Updating your independent contractor agreements template

There is a very wide range of issues you can consider in determining how to structure and draft a consultant / independent contractor relationship.  I’ll be walking through some of these issues in a series of posts over the next several days, but they include:

1. Understand the key differences between independent contractor and employee status.  These include issues ranging from tax withholding responsibilities and worker’s compensation coverage to other general liability issues.
2. Reviewing the particular nuances of intellectual property ownership in an independent contractor relationship.
3. Covering the general contractual elements found in typical independent contractor agreements.

In our business, we like to keep these agreements relatively straightforward, and we rely on templates which cover the key issues.  That said, we’re sticklers in terms of IP assignment and the like, as many venture-backed businesses are.

If you are looking for some outstanding independent contractor agreement samples or templates, I’ve highlighted an excellent resource of documents that were drafted by some of the largest companies and law firms in the country. 

Browse Millions of Legal Agreements and Documents from top law firms

RealDealDocs.com just released a new feature, where lawyers, deal professionals, and entrepreneurs can browse legal agreements, contracts and documents from top law firms  across the world. These legal agreements include deals from companies ranging from the Fortune 500 to small and medium sized businesses, and cover everything from simple employment contracts to the most detailed employee benefits plans, and huge merger agreements to simple office leases.

Links to search documents by document type, full text, law firms, governing law clauses, etc. are also provided, making this a tremendously powerful tool for anyone needing to leverage real deal documents.

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Using California Employment Agreement Forms

A couple of months ago I wrote about noncompete covenants in California, and how the peculiarities of California employment law around noncompetition issues impacts hiring and firing California employees as well as buying businesses in California.

Many times, when small business owners are looking for an employment agreement form, they may just download a document or use an old template.  This works in the majority of cases when no legal disputes regarding employment arises.  Of course, attorneys and experienced managers understand that competent contract authoring is all about controlling how disputes are resolved - if there is no dispute, the contract language doesn’t come into play.  To sophisticated managers, attorneys and investors, that seems a lot like crossing your fingers and hoping for the best.

Accordingly, it’s critical that employers and attorneys find templates and work product precedent that are geared towards the relevant jurisdiction.  You can search across thousands of employment agreements by governing law provisions here.  In the case of California employment agreements, here is a great resource to browse thousands of California Employment Agreements, or you can combine full text searching across California employment agreements.

In our business, we’ve been fortunate enough to avoid any serious employment related disputes that have resulted in litigation.  However, we recently have had to deal with a specific example of a former consultant hiring away an employee despite a variety of non-compete and non-solicitation clauses, and the existence of appropriate contract language has been extremely helpful to us in negotiating an appropriate resolution.

Please let me know if you are aware of any additional resources we can share, or comment directly below.

Finding Legal Documents and Agreements from Top Law Firms

As I’ve written before, when you are negotiating a deal, it can be extremely helpful to find similar legal documents and agreements drafted by top law firms.  This allows you to:

1. Save time drafting the deal language by leveraging someone else’s ideas (estimates range up to 65% of the drafting time)
2. Learn new ways to structure deal terms, such as pricing arrangements, guarantees, termination clauses, etc.
3. Gain competitive intelligence by seeing how other companies in the industry have structured their deals
4. If you’re negotiating against a particular law firm, or you know of a law firm with a very strong practice area that relates to your deal, you can research that law firm’s deals as well.

The first challenge, once you’ve decided to find legal agreements from a specific law firm, is to find a resource that allows you to search for the firm’s documents.  Of course, you can always use Google (and that may be how you found this blog, so I’m not complaining!).  This can be useful if you are just looking for 1 or 2 examples of a firm’s documents, but not if you want to really be able to search across a large number of that firm’s documents - there are just too many search results that are not on point. 

Let’s use a search for “Simpson Thacher legal agreements” (without the quotes) to illustrate this.  Google, in about a billionth of a second, comes back with 348,000 results.  That’s great, but a quick scan of the first several pages reveals that most of these links are not to Simpson Thacher legal agreements, but instead they are point to Simpson that may or may not involve the word agreements.

By contrast, I’ve linked to a resource above, which contains millions of profiled legal agreements and clauses from top law firms.  You can use the advanced legal document search tools to search specifically for Simpson Thacher agreements, search for agreement clauses, or jump straight to browsing hundreds of Simpson Thacher legal agreements and documents.  This allows a deal attorney or other professional to very quickly drill down and find exactly what is needed to better negotiate and draft the deal.

Are more corn supply agreements really the answer?

Over the past three years, fossil fuel and other commodities prices have skyrocketed.  There has been a lot of debate as to the cause of these dramatic price increases - ever increasing appetites for fuel, rampant investor speculation, supply constraints, etc.

Without question, US government subsidies for increased production of corn for use in biofuel creation are further distorting markets and having dramatic and unforeseen impacts on the price and availability of many food sources throughout the world.  The enhanced incentives for corn production have resulted in increased diversion of agricultural land towards corn and away from many other grains, even as corn on a net basis is taken out of the food supply.  This has resulted in shortages of agricultural products across the board, affecting consumers and food industry operators in the US and severely impacting less advantaged people throughout the world.

As many of you know, in this space I tend to focus on entrepreneurial issues.  Personally, I’m very interested in the broader issue of developing alternative energy sources, but I’m just a casual reader of the science behind evaluating the viability of corn as a source of renewable energy.  From what I’ve learned, corn isn’t a particularly efficient source of net energy creation, to say nothing about its affect on the country’s obesity rates as corn-based sweeteners are increasingly used, and it appears that much of this is a political exercise with unfortunate consequences.

If you’re interested in reviewing various types of agreements that corn producers and suppliers enter into, including supply agreements, to see how they are structured and negotiated, I’ve provided links to preview a few of them below:

1. Form of Corn Supply Agreement - Cargill Incorporated
2. Corn and Natural Gas Price Risk Management Agreement - Great Plains Ethanol LLC
3. Corn Protein Concentrate Marketing Agreement - Quality Technology International, Inc.

Of course, you can search through millions of these and other types of legal agreements and deal clauses directly at RealDealDocs.com. 

JPMorgan Chase and Bear Stearns - Upping the ante

JPMorgan Chase significantly sweetened the pie today as it aggressively moved to lock up its acquisition of Bear Stearns and head off legal challenges at prices which are still some 70% below what Bear Stearns was trading at only two weeks earlier.

The new bid is at $10/share, five times the $2/share offer tendered only seven days earlier, which is geared to soften the blow to existing Bear Stearns’ shareholders.  The new or amended filings include:

1)  An Amendment to the JPMorgan Chase Bear Stearns Merger Agreement, which includes important termination provisions, an option on the Bear Stearns’ headquarters property, refinements to operations of certain deal collateral, and the termination of an option agreement from last week whereby JPMorgan could have acquired 20 million shares of Bear Stearns’ stock for $2/share.

2)  A Share Exchange Agreement, enabling JPMorgan to acquire 95 million shares of newly issued Bear Stearns common stock at the current price equivalent of $10/share, giving JPMorgan 39.5% of Bear Stearns for $10/share. Effectively, when combined with the holdings of Bear Stearns’ Board, it gives JPMorgan close to 43% of the potentially outstanding share of Bear Stearns’, very close to the majority approval required from shareholders.  This is a similar functionality, but a different mechanism, than the top up provisions I’ve discussed previously.

3)  Revisions to the Guaranty Agreement, thereby providing greater viability to the ongoing operations of Bear Stearns.  This effectively helps preserve the value in the going concern of Bear Stearns for JPMorgan.

You can access these documents via the SEC filings of JPMorgan or Bear Stearns.  If you want to be able to search across thousands of these types of documents (Merger Agreements and Guaranty Agreements), I suggest searching at www.RealDealDocs.com. 

Amgen Credit Agreement - a brief case study on leveraging legal agreements

I frequently talk about the benefits of finding and leveraging legal agreements and clauses that have been created by others to help professionals get their work done more quickly, add more value to their clients, and avoid making costly and time consuming drafting mistakes.  I thought it would be helpful to use a recent example of a credit agreement from a well-know biotechnology company to highlight these benefits.

But first, a bit of background for those of you who aren’t familiar with me or the company I co-founded eight years ago, which is Practice Technologies.  The primary purpose of our flagship product, the RealPractice suite, is to profile legal agreements, litigation documents, and other attorney work product to make it easier for attorneys at large law firms to find documents that are very similar to what they are currently working on.  There are a lot of different ways to describe this:  knowledge management; leveraging or reusing work product; work product retrieval; collaboration; etc.  In short, it’s a very sophisticated term paper service.  Frequently, implementing this is only a viable solution at mid-sized to very large law firms due to the economics, as well as the large document repositories required to make this an effective solution across an organization.

With RealDealDocs, we’ve opened this opportunity up to see hundreds of thousands of real legal agreements, drafted by top law firms and executives of public companies, to the broader universe of professionals without having to install any software.  Members of RealDealDocs.com include lawyers at firms of all sizes; investment and consulting professionals; business development, marketing and financial executives; benefits professionals, etc., and they get access to all this information on a subscription basis.   But now, back to our “case study”.

I accessed the Amgen Credit Agreement by browsing within Loan Agreements.  You could also access it by using the advanced search functionality on the site.  For your convenience, I’ve uploaded the loan agreement as a Word document here:  Amgen Credit Agreement.

If you are looking at the website to review the document, you’ll immediately see that the service captures a lot of relevant information, which is useful as noted below:

1. The legal document has been profiled as a particular type - in this case loan agreements - to facilitate finding similar types of agreements.  When coupled with other search criteria across the library of thousands of similarly profiled documents, the result is a very valuable research and drafting resource.
2. The governing law (which tells you which jurisdiction’s laws control how the document will be interpreted by a court in the case of any disputes) is specified.  This is important in a wide variety of types of agreements, particularly for finance, employment agreements, and corporate organizational documents, as the deal terms may vary significantly by jurisdiction.
3. The title, parties, industry and law firms on the deal are captured and displayed.  This is not only helpful in quickly scanning and validating the potential quality of the document, but it is also useful competitive intelligence about what certain companies or law firms are negotiating and drafting, or for profiling what market rates and conditions are for certain types of deals or industries.
4. The rest of the document is laid out, which is further searchable via full text or by clause searching on the RealDealDocs.com site to pinpoint language which you may want to incorporate into your own deal.

Again, this is a very high level review of how you can use a particular legal agreement, or more broadly an effective search and document retrieval tool, to improve the quality of your work while helping to get you out of the office a bit quicker.

I’m happy to answer any questions or comments, or if any of you would like me to drill into this in greater detail, please let me know.

Distribution agreements

Distribution agreements can provide tremendous leverage for small and medium sized businesses to get the word out, particularly if they are done on a cost effective basis.  Many of these types of distribution agreements are available in the public record for review, and I’ve provided a link to a helpful resource at www.realdealdocs.com above.  Despite my role as a founder and early employee of several early stage businesses, I am by nature pretty conservative when it comes to evaluating business opportunities.  In my experience, distribution agreements are entered into far too easily, with a “shoot the moon” type of mentality.  I believe that there are several seemingly obvious but important considerations to review prior to entering into a distribution agreement:

1. What are your real business objectives?  Is it to spread the word, or to actually deliver tangible, short term sales increases?  Too often, the ideas about getting the message out are good, but the actual mechanics are too far removed from getting customers to buy.
2. Is the distribution partner appropriate to your target audience?  There are times when your partner is in “your space”, but their target market isn’t in your sweet spot.  For example, if your company targets law firms (as ours does, among other markets), the purchasing dynamics are very different for small law firms as opposed to larger law firms.  A distribution partner for one of our particular product offerings needs to really fit the right market segment.
3. How are you compensating the distribution partner?  Of course, you want to link compensation to performance, but many times payment schemes arent’t tied closely enough with results.  There are any number of ways to reward performance for distribution agreements and partnerships, and a great way to see how performance is compensated in distribution agreements is to review other similar agreements.  You can review hundreds of distribution agreements drafted by top law firms, and there are millions of searchable legal agreements and agreement clauses available at www.RealDealDocs.com.

Marketing agreements for small to mid-sized business owners

Marketing agreements can provide tremendous leverage for small and medium sized businesses to get the word out, particularly if they are done on a cost effective basis.  Many of these types of marketing agreements are available in the public record for review, and I’ve provided a link to a helpful resource at www.realdealdocs.com above.  Despite my role as a founder and early employee of several early stage businesses, I am by nature pretty conservative when it comes to evaluating business opportunities.  In my experience, marketing agreements are entered into far too easily, with a “shoot the moon” type of mentality.  I believe that there are several seemingly obvious but important considerations to review prior to entering into a marketing agreement:

1. What are your real business objectives?  Is it to spread the word, or to actually deliver tangible, short term sales increases?  Too often, the ideas about getting the message out are good, but the actual mechanics are too far removed from getting customers to buy.
2. Is the marketing partner appropriate to your target audience?  There are times when your partner is in “your space”, but their target market isn’t in your sweet spot.  For example, if your company targets law firms (as ours does, among other markets), the purchasing dynamics are very different for small law firms as opposed to larger law firms.  A marketing partner for one of our particular product offerings needs to really fit the right market segment.
3. How are you compensating the marketing partner?  Of course, you want to link compensation to performance, but many times payment schemes arent’t tied closely enough with results.  There are any number of ways to reward performance for marketing agreements and partnerships, and a great way to see how performance is compensated in marketing agreements is to review other similar agreements.  You can review hundreds of marketing agreementsdrafted by top law firms, and there are millions of searchable legal agreements and agreement clauses available at www.RealDealDocs.com.

Bridge Loan Agreements for the Small to Mid-Sized Business

One of the financing mechanisms I have not discussed recently concerns bridge loan funding for small to mid-sized businesses. 

In an earlier post about obtaining a credit line for a venture-backed business, I highlighted some of the considerations involved in determining whether a credit line was right for that stage of a company’s evolution.  Many of those issues are the same for an emerging company reviewing the applicability of a bridge loan.

The difference between the two forms of credit (a credit line versus a bridge loan) are subtle but distinct.  To review, a credit line typically has the following characteristics:

• it is typically used as to complement working capital
• it can be used in a venture-backed company environment as a bridge to an important valuation milestone, but the company typically must be able to service the debt from current operations,
• it is generally collateralized against working capital and/or all the assets of a business

A bridge loan has similar characteristics, but it is typically used in shorter-term circumstances to help the company “bridge” the gap between its current resources and a future, typically near-term funding event.  For example, if a company is in the process of raising another round of capital or selling a portion of its business and it requires an immediate capital infusion to cover its current operations, it may obtain a bridge loan to meet those requirements.  Since repayment may very likely be contingent on that future event happening, there are several risk premiums associated with the bridge loan.  These may include:

• an interest rate premium
• extensive collateralization against the company’s assets
• a short-term maturity (typically on the earlier of a year or the occurrence of the funding event)
• a conversion to equity feature, typically with some sort of premium valuation feature

One of the many lasting benefits of the dot-com boom is that it left us with a number of surviving publicly held companies which are still relatively small.  As with all public companies in the US, they are required to file material contracts with the Securities and Exchange Commission, which are then publicly available.  These include bridge loan agreements, revolving credit agreements, credit lines, and many other loan agreements.   They can be reviewed by potential borrowers to better understand what the potential deal provisions might be.  I’ve highlighted one such bridge loan agreement for a small (~$5million revenue) software provider, and you can find hundreds of similar agreements at www.RealDealDocs.com.