Exit Strategies

15 March 2001
If you're with a technology company, you may be feeling the pain of the economic downturn more than most. While there are lots of lessons to glean from current events, one of the best is the importance of locating the exit door.

No, I'm not talking about the door that leads to the parking lot. Instead, I'm talking about the exit strategy that you should have included, but probably didn't, in all of your technology-based contracts. You probably didn't even realize you needed an exit strategy until your customers' wallets grew tight, your expenses began to pile up and your contract obligations with your technology affiliates started to drain your company's operating account.

Let's go back a year or so ago. That was probably around the time you entered into that megamoney website development agreement. You had aspirations of building the perfect website. The website was going to knock the socks off your competition, and it was guaranteed to attract customers in droves.

Well, maybe it did, maybe it didn't. If it didn't, you found yourself in the same boat as dozens of other dot-coms: Bills were piling up, but the customers weren't. When you went to cancel that costly website development contract, you might have come to some ugly realizations.

One might have been that you couldn't get out of the contract without shelling out big money to the developer. Another really ugly scenario might be that your developer -- not you -- owned the copyright to your website, and you weren't going to own it anytime soon without a costly legal battle. Last, but painfully not least, might be that you weren't quite sure whether the website would ever work again after the developer stopped supporting it.

The problem, of course, is that we don't like to think about the end of a contract. The end is depressing. Instead, we like to think about the money that we're going to make throughout the contract. Unfortunately, it's this type of thinking that will come back to bite you where you're most vulnerable.

Before we continue, keep this in mind: You shouldn't try to build or evaluate your exit strategy without help from your tech lawyer. This column isn't a legal textbook. There are too many contingencies that could arise in your contract, and I couldn't cover all of them even if I devoted 50 articles to the subject.

Five Points

That said, you should keep certain broad areas in mind when reviewing your exit strategy. Follow the oft-cited mantra of good reporting: Who, What, When, Where and Why.

For example, consider who can terminate your contract. While no contract can legally bind you in such a way that you can never get out, you should never assume that you have the same rights to end the contract as the other party.

Second, think about what you have to do to end the contract. If you end the agreement after only a short time, will you have to pay out the remainder of the contract fees, or will you be liable only for those services that you have received up to the point of termination?

Third, consider how long it may take to cancel your obligations under the contract.

Fourth, think about where you would want to settle any dispute that might arise from your termination of the contract (read, ``L-A-W-S-U-I-T'').

Finally, think about all the situations in which you might reasonably want to cancel your contract, and make sure that your exit strategy covers you for all of those scenarios.

Mark Grossman's "TechLaw" column appears in numerous publications. Mark Grossman has extensive experience as a speaker as well. If you would like him to speak before your group or corporate meeting, please call (305) 443-8180 for information.

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Disclaimer: The advice given in the TechLaw column should not be considered legal advice. This newsletter only provides general educational information. You must never rely upon the advice given here. Your individual situation may not fit the generalizations discussed. Only your attorney can evaluate your individual situation and give you advice.

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