DEAL101x: Structuring Successful Business Deals

Cornell Law School, Cornell University

Glossary

Acts of God
Natural disasters or other events outside of human control.

Agreement to Agree
An initial agreement in which the parties indicate their intention to negotiate and
develop a formal written agreement.

Allocation of Risk
The assignment of legal responsibility to a contracting party for an event or the
nonoccurrence of an event.

Baskets
Under a basket, the indemnifying party does not have an obligation to indemnify
the beneficiary until the amount of the beneficiarys losses exceed a certain
amount. Generally speaking, baskets are structured either as a deductible, or as
a threshold amount (a tipping basket) that, once reached, obligates the
indemnifying party to pay the total indemnification amount. Baskets may also
combine features of those two.

Closing
The final step in a formal transaction at which agreed assets and/or liabilities are
transferred in exchange for agreed consideration.

Conditions to Closing
Conditions that must be satisfied in order for one party or the other, or both, to be
obligated to close a transaction.

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 DEAL101x: Structuring Successful Business Deals
Cornell Law School, Cornell University

Consequential Damages
Losses that one party to a contract incurs as the result of another party to the
contract failing to meet contractual obligations.

Consideration
Something of value that is exchanged for something else of value. In a contract,
the contracting parties provide consideration to each other.

Contingencies
The variety of events or situations that may arise after a contract is signed, which
a good contract should foresee and address.

Contract
An agreement between two or more parties that is enforceable by law.

Covenant
A contractual promise to take, or refrain from taking, a certain action.

Damages
Losses that a contracting party may recover after a breach by the other
contracting party.

Detrimental Reliance
A situation that occurs when one party suffers harm as a result of relying on an
unfulfilled representation or promise by the other party.

Disclosure Schedules
In an acquisition agreement, lists of the assets and/or liabilities to be transferred
and/or exceptions to representations and warranties contained in the agreement.

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 DEAL101x: Structuring Successful Business Deals
Cornell Law School, Cornell University

Due Diligence
Investigations conducted prior to the signing or, less commonly, closing of a
business agreement, with the intent of assessing the value of the transaction.

Earnout
A type of post-closing price adjustment that modifies the purchase price paid in a
transaction on the basis of certain performance criteria.

Enforceable
Able to be taken to court to compel action, as in an enforceable contract.

Expectancy Damages
Compensation given to an injured party after a breach of contract, intended to
restore the injured party to as good a position as if the contract had been
performed as promised.

Extrinsic Evidence
Evidence that is pertinent to a contract, but is not found within the contract itself.

Force Majeure Clause

A provision in a contract that frees the parties from their obligations in the event
of an act of God or other occurrences beyond their reasonable control.

Gap-fillers
Contract terms supplied by a court when a contract fails to deal with an important
matter.

Illusory Promises
Language that does not constitute a promise because of the lack of commitment.

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 DEAL101x: Structuring Successful Business Deals
Cornell Law School, Cornell University

Indemnity
An agreement by one party to pay the other party for certain costs, losses,
expenses, damages and liabilities typically resulting from breaches of
representations and warranties, covenants, and other agreements by the
indemnifying party. Indemnification may also be tied to specific liabilities, for
example, environmental losses incurred by a purchaser if the transaction
involves real estate.

Information Gap
A certain lack of knowledge that one contracting party may have about the other
party, or about the item that is the subject of a transaction. By identifying
information gaps, the parties can work to draft contract provisions that provide
the information, assurances or adjustments needed to address such gaps and
create a successful contract.

Knowledge Qualifier
A qualification in a contract, typically to a representation or warranty, which
states that certain information is based on the knowledge of the person providing
it.

Liability
Financial or other responsibility of an individual or organization.

Liquidated Damages
Money or other compensation that will be paid to an aggrieved party in a contract
dispute, under a provision included in the contract itself.

Materiality
A qualification in a contract relating to the extent to which a fact, action, or
condition that has been qualified is significant to the value of the transaction.

Merger Clause

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 DEAL101x: Structuring Successful Business Deals
Cornell Law School, Cornell University

A provision in a contract stating that the contract represents the complete and
final agreement that it supersedes any prior agreement.

Post-Closing Price Adjustment

A contract provision that provides for adjustment of the purchase price in a
transaction on the basis of certain agreed criteria.

Remedies
Judicial methods for making a contracting party "whole after a contract has been
broken.

Representation (Rep)
A statement of fact.

Signing
The act of putting signatures on a contract, indicating that the parties have read
the agreement and intend to carry out its provisions.

Statutes
Laws passed by a legislative body.

Tort
An act or omission which causes harm or injury to another and which does not
involve contract or criminal law.

Statute of Frauds
Legal requirement that certain kinds of contracts be set out in writing.

Statute of Limitations
A statute that prescribes a period of time after which certain rights cannot be
enforced by legal action or offenses cannot be punished.
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 DEAL101x: Structuring Successful Business Deals
Cornell Law School, Cornell University

Termination Provisions
The portion of a contract that specifies the conditions under which the contract
may be terminated.

Warranty
A contractual promise that a certain fact is accurate.

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