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

1
 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):

2
 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.

3
 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!

4
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:

5
 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.”

6
 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!

7
 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

8
 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

9
 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”.

10
 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.

11
 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.

12
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.

13
 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

14
 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.

15
 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

16
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?

17
 - 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:

18
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

19
 - 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

20
 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

21
 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.

22
 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

23
 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.

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

24
 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

25
 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.

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.

26
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

27
 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.

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

28
 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

29
 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.

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

30
 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

31
 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

32
 6

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,

33
 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

34
 efforts to protect from disclosure Confidential Information it
receives hereunder as such Party accords to similar confidential
information of its own.

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).

35
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 TeleCommunication

to: Systems, Inc.
275 West Street,
Annapolis, MD 21401

Attention: Celeste
Ciecierski

Tel: (410) 295-1451

Fax: (410) 263-7617

Notices to Customer should be Vonage

sent to:
2147 Route 27
Edison, New Jersey
08817

Attention: Brooke
Schulz

Tel: (732) 528-2627

Fax: (732) 287-9119

14. DISPUTES

36
 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

37
 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.

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

38
 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

39
 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.
10

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:

40