not contain rights and duties of the parties but declare the ground rules the parties have agreed to follow in certain circumstances. They are the housekeeping details that appear in virtually every contract! Remember: The Boilerplate terms cannot be disregarded just because they appear in every contract. Take a second look to determine whether the

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boilerplate provision is in fact the same term found in most contracts or whether it has been altered or tailored to fit this transaction.

You cannot gloss over these Boilerplate provisions, no matter how dull they appear.

a. Merger Clause = Ask yourself, “Will provisions not included in

the written agreement be enforceable?” Generally, if something is not in agreement, it is naturally not considered part of agreement. If anyone made a promise or representation to you that are not found in the contract, ask for them to be included in the contract before you sign.

b. Modification Clause = Ask yourself, “If we later decide to change our agreement, is the original agreement or the modified agreement effective?”

c. Assignment and Delegation = Ask yourself, “Can the rights and

duties under the contract be delegated or assigned?” If it is a problem, you should make sure that they are NOT delegable under the provisions of the contract if you do not want 3rd parties to perform all or part of the contract.

d. Force Majeure Clause = Ask yourself, “Is the clause present?”,

“It seems to cover everything imaginable, but does it really?”, “Does it reflect the current political, social situation and potential problems they could cause?”

e. Severablility Clause = Ask yourself, “If the court refuses to

enforce part of our agreement, will it give effect to the remainder?

f. Dispute Resolution (Choice of Law, Choice of Forum) = Ask

yourself, “ If things go wrong, where will the problem be resolved? What law will apply? Is arbitration contemplated? Who pays the attorney fees?”

2. Locate Operative Language: Determine the rights and duties of each

party:

a. Identify promises

- What do we have a duty to do or not to do? - When do we have to do it? - What do we have a right to receive?

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- When do we receive it?

b. Watch for promises that are beyond customary norms, because a term that is illegal is not enforceable! Some terms, while not illegal, are so oppressive or “unconscionable” that they may shock the conscious of the court, and the court may decline to enforce them. Identifying these provisions can be useful in negotiations.

Example – “In the event either party terminates this contract, Employee agrees not to work in a similar field of employment in this state or any other state” = Is this true even if fired?, too restrictive and general?, common practice in jurisdiction?

c. Determine the duration (how long) of the contract – default rule is a “reasonable time”!

d. Identify conditions. Who controls the happening of the event?

Exercise Five: Some more “legal-ish” expressions, do you know what they mean and when they are used? a. signed, sealed and delivered 1. no way to get out of a situation b. the straight and narrow 2. no longer living a “bad” life c. poetic justice 3. no way to support a position d. no strings attached 4. finally tell someone the truth e. come clean (with someone/about something) 5. completed, “done and dusted” f. (do not) have a leg to stand on 6. just as something appears g. dead to rights 7. when the bad guys loose

3. Third pass: Implication: In the implication pass, you should read into the

contract terms and conditions that are not expressly stated in the contract. You should continue to explore the relationship between the contract terms, particularly those relationships that are not expressly stated.

You may wonder after reviewing a contract, “Why do they leave out terms?” Sometimes it is simply that the parties were too hasty or careless. More likely though, is that the parties who negotiated the contract did not want to “iron out” every detail or they may not have foreseen every possibility. And sometimes, even if they foresaw a potential problem, they did not want to jeopardize the deal so they left it out !!!! As mentioned before, you cannot include everything, yet some other “what if” provisions may be necessary to include explicitly after reviewing the contract. This pass we must look at three terms that do not appear in the contract:

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1. Default rules – omitted (must be read in), states it (boilerplate), or changes default

rule. 2. Implied conditions = On the first pass you ID the promises, NOW you must

determine whether the relationship between the promises is conditional. Recall that a condition is an event that must occur before some performance is due. In the last pass you Identified the express conditions, now must locate the implied conditions.

Have to ask:

- Is one party’s entire performance a condition of the entire performance of the other party?

- Who performs first? - Did the party who performed first protect itself?

3. Trade Usage

1. Is there particular “jargon” (specialized language) used only in this

particular field that differs from common, everyday wording? 2. Are these terms clearly understood by both parties, or even better, defined

separately for the non-specialist?

4. Fourth pass: Remedies: In the remedies pass, you should figure out what happens in the case of non-performance of the parties’ duties. Some of these are expressly stated in the contract usually, but others must be implied.

1. Is the party’s nonperformance a breach? Nonperformance might be

excused by:

a. changed circumstances b. modification or waiver c. non-occurrence of a condition

2. If non-performance is not excused, what happens?

a. the non-breaching party may recover damages, to determine damages ask:

- Ask what the non-breaching party would have had if the contract had been performed.

- Look for express terms relating to damages. b. Look for terms that address remedies. These may include:

- Specific performance - Liquidated damages

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- Limitation of remedies - Dispute resolution/arbitration clauses

5. Fifth pass: Evaluation: In the evaluation pass, you will make judgments about the terms of the agreement. You might find weaknesses in language, terms that are too harsh, terms that are missing, or terms that may still need further negotiation.

1. Should you expressly state omitted terms? 2. Do you understand and agree with all the stated terms? 3. Do you understand and agree with the consequences of the breach? 4. Do you wish to alter any boilerplate terms? 5. Do you agree with the wording and structure of the contract? 6. Are there terms you wish to negotiate?

Lastly –

1. Check the document for completeness 2. Detect weaknesses with language:

- Plain English - Ambiguity - Definitions - Consistent usage of terms

Copyright: aa legal consulting 2006

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SAMPLE CONTRACT

TeleCommunication Systems, Inc. Master Sales Agreement

This Agreement is made on this 8th day of June 2005 (the “Effective Date”) by and between TeleCommunication Systems, Inc. a Maryland corporation with offices at 275 West Street, Annapolis, Maryland 21401 (“TCS”), and Vonage Network Inc., a Delaware Corporation, with offices at 2147 Route 7, Edison, New Jersey 08817 (“Customer”). TCS and Customer shall also be referred to as the “Parties” and each as a “Party”) to this Agreement. Services and/or TCS may license Software to Customer, as specified in one or more Work Orders signed by TCS and the This Master Sales Agreement is a framework agreement. TCS may sell, and Customer may purchase, Hardware, Systems, and Customer, referencing this Master Sales Agreement and the General Statement of Work. Each such Work Order, together with the Master Sales Agreement and the General Statement of Work, shall constitute an agreement between the Parties (the “Agreement”). The Parties agree as follows: 1. DEFINITIONS The following terms used in this Agreement shall have the meanings stated in this Section 2:

1.1 “Affiliate” of a Party means any entity that, directly or

indirectly, controls, is controlled by or is under common control with, the Party.

1.2 “Completion Criteria” means Customer’s acceptance of the

Product or Service as demonstrated by Customer’s signature of

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the First Office Application (FOA) certificate which acknowledges the fulfillment by TCS of the obligations described in the Statement of Work, such as the delivery of a System.

1.3 “Hardware” means equipment or machines, such as

computers sold and/or maintained by TCS under this agreement. Hardware may be manufactured by TCS or by third parties.

1.4 “Products” mean Hardware, Software, or Systems sold or

licensed by TCS. 1.5 “Service” means performance of a task or project, provision

of advice, assistance, or use of a resource (such as access to an information data base) that TCS makes available. Services include provision of maintenance and support for Products. “Professional Services” mean engineering, design or consulting services performed from time to time on a task or project basis by TCS for Customer.

1.6 “Software” means computer programs and data, in machine readable form, and related materials, including user, technical, and system administrator materials, listings, and documentation related to such computer programs and data. Unless otherwise specified in a Statement of Work or other document signed by TCS and Customer, all Software is only licensed to the Customer and provided only in object code form. Software may be licensed by TCS or by a third party.

1.7 “Specifications” mean the technical and operational

specifications that describe the proper functioning of any Product or Service. For Hardware the Specifications are provided by the manufacturer. For Services and Systems the Specifications are provided in the Statement of Work. For TCS Software, the Specifications are as provided in the License Agreement and any applicable Statement of Work. For third party Software, the Specifications are as provided in the License Agreement.

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1.8 “General Statement of Work” means the document headed

with that name specifying the overall respective responsibilities of TCS and the Customer for VoIP E9-1-1.

1.9 “System” means a combination of Hardware and Software

integrated to perform specified functions. 1.10 “Work Orders” means a document referencing this Master

Sales Agreement and the General Statement of Work and signed by both Customer and TCS specifying the Products and/or Services to be provided, the respective responsibilities of TCS and the Customer, the applicable schedule of delivery, the Completion Criteria, the applicable charges for the Products and/or Services, and any other terms.

(Section 2 Edited out – Dr. Wilder)

3. PRODUCTS AND SERVICES PROVIDED 3.1 TCS shall provide the Products and Services described in

each Work Order, including attachments, for the prices and on the schedules specified therein and in accordance with the Master Sales Agreement and General Statement of Work and any exhibits to either of them referenced in the Work Order.

3.2 TCS and Customer shall each perform their respective

obligations and carry out the responsibilities as described and according to schedules specified in each Work Order. To the extent either Party is delayed in performing any of its obligations under the Agreement due to the other Party’s failure to perform any of its responsibilities in accordance with the applicable schedules, the first Party shall be permitted to delay the performance of its obligations and shall be entitled to compensation from the other Party for any additional actual and reasonable out-of-pocket costs incurred as a result. In the event of delay by Customer, TCS will prepare a change order of the costs associated with the delay. TCS will not continue performance of its obligations until Customer has approved the change order and amended the Work Order to include such

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costs. In the event of a delay by TCS, TCS will compensate Customer for such delay as set forth in the applicable Work Order or General Statement of Work.

4. ACCEPTANCE

4.1 Products and Services delivered by TCS shall be considered

accepted by the Customer upon completion of the Completion Criteria, as defined in Article 2.1. If Customer has not signed the FOA within 30 business days of receipt, Products and/or Services will be deemed accepted unless Customer has provided TCS written notice of rejection detailing the reasons why they do not meet the specifications in the SOW. TCS shall promptly correct any such deficiencies or obtain the Customer’s written agreement to a plan to correct such deficiencies. The System shall thereafter be considered accepted upon completion of the Completion Criteria.

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4.2 If Customer believes that TCS has not provided a Professional Service in a workmanlike manner or according to the Specifications of the Work Order, Customer shall provide written notice to TCS of any deficiencies within ten (10) business days of the completion of the provision of the Professional Service. TCS may perform again or provide an appropriate credit for any Professional Service that was not delivered in a workmanlike manner or according to its Specifications of the Work Order.

4.3 Customer shall own all title and interest in all Hardware

delivered under this Agreement, unless such Hardware is subject to the terms of a leasing agreement.

5. INVOICES AND PAYMENT

5.1 Customer shall pay the amounts indicated in the Work Order

for the Products and Services delivered by TCS. TCS may invoice the Customer for the amounts specified in the

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Work Order for Products and Services only upon their acceptance. Customer shall pay TCS the full amount of such invoices (other than amounts subject to a good faith dispute) in U.S. Dollars within 30 days of the date of Customer’s receipt of the invoice (“Due Date”). Except for any amounts reasonably disputed by Customer in writing, TCS may assess and Customer shall be liable to pay a late charge at a rate of one-half percent (0.5%) per month or the highest rate permitted by law, whichever is less, on all unpaid amounts (other than disputed amounts) from the due date until paid in full.

5.2 Failure to pay any fees or other charges or amounts

(including taxes) due to TCS on or before the Due Date shall be a breach of this Agreement (“Failure to Pay”). Notwithstanding anything else contained in this Agreement, in the event of a Failure to Pay that is not cured within fifteen (15) business days after notice thereof, TCS may suspend delivery of Products and/or Services to Customer and/or upon five (5) business days written notice terminate this Agreement for default, unless said Failure to Pay is based on Customer’s good faith dispute of the amounts invoiced as presented in writing to TCS on or before the Due Date or the expiration of the fifteen (15) day notice period referenced above. Any suspension may be continued until the Failure to Pay has been cured but will cease upon cure. TCS shall be entitled to recover reasonable costs incurred prior to termination and attorney’s fees and costs in the event that any legal proceeding is brought by TCS in collecting all unpaid and undisputed amounts hereunder.

5.3 If Customer disputes any part of an invoice, then in order to

withhold such amount from its payment, Customer must notify TCS in writing as to the specific amounts contested and the reasons for such dispute on or before the Due Date of the invoice, provided that this provision does not waive Customer’s right to subsequently place in dispute and seek a refund of amounts already paid.

5.4 All prices and charges for Products and Services provided

hereunder are exclusive of any taxes applicable to the

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transaction, such as value added taxes, sales or use taxes, duties, or other taxes or levies imposed by any government, public authority, or government agency on Customer’s purchase of Products or Services hereunder, all of which are the responsibility of Customer to pay, provided, for avoidance of doubt, that Customer shall not be responsible for payment of any taxes based on the income, property or employment of TCS.

5.5 TCS reserves the right to modify its price for annual

maintenance and support of any Products for any maintenance renewal period subsequent to the period or periods specified in the Work Order for the reasons set forth below by providing Customer notice of any price modification at least sixty (60) days prior to the commencement of the next applicable renewal period for maintenance services. Price modifications may be based on a change in the number of unique records being managed and any additional features being used by the Customer (unique records managed include all records active for any period of time during each month, regardless of service change or termination) or on Customer-initiated changes to the configuration of the Customer’s Software.

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6. TERM AND TERMINATION OF AGREEMENT

6.1 Subject to paragraph 6.3 below, this Agreement shall be

effective upon signature by both Parties as of the date noted above for a period of three (3) years (“Initial Term”) and shall be automatically extended for additional one (1) year periods, unless either Party notifies the other to the contrary no less than sixty (60) days prior to the expiration of the Initial Term or any extension thereof. The expiration of this Agreement shall not terminate any Work Order referring to the terms of the Master Sales Agreement, and the terms of the Master Sales Agreement shall remain effective as to any such Work Order, until that Work Order has been completed or has terminated.

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6.2 Either Party may terminate this Agreement and any Work Order for cause upon written notice to the other Party in the event that the other Party fails to perform any of its material covenants or obligations contained in this Agreement or such Work Order, unless such default is cured or a mutually agreed plan to cure is accepted within thirty (30) days of delivery of written notice of such default to the defaulting Party. If Customer is in material default of this Agreement and such default continues for a period of thirty (30) days after TCS’ written notice thereof to Customer, then TCS shall also have an independent and alternative right to suspend delivery of Products or Services in then effective Statements of Work upon written notice to Customer, provided that TCS will end such suspension upon cure of the default by Customer. Customer may terminate this Agreement and any Work Order upon written notice to TCS if TCS assigns this Agreement or all or a substantial part of the infrastructure used to provide Services hereunder, directly or through the sale or merger of TCS or any of its assets, to an entity that has a substantial business in VOIP services.

6.3 The Parties agree that in the event that material unforeseen

changes in applicable legal or regulatory requirements for providing VoIP E9-1-1 services make the provision of Services under this agreement commercially impracticable or materially impact the cost of acquiring or delivering such services for either Party, then the Parties will negotiate in good faith to adopt changes to or revisions of the Services contemplated by this Agreement so that such legal or regulatory changes are not unreasonably burdensome on either Party. If after good faith negotiations the Parties do not agree to amend this Agreement or the Services to accommodate such legal or regulatory changes, then either Party may terminate this Agreement and any Work Order upon ninety (90) days written notice to the other Party.

Customer’s license to any Software shall become effective upon acceptance by Customer of the Software or a System that includes the Software. If this Agreement expires or terminates (other than for reason of Customer’s default), Customer’s

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license to Software shall continue in accordance with the terms of the applicable TCS Software License Agreement or third party license. If this Agreement and the Customer’s license to use the Software is terminated by TCS pursuant to Section 5.2 for a Failure to Pay or Section 6.2 for a material default by Customer, Customer shall be entitled to retain possession of and to continue to use the Software for a period not to exceed 45 days in order for Customer to make a transition to alternate software or facilities.

This Agreement and any Work Order referencing this Agreement may also be terminated by either Party, if the other Party has become insolvent, has filed for bankruptcy, or has been declared insolvent or bankrupt.

Any termination pursuant to Section 6.2, 6.3 or 6.5 shall be without liability on the terminating Party, provided that such termination will not relieve the terminating Party for amounts owed with regard to Services rendered prior to the effective date of such termination.

The following terms of this Agreement shall survive expiration or termination of this Agreement: Articles 5, 6, 8, 9, 12, 14, and 16.

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7. WARRANTY AND MAINTENANCE OF PRODUCTS

TCS Products delivered to Customer under this Agreement are warranted to conform to their Specifications for a period of one year after acceptance by Customer (or for such other period as may be set forth in the Work Order). During the warranty period, TCS will correct defects in Software and repair or replace Hardware in accordance with third party manufacturer’s policies and in the event TCS fails to do so within thirty (30) days of notice of such defect, will refund amounts paid by Customer for the defective Hardware or Software prorated for the remaining term of the warranty period. Following such warranty period, TCS shall provide Customer with

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maintenance and support services for Software and Hardware in accordance with the terms of the TCS Product Maintenance Support Policy, Exhibit B (to be attached only if Software license and Hardware are to be purchased under a Work Order), for the periods Customer requests and pays for such maintenance and subject to any additional terms specified in the applicable Work Order. For all third party Hardware and Software delivered by and purchased through TCS, Customer will be provided warranty and maintenance service in accordance with the third party manufacturer’s warranty and maintenance policies, provided Customer pays any applicable maintenance support charges which are quoted to and approved by Customer in advance of the rendering of such warranty and maintenance service. TCS MAKES NO OTHER WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCTS AND SERVICES PROVIDED UNDER THIS AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, TCS MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

8. INTELLECTUAL PROPERTY NON-INFRINGEMENT AND INDEMNIFICATION

8.1 TCS represents and warrants as of the effective date of this

Agreement and thereafter throughout the term of this Agreement that TCS owns or has the legal right to license the Software licensed under this Agreement and that the Software does not infringe any patent, copyright, or trademark of any third party enforceable in the United States. TCS further represents and warrants that no Hardware or Software delivered to Customer and no System contains any (i) back door, time bomb, or other software routine designed to disable a computer program automatically with the passage of time or under the positive control of TCS; or (ii) any virus, Trojan horse, worm, or other software routine or hardware component designed to

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permit unauthorized access to, disable, erase, modify or otherwise harm any software, hardware or data; provided that with regard to third party Hardware or Software, the representation and warranty in this sentence is made only to TCS’ best knowledge and belief.

8.2 If a third party claims that any of the Software, Hardware,

Systems or Service infringes its patent, copyright, or trademark enforceable in the United States, TCS will indemnify and defend Customer against that claim at TCS’ expense, provided that Customer promptly notifies TCS in writing of the claim (provided that failure or delay in making such notification shall excuse TCS from its indemnification obligation hereunder solely to the extent that TCS is actually prejudiced thereby), allows TCS to control the defense of such claim, and cooperates with TCS in its defense. If such a claim is made, Customer agrees to permit TCS to, and TCS will at its own expense, either: 1) procure necessary rights to enable Customer to continue to use the Software, Hardware, Systems or Service, or 2) modify or replace such Software, Hardware, Systems or Service to eliminate the infringement; provided that the choice between (1) and (2) shall be at TCS’ discretion. However, TCS has no obligation of indemnification under this Section 8.2 for any claim of infringement caused by Customer’s modification of the Software or Service or their combination, operation, or use with any product, data, or apparatus not specified or provided by TCS, provided that such claim would be avoided absent such Customer modification or combination, operation, or use with products, data, or apparatus not specified or provided by TCS. THIS SECTION 8.2 STATES TCS’ ENTIRE OBLIGATION WITH RESPECT TO ANY CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT.

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8.3 The parties intend that TCS, in its performance of the Services, enjoy the same immunity from or limitation of liability as is available to Customer and its agents under applicable law in connection with the provision of the standard

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or enhanced 9-1-1 service and in any event, that TCS at least be indemnified against liability arising out of or relating to TCS’ performance of the Services except to the extent such liability results from the negligent, reckless, willful or wanton misconduct of TCS or its employees, agents, representatives or TCS’ breach of this Agreement (including without limitation any warranties of TCS set forth herein). Accordingly, Customer shall defend, indemnify and hold harmless TCS and its directors, officers employees, representatives, agents and third party vendors from and against any and all claims, suits, demands, actions, losses, awards, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney’s fees) asserted by third parties and arising out of or in connection with (a) any act or omission of Customer or its employees, agents, representatives in the operation of its VoIP 9-1-1 service or other services; or (b) any act or omission of TCS that is reasonably undertaken for purposes of the provision and performance of the Services or its other obligations under this Agreement; provided that the foregoing indemnity will not require Customer to indemnify TCS against liability for damages to the extent such damages result from the negligence or reckless, willful or wanton misconduct of TCS or TCS’ breach of this Agreement (including without limitation any warranties set forth herein). To the fullest extent permitted by applicable law, the foregoing indemnity will apply regardless of any strict liability or product liability of TCS not amounting to negligent, reckless, willful or wanton misconduct of TCS or TCS’ breach of this Agreement (including without limitation any warranties of TCS set forth herein).

8.4 TCS shall defend, indemnify and hold harmless Customer

and its directors, officers employees, representatives, agents and third party vendors from and against, any and all claims, suits, demands, actions, losses, awards, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney’s fees) asserted by third parties and arising out of or in connection with (a) any negligent, reckless, willful or wanton act or omission of, or breach of this Agreement by, TCS or its employees, agents, representatives; or (b) any act or omission of TCS that is not reasonably undertaken for purposes of the

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provision and performance of the Services or its other obligations under this Agreement; provided that the foregoing indemnity will not require TCS to indemnify Customer against liability for damages to the extent such damages result from the negligence, reckless, willful or wanton misconduct of Customer or Customer’s breach of this Agreement (including, without limitation, any warranties of Customer set forth herein).

8.5 To the extent not addressed in Section 8.3 or 8.4, each party

(for purposes of this Indemnification Section, the “Indemnifying Party”) will indemnify, defend and hold harmless the other (including its officers, directors, employees and agents), its Affiliates and customers, against any loss, cost, expense or liability (including reasonable attorneys’ fees and costs) arising from the negligence or willful misconduct of the Indemnifying Party (including its Affiliates, agents, employees and others under its direction or control).

8.6 In any case in which one Party is required to indemnify the

other pursuant to this section 8, the party to be indemnified pursuant to this Section 8 will notify the Indemnifying Party within a reasonable time after receiving notice of a claim (provided that failure or delay in making such notification shall excuse the Indemnifying Party from its indemnification obligation hereunder solely to the extent that the Indemnifying Party is actually prejudiced thereby). Provided that the Indemnifying Party promptly and reasonably investigates and defends any such claim, the Indemnifying Party will have control over the defense and settlement thereof. The party to be indemnified will furnish, at the Indemnifying Party’s reasonable request and expense, information and assistance necessary for such defense.

9. LIMITATION OF LIABILITY

NEITHER PARTY WILL BE LIABLE TO THE OTHER (OR ITS DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, AGENTS, SUBCONTRACTORS, CUSTOMERS OR ANY OTHER THIRD PARTY) FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL

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DAMAGES ARISING OUT OF THE SERVICES OR SUCH PARTY’S PERFORMANCE OF OR FAILURE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT OR (EXCEPT AS PROVIDED IN SECTION 8) FOR THE CLAIMS OF THIRD PARTIES FOR LOSSES OR DAMAGES. EXCEPT FOR AMOUNTS PAYABLE BY CUSTOMER TO TCS UNDER SECTION 5, AND THE INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 8, EACH PARTY’S LIABILITY (WHETHER IN TORT, CONTRACT OR OTHERWISE AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED), PRODUCT LIABILITY OR STRICT LIABILITY OF SUCH PARTY) UNDER THIS AGREEMENT OR WITH REGARD TO THE SERVICES OR OTHER ITEMS FURNISHED UNDER THIS AGREEMENT WILL NOT EXCEED THE TOTAL COMPENSATION ACTUALLY PAID TO TCS FOR THE PREVIOUS TWELVE MONTHS UNDER SECTION 5 OR $100,000, WHICHEVER IS GREATER.

10. ASSIGNMENT

This Agreement may not be assigned or transferred by either Party without the prior written consent of the other Party, except that upon notice to the other Party: (1) either Party may assign this Agreement without consent to any Affiliate of it, and (2) TCS may assign its rights to payments under this Agreement to a financial institution. In addition, Customer’s rights under this Agreement and in the Software may be transferred, leased, assigned, or sublicensed without the consent of TCS to a successor in interest to Customer’s entire business or substantially all of its assets which assumes the obligations of this Agreement.

11. FORCE MAJEURE

Neither Party shall be liable under this Agreement for delays, failures to perform, damages, losses or destruction, or malfunction of any equipment or software, or any consequence thereof, caused by fire,

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earthquake, flood, water, the elements, unavailability of transportation, acts of terrorism or acts or omissions of third parties other than subcontractors of a Party, or any other cause beyond the reasonable control of a Party and not caused by its negligence (“Force Majeure”). The Party whose performance is affected by such Force Majeure shall notify the other Party of the existence of such Force Majeure and shall use its best efforts to resume performance as soon as practicable. Customer shall not be obligated to pay for any Service which TCS is unable to perform because of Force Majeure.

12. PUBLICITY AND CONFIDENTIALITY

12.1 Without the written consent of the other or unless required

by law or regulatory authority, neither Party shall disclose the terms of this Agreement or any related facts to any third party except such Party’s lawyers, accountants or auditors which are obligated to keep such information in confidence. No press releases or other public announcements of or relating to this Agreement shall be made by either Party without the prior written consent of the other Party. The Parties agree to work in good faith to issue a mutually agreeable joint press release designed to coincide with general availability of the VoIP E9-1-1 services, concerning this Agreement and the work to be performed. Each Party may use the name of the other Party (without other information) in its supplier or customer lists, as applicable.

12.2 For a period of three (3) years from the date of receipt, each

party shall maintain the confidentiality of and not disclose to third parties all information or data of any nature provided to it by the other party hereto provided such information (i) contains a conspicuous marking identifying it as confidential or proprietary, (ii) in the case of confidential information disclosed orally, is identified as confidential at the time of disclosure and a written summary provided to the receiving Party within fifteen (15) days of disclosure or (iii) whether or not so marked or identified if such information is related to Customer’s customer lists, financial or budgetary statements or projections, or technical, operational or business plans or strategies (“Confidential Information”). Each Party shall use the same

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efforts to protect from disclosure Confidential Information it receives hereunder as such Party accords to similar confidential information of its own.

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12.3 This Agreement imposes no obligation on the Recipient with respect to Confidential Information received from the Provider which:

(a) was known to the receiving Party without any

limitation on use or disclosure prior to the delivery of the Information by Provider,

(b) is independently developed by the receiving Party, (c) is rightfully obtained by the receiving Party from a

third party under no obligation of confidentiality, (d) is made available to third parties by the disclosing

Party without any limitation on use or disclosure, or (e) is, or becomes, publicly available. This Agreement shall not prevent any disclosure of Confidential Information to a court or government agency pursuant to a lawful order, provided that prior to making such disclosure, the receiving Party shall use reasonable efforts to notify the disclosing party of this required disclosure and shall seek or permit the disclosing Party to seek available protections against further disclosure by such court or agency.

12.4 The Parties acknowledge that a breach of any of the

promises or covenants contained in this Section 12 may result in irreparable damage to the disclosing party, for which there may be no adequate remedy at law. The disclosing Party shall be entitled to seek injunctive relief and/or a decree for specific performance and such other relief as may be proper (including monetary damages if appropriate).

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13. NOTICES

All notices concerning this Agreement shall be in writing and shall be deemed given upon receipt. All notices shall be sent by registered or certified mail, by overnight courier service, facsimile transmission with electronic confirmation of delivery, or by other means agreed upon by both parties. Either Party may change the names or address to which notices must be sent by sending a written notice to the other Party. Notices to TCS should be sent to:

TeleCommunication Systems, Inc.

275 West Street, Annapolis, MD 21401

Attention: Celeste Ciecierski

Tel: (410) 295-1451 Fax: (410) 263-7617 Notices to Customer should be sent to:

Vonage

2147 Route 27

Edison, New Jersey 08817

Attention: Brooke Schulz

Tel: (732) 528-2627 Fax: (732) 287-9119

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14. DISPUTES

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The Parties agree to submit to arbitration for any and all matters in dispute or controversy between them concerning this Agreement that cannot be resolved through discussion by senior executives of both Parties. In the event that discussions by senior executives cannot resolve any such dispute or controversy within sixty (60) days (or such other longer period as the Parties may agree) either Parties may submit such matter in dispute to arbitration, and such matter shall be resolved by a binding arbitration by a single arbitrator. Any such arbitration proceeding shall be held in the English language in New York, New York. The arbitrator will be selected and the arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The parties will share equally in the fees and expenses of the arbitrator and the cost of the facilities used for the arbitration hearing, but will otherwise bear their respective costs incurred in connection with the arbitration. The parties agree to use all reasonable commercial efforts to ensure that the arbitrator is selected promptly and that the arbitration hearing is conducted no later than three (3) months after the arbitrator is selected. The arbitrator may not award punitive or exemplary damages against any Party or any other relief in excess of the limitations set forth herein. The arbitrator’s award shall adhere to the plain meaning of this Agreement and to applicable law, and shall be supported by written findings of fact and conclusions of law. The judgment and award of the arbitrator will be final and binding on each Party. Judgment upon the award may be entered in any United States federal or state court having jurisdiction.

15. INSURANCE

15.1 TCS shall maintain, during the term of this Agreement, at its

own expense, the following insurance: 15.1.1 Worker’s Compensation and related insurance as prescribed

by the law of the state in which the work is performed; and 15.1.2 Comprehensive general liability insurance and, if the use of

automobiles is required, comprehensive automobile insurance, each with limits of at least USD $2,000,000 for combined

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single limit for bodily injury, including death, and/or property damage.

16. MISCELLANEOUS

16.1 Neither Party shall perform or use the TCS Products or

Services in any manner nor for any purpose which violates the laws or regulations of the jurisdiction in which the TCS Products or Services are being provided.

16.2 Customer shall not perform any service bureau work, grant

multiple-user licenses, or enter into any time-sharing arrangements using Software licensed under this Agreement, except as expressly authorized in writing by TCS, provided that Customer’s use of the software in providing service to its customers shall not be deemed to violate this Section 16.2.

16.3 Any provision or provisions of this agreement which in any

way contravenes the law of any jurisdiction in which this Agreement is effective shall, in such jurisdiction, to the extent of such contravention of law, be deemed severable and ineffective. Such severance shall not affect any other provision hereof or the validity of this Agreement, unless one or more essential purposes of the Agreement is rendered ineffective, in which case either Party may terminate the Agreement without cause in that jurisdiction by notice to the other Party within a reasonable period.

16.4 No waiver by either Party to any provisions of this

Agreement shall be binding unless made expressly and confirmed in writing. Any such waiver shall relate only to such matter, non-compliance or breach as it relates to and shall not apply to any subsequent or other matter, non-compliance or breach.

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16.5 The relationship between and among the Parties hereto shall be that of independent contractors only, and without limiting

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the foregoing shall not be that of partners. Nothing herein contained shall be deemed to constitute a partnership between and amongst them, merge their assets, or their fiscal or other liabilities or undertakings. Nothing herein contained shall allow a Party to act as an agent of any other party, except that TCS may be considered a limited agent of Customer when TCS is acting on the behalf of and at the direction of the Customer for the limited purpose of transmitting E9-1-1 data to Public Safety Answering Points (PSAPs). TCS shall be solely responsible for its own employees, including without limitation with regard to their employment, compensation, benefits and taxes relating to their employment. No TCS employee shall be deemed to be an employee of Customer for any purpose.

16.6 This Agreement, (which includes Exhibit A) sets forth the

entire agreement and understanding between the Parties with respect to the subject matter hereof and merges, supersedes, terminates and otherwise renders null and void any and all prior discussions, negotiations and agreements between them. Neither of the Parties shall be bound by any conditions, definitions, representations or warranties with respect to the subject matter of this Agreement other than as expressly provided herein.

16.7 This Agreement, and all the rights and duties of the Parties

arising from or relating in any way to the subject matter of this Agreement or the transaction(s) contemplated by it, shall be governed by, construed and enforced in accordance with the laws of the State of New York (excluding any conflict of laws provisions of the State of New York that would refer to and apply the substantive laws of another jurisdiction). To the extent court action is initiated to enforce an arbitration award or for any other reason consistent with Section 14, the Parties agree to submit to the personal and exclusive jurisdiction of the courts located within the state of New York and waive any objection as to venue or inconvenient forum.

16.8 For a period of one year from the termination of this

Agreement, Customer and TCS each agree not to solicit the employment of any employee or consultant of the other Party

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who has been directly involved in the performance of services under this Agreement; provided that the employment of an employee of the other Party who replies to a general advertisement or employment listing not specifically targeted to employees of the other Party shall not be prohibited by this Section 16.8.

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By its signature below, each Party signifies its agreement to the foregoing. AGREED: TeleCommunication Systems, Inc. Customer By: John Doe By: Jane Roe Title: VP & COO Title: CFO ________________ ________________ Signature Signature Date: Date: