Opinion ID: 1532378
Heading Depth: 1
Heading Rank: 2

Heading: Formation and Performance of the Strategic Alliance Agreement

Text: In October 1998, Honeywell and Air Products entered into the Strategic Alliance Agreement that forms the subject of this lawsuit. [1] In that Agreement, the parties formed an Alliance under which Air Products would market and sell certain wet process chemicals that Honeywell manufactured, and the contracting parties would share all profits derived from those Alliance sales. The parties established the scope of their Alliance Agreement by defining two critical terms  Products and Customers  that were to be sold and serviced by the Alliance. Thus, the Agreement recites that the purpose of the strategic alliance is to sell globally the high purity wet process chemicals identified in Exhibit A (the `Products') to the customers identified in Exhibit B (the `Customers'). The parties then agreed that: [Air Products] would purchase from [Honeywell] its total requirements of the Products to be sold by [Air Products] to Customers under any [Air Products] label. Air Products (i) will use reasonable efforts to promote the sale of the Products to the Customers, and (ii) will not actively promote the sale to the Customers of Products manufactured by [Air Products] or purchased from other suppliers. [2] Thus, Air Products committed to purchase its requirements of Products from Honeywell. In exchange, Honeywell committed to not actively promote the sale of Products under its own labels to the Customers. The Agreement released Honeywell from that commitment, however, if Air Products failed to meet certain sales targets that were specified in the Agreement. [3] Thus, in Section 1(c), the parties agreed that if during any two consecutive calendar years beginning on or after January 1, 2000, [Alliance sales] are less than 60% of the sales targets set forth in Exhibit C, Honeywell was no longer bound by its commitment not to actively promote Products under its own labels to Customers. [4] The initial term of the Agreement was for ten years, and would expire on September 30, 2008. The Agreement empowered both parties to terminate the Agreement earlier, however, but only on certain conditions. Under Section 2(b), Honeywell's power to terminate was triggered: If during any two consecutive years beginning on or after January 1, 2000, [Alliance sales] fall below 40% of the sales targets set forth in Exhibit C . . . [Honeywell] shall have the right to give notice of termination of this Agreement to [Air Products] at any time during the next calendar year, such termination to be effective no sooner than two years after the date such notice is given. [5] Under Section 2(c), Air Products' power to terminate the Agreement was triggered: If during any two consecutive calendar years beginning on or after January 1, 2000, [Honeywell's] sales to the Customers (excluding Customers to which [Honeywell] has sold Products prior to this Agreement) of Products under [Honeywell's] own labels represents more than 10% of the total [Alliance sales], [Air Products] shall have the right to give notice of termination of the Agreement to [Honeywell] at any time during the next calendar year, such termination to be effective no sooner than two years after the date such notice is given. [6] Because the parties' rights and obligations under the Agreement would depend critically upon the Products and Customers that were listed on Exhibits A and B, respectively, the parties agreed that those lists could be modified from time to time by the mutual agreement of the parties. Specifically, Section 1(a), provided that the parties would review and modify Exhibits A and B in good faith at least once a year to reflect the parties' current assessment of the focus of the Alliance. In fact, however, from the very inception of the Alliance the parties never strictly observed the modification procedures called for by the Alliance Agreement. After the Agreement became effective, Air Products frequently took orders from firms that were not identified as Customers in Exhibit B, yet were treated by Air Products as Alliance Customers. Moreover, until 2003, Air Products filled all of its wet process chemical purchase orders through Honeywell, even if the chemicals or the purchasers were not listed as Products or Customers in Exhibit A or Exhibit B to the Agreement. In 2000 and 2001, the Alliance's sales fell below 60% of the sales targets mandated by the Agreement. As a result, Honeywell regained the right to actively promote Products under its own labels to Customers, and it began exercising that right in 2002.