6. RESPONSIBILITIES OF THE WHOLESALER. These are the key business terms of the relationship and may vary widely depending on the business terms agreed upon by the parties. Generally, responsibilities can include, among other things, certain required marketing spending (sometimes decreasing over a period of time), promotional activities, and quality assurance.
7. WHOLESALER CHANGES OF OWNERSHIP. You will want to retain
language of the franchise law, the parties have agreed that the supplier may terminate without cause, typically upon payment of reasonable compensation to the wholesaler (which the agreement may specify, usually as a multiple of gross profits for the prior calendar year). Many wholesalers aggressively push back on including a not-for-cause termination provision in the agreement, though, so expect some negotiation here.
9. POST-TERMINATION PROVISIONS. The agreement should cover what must occur in the event the agreement is terminated by either party. These provisions usually include a requirement that the supplier repurchase any merchantable inventory of the supplier’s products in the wholesaler’s possession, that the wholesaler return any property belonging to the supplier in its control, and that the wholesaler promptly cease use of the supplier’s intellectual property.
control over the wholesaler’s ability to sell your brands to a new wholesaler in connection with a change of ownership. Many franchise laws restrict a wholesaler’s ability to change ownership and require that the supplier first grant its approval of the proposed new owner, sometimes specifying that such approval may not be unreasonably withheld. Even where the franchise law does not contain such express restrictions, though, your distribution agreement should cover changes of ownership of the wholesaler. Specifically, the agreement should define the types of transactions included in the definition of a change of ownership — a sale of all or substantially all of the assets of the wholesaler? A 10% change in stockholders? The agreement also should give the distiller the right to withhold its approval of a change of ownership and the right to purchase the wholesaler’s distribution rights to the distiller’s brands under the agreement.
10. DISPUTE RESOLUTION. Another often-negotiated provision of a
8. TERMINATION. Termination is one of the most hotly-contested
Bethany K. Hatef is a senior associate in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington, D.C. office. She is a member of the Firm’s Alcohol Regulatory & Distribution Group, where she concentrates her practice on a wide variety of regulatory and distribution issues involving alcohol beverage suppliers. Her practice includes counseling on distribution relationships, trade practice compliance, and alcohol regulatory and distribution risks associated with corporate transactions.
provisions when negotiating a distribution agreement. Although nearly all alcohol franchise laws do not allow termination without cause, written distribution agreements can include not-for-cause termination provisions. These provisions give the supplier a strong basis to argue that, notwithstanding the
distribution agreement, specifying arbitration as the forum for resolving disputes under the agreement is usually preferable for a supplier. As the alternative typically is a court action, and local courts (and juries) often favor local (i.e., wholesaler) interests, having your dispute heard in front of a neutral arbitrator, or panel of neutral arbitrators, is generally the way to go.
11. BONUS ITEM: SCHEDULES. You should include at the end of your agreement schedules describing, at the least, the territory and the brands granted to the wholesaler under the agreement. Distribution agreements also often include schedules setting forth requirements relating to issues like quality assurance and marketing investments.
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Lifting Your Spirits 25
The magazine for craft distillers and their fans.