A lockout agreement is enforceable (and the parties are liable for any breach of their obligations) only if the following conditions are met: another important delay for lockout agreements concerns the triggers of their termination before the expiry of the exclusivity period. The triggers for termination may be the purchaser`s failure to ask questions or to have approved or amended the draft contract within a specified period of time. If the lockout contract is terminated prematurely, both parties will be stripped of their obligations and the seller can then negotiate with another buyer. The question arose in a recent decision of the Delaware Court of Chancery`s Court of Chancery, whether termination fees are the exclusive remedy when a target company violates its non-shop contract, which led to the termination of the merger agreement following a proposal by a third party allegedly solicited and accepted in violation of the No Shop contract. In Genuine Parts Company/Essendant Inc., the Court of Chancery held, in rejecting the defendant`s application for dismissal, that the termination tax was an exclusive remedy only if the merger agreement in that case had been terminated on the basis of a proposal of general scope received in accordance with the provisions of the agreement, and not in the event of a breach of the non-shop contract. In addition, the Court held that the acceptance of the termination tax did not prevent the applicant from claiming additional damages for breach. This decision is wise because the very purpose of the “no shop” is to prevent the objective of basing a third-party proposal after the conclusion of the agreement, but to allow its directors to fulfill their fiduciary obligations in the event of a higher proposal not sought by a third party. The meaning of defined concepts such as “products,” “services” or “territory” may be decisive in defining the scope of exclusivity and require careful review. A salutary example is Globe Motors v TRW Lucas Varity (2016), which involved an exclusive long-term air contract for electric motors used in power steering for cars. The customer, TRW, has chosen to use another supplier to provide engines for one of its newer steering systems. The Court of Appeal held that the definition of “products” did not cover the next generation of engines, despite the long-term nature of the agreement, so TRW was free to purchase elsewhere. Most exclusivity clauses contain some kind of warranty on the product.
If the seller provides a product that is not in the state described, he must provide either a new product or a full refund for defective items. In an exclusivity agreement, the buyer should have the opportunity to check all products at the time of receipt. The seller will also be interested in listing the triggers for early termination of the contract if the buyer has not complied with these obligations. Potential drawbacks of an exclusivity clause include: Depending on the terms of the contract, you may also be conditional on buying or selling goods for a certain period of time. Exclusive agreements between franchisors and franchisees are often stricter than those between other parties.