eSignature Legality for Distributor Agreement in United States

How to eSign a document: e-signature legality for Distributor Agreement in United States

[Music] hey everybody my name is Ryan Malkin and I'm an attorney in the alcohol beverage history I have a law practice based at Miami Beach Florida malkin law today I wanted to talk a little bit about distributor agreements first like with all legal discussions this does not establish an attorney-client relationship but is for information purposes only and should not be treated as specific legal advice that being said let's talk about distributor agreements of course if you're taking advantage of harvest read self distribution model in New York New Jersey Florida or California that's great however if you're in a different state where you have to appoint a distributor or you're moving past that model in those states that they have south distribution let's talk about what happens when you receive that first distribution agreement well put aside the franchise issues for a moment and assume that we're in an open state the first thing to remember is that most distributor agreements regardless of the length of the term will have an automatic renewal that means maybe you'll see a five year term or a ten year term or a term of any length and your first thought will be well let me make it a one two three or five year term like with normal contracts you would say well at the end of that time we're done and we can decide if we want to renew that's not necessarily the case in distribution agreements where it says if you don't automatically renew you have to pay some sort of fee so the term is one of those things where maybe you want to negotiate maybe you don't based on how the rest of the agreement is going for you terms of sale is another key point a lot of times distributors will say we'll pay you in you know what whoa 60 or 90 days and as a small supplier cash flows probably very important to you so you may want to ask for 30 or 45 days or firmly thirty of course the next fit that's very important of the distributor obligations the form contract they send you may have obligations that say they'll use commercially reasonable it's a reasonable efforts to you know do a good job selling your products in the market that may not be good enough you're going to want to have things that include a material breach on their part if they don't do certain things so for instance goals maybe they have to hit 90 percent of the mutually agreed upon goals you have for whatever period of time say a year if they don't hit those 90 percent of those goals then that's deemed a material breach or cause for you to terminate without paying the termination fee that we'll get into later so you want to be very careful to talk about what those goals are whether it's points of distribution or actual cases you want to make sure that you do set some parameters for your distributor and so you're both on the same page also you can include minimum purchases they may be the same as goals or it may be slightly different well you want to have a minimum purchase amount so say they have to buy a thousand cases from you as a minimum purchase requirement if they don't then you can terminate for cause similarly if they buy that thousand cases but then don't sell ninety percent or deplete ninety percent of that if that's what the goals we talked about then you can similarly terminate for cause you also want to perhaps consider including things like guaranteed ability to present a couple times a year in front of the sales force perhaps an annual and quarterly business review meeting access to various records and perhaps an LMS an LM F is what's sometimes referred to as a local marketing fund or distributor marketing fund or a distributor bank and that's money the distributor sets aside from each case so say two dollars per case they sell back to the distributors marketing for the products in that state so maybe they use it for point of sales or different menus tastings or even distributor incentives the other thing you want to think about is the new territories and new products provision that are often included especially with the distributors that are in multiple states so they'll often say well hey we get the first run refusal for any new products you bring out whether it be a different you know maybe you only sell the whiskey and this is your gin maybe you do want to give it to that distributor maybe you don't so you just want to consider that and then new territories sometimes they'll require that if that distributor is in another state say you're setting up a distributor in New York and they also happen to be in Florida they'll want first order refusal to either buy you out of your current Florida contract or to take you in any other market therein like in our example Florida you may want to carve that out so you have the ability to choose who you are no point in those new states you don't have to but it's something to consider and then of course termination that's the biggest one you want to know how you're going to be able to get out it's like a marriage is sort of a prenup that's what your distributor agreements are akin to now in terms of termination a lot of times there's a couple different ways to do it of course there's termination for cause and that's why we were linking up those goals and minimum purchases to terminate them for cause ideally there be a provision there where you don't have to pay you give them notice that they didn't hit the number or whatever those requirements were and then you can terminate on the other side of it if you want to terminate for no reason at all not because they won't do anything wrong but because you just simply want to get out to move to a different distributor or what have you that would be something where you probably will have to pay a termination fee some distributions don't have any provision that will let you out at all other than for cause so you just want to make sure that you do have a way out and that way out is a fee based on whatever you think is reasonable sometimes it's two times gross profit sometimes it's five times obviously you want to negotiate to the best of your ability to get closer to two times so that way at least you can get out by paying two times both go strokes excuse me gross profits and move on to another distributor if you so choose that being said obviously your distributor contract is very important and should probably were reviewed by somebody with experience please please feel free to reach out with any questions I can be reached at Malkin dialogue mal ki and dialogue thank you and good luck [Music]