When drafting a distribution agreement, the parties should ensure that each party has the right to terminate the agreement under certain circumstances. These may be broad and general in nature such as termination upon the material breach of the agreement or upon default of the parties. The provisions may also be specific to the agreement and the parties to it.
The article describes a supplier that was given the right to terminate the distribution agreement if the distributor’s current chairman of the board died, suffered from a permanent incapacity, or ceased to be involved in the business of the distributor. This type of clause is inserted for the benefit of the supplier so that if the distributor incurs a change of control which the supplier does not endorse, the supplier is not required to continue the agreement with such new change of control. Although it may be important to incorporate some language specific to the parties’ needs, generally, broad termination provisions should also be included.
Takeaway:
- Parties should include termination provisions which are tailored to their needs.
- The supplier will want to ensure that their distributor is giving focused attention on the distribution of their product, and may specifically want to approve the individuals responsible for distribution.