Contract & Deal Structuring Flashcards

A negotiator inserts a 'most-favored-nation' (MFN) clause in a supply contract primarily to ensure:

Answer: The buyer receives pricing no worse than the best price offered to any comparable customer

An MFN clause guarantees the buyer will receive the supplier's best available pricing, preventing the supplier from offering competitors more favorable terms.

In structuring a licensing agreement, a 'milestone payment' schedule is preferable to a lump sum when:

Answer: The licensee wants to tie payments to verified progress, reducing risk on unproven technology

Milestone payments reduce the licensee's financial risk by conditioning payment on achievement of defined development, regulatory, or commercial benchmarks.

What does a 'hell or high water' clause require in a contract?

Answer: The obligated party must perform and pay regardless of any adverse circumstances

A hell-or-high-water clause obligates a party—typically a buyer or lessee—to make payments unconditionally, even if the subject matter becomes unusable or the deal encounters problems.

A 'no-shop' provision in a merger agreement prevents the target company from:

Answer: Soliciting or entertaining competing acquisition proposals during a defined exclusivity period

A no-shop clause bars the target's board and management from actively soliciting or facilitating competing bids for a defined exclusivity window.

When negotiating a software-as-a-service (SaaS) agreement, an 'uptime SLA' with a 'service credit' remedy primarily benefits the customer by:

Answer: Providing automatic financial credits when availability falls below guaranteed thresholds

Service credits give customers automatic, pre-agreed compensation when the vendor fails to meet stated uptime commitments without requiring litigation.

In a deal with significant regulatory risk, a negotiator should structure the agreement to include:

Answer: A closing condition requiring regulatory approval as a condition precedent

Making regulatory approval a condition precedent to closing protects both parties by ensuring the transaction only closes if legally permissible.

A 'bare bones' or 'skeletal' term sheet differs from a letter of intent (LOI) primarily in that:

Answer: A term sheet outlines only key economic terms without extensive legal language; an LOI may include binding provisions like exclusivity and confidentiality

Term sheets concisely summarize core commercial terms, while LOIs may incorporate legally binding provisions such as exclusivity, standstill, or confidentiality alongside non-binding business terms.