Deadlock Resolution Agreement (Mediation → Arbitration → Forced Sale Escalation)

DEADLOCK RESOLUTION AGREEMENT

This Deadlock Resolution Agreement (this "Agreement") is made as of [__/__/____] (the "Effective Date") by and among:

• [PARTY A NAME] ("Party A");
• [PARTY B NAME] ("Party B"); and
• [COMPANY NAME], a [ENTITY TYPE] organized under the laws of [STATE] (the "Company").

Party A and Party B are each a "Party" and together the "Parties."

RECITALS

WHEREAS, the Parties are the sole [shareholders / members / partners] of the Company pursuant to the [Shareholders / Operating / Partnership] Agreement dated [__/__/____] (the "JV Agreement");

WHEREAS, the Parties desire to establish a binding, sequenced procedure for resolving Deadlocks without premature resort to litigation, while preserving each Party's ultimate right to an exit; and

WHEREAS, the Parties acknowledge the value of preserving the going-concern value of the Company during the pendency of any Deadlock.

NOW, THEREFORE, the Parties agree as follows:

ARTICLE 1. DEFINITIONS

ARTICLE 2. SCOPE AND TRIGGERS

2.1 Deadlock Defined

A "Deadlock" exists if any of the following occurs:

1. the Parties fail to achieve the vote required under the JV Agreement on a Reserved Matter at two (2) consecutive meetings held at least thirty (30) days apart;
2. the Company's board (or manager/member body) fails to adopt an annual business plan or operating budget within [____] days after the start of the fiscal year;
3. a tie vote occurs on a matter material to the continuing conduct of the Company's business at two (2) consecutive meetings; or
4. a Party's nominees to the board fail to attend two (2) consecutive properly-noticed meetings such that a quorum cannot be obtained.

2.2 Deadlock Notice

A Party invoking this Agreement shall deliver to the other Party a written "Deadlock Notice" that (a) identifies the Deadlock with particularity, (b) specifies the relief sought, (c) describes the efforts at informal resolution to date, and (d) designates the sender's principal contact for escalation purposes.

2.3 Standstill; Preservation of Status Quo

From the date of the Deadlock Notice through final resolution or termination under Article 5:

☐ Neither Party shall cause the Company to take any action with respect to the matter in dispute, except actions in the ordinary course of business consistent with past practice;

☐ Neither Party shall initiate litigation related to the Deadlock (other than applications for interim injunctive relief to preserve assets or prevent irreparable harm, or statutory dissolution petitions expressly preserved in Section 7.2);

☐ The Parties shall cause the Company to continue operating under the prior year's budget with a [____]% inflator if no current budget is in place; and

☐ Neither Party shall cause the Company to incur material out-of-the-ordinary-course liabilities without the other's written consent.

2.4 Exclusions

The Escalation Ladder does not apply to: (a) a Party's exercise of express contractual rights under the JV Agreement (e.g., preemptive rights, tag-along, ROFR) that do not require the other's concurrence; (b) disputes involving alleged breach of fiduciary duty, fraud, or willful misconduct, for which a Party may proceed directly under Section 7.1; or (c) matters expressly excluded on Schedule A.

ARTICLE 3. STEP 1 — GOOD-FAITH NEGOTIATION AND MEDIATION

3.1 Senior Executive Referral

Within fifteen (15) days of delivery of the Deadlock Notice, each Party shall designate a senior executive (or owner-principal) with full authority to settle. The designees shall meet (in person or virtually) within fifteen (15) days of designation and negotiate in good faith for at least thirty (30) days.

3.2 Mediation

If the executives do not resolve the Deadlock within the thirty-day negotiation period, the Parties shall jointly engage a Mediator within fifteen (15) days thereafter:

Mediation communications are confidential and inadmissible in any subsequent proceeding to the maximum extent allowed by applicable law (including any adopted Uniform Mediation Act and Fed. R. Evid. 408).

3.3 Costs

The Parties share Mediator fees equally. Each Party bears its own legal fees.

ARTICLE 4. STEP 2 — BINDING ARBITRATION

4.1 Arbitration after Mediation

If mediation under Article 3 fails to resolve the Deadlock within sixty (60) days after engagement of the Mediator (or the Mediator declares an impasse), either Party may demand binding arbitration under this Article 4.

4.2 Administrative Provisions

4.3 Form of Arbitration

The Parties elect (check one):

☐ Conventional. The Arbitrator renders a reasoned award resolving the Deadlock on such terms as the Arbitrator determines.

☐ Baseball / Final-Offer. Each Party submits a final proposal on the deadlocked Reserved Matter, and the Arbitrator must select one proposal in its entirety, without modification. The selection is binding.

☐ Night-Baseball. Each Party's final proposal is sealed; the Arbitrator states the Arbitrator's own conclusion; the final proposal closest to the Arbitrator's conclusion controls.

4.4 Authority and Limits

The Arbitrator has the authority to award any remedy that a court sitting in equity could grant, including specific performance and injunctive relief. The Arbitrator does not have authority to (a) order the involuntary dissolution of the Company or (b) remove a director, manager, or officer unless expressly permitted by the JV Agreement.

4.5 Entry of Judgment

Judgment upon the award may be entered in any court of competent jurisdiction under 9 U.S.C. § 9.

4.6 Costs

Fees of the Arbitrator and administrative body are shared equally pending the award; the Arbitrator has discretion to reallocate all costs and attorneys' fees based on the outcome.

ARTICLE 5. STEP 3 — FORCED SALE (ULTIMATE RESOLUTION)

5.1 When Available

If (a) the Arbitrator under Article 4 expressly determines that the Deadlock cannot be resolved without dissolution or sale of the Company, (b) the award is not satisfied within sixty (60) days of entry, or (c) the Parties mutually agree (in writing) to bypass Article 4 and proceed directly to this Article 5, either Party may invoke this Forced Sale Article.

5.2 Election of Mechanism

Within fifteen (15) days of the event triggering availability, the Parties shall jointly elect one of the following (if they fail to agree, Mechanism (b) applies by default):

(a) Shotgun Buy-Sell. The procedure in the Shotgun Buy-Sell Agreement dated [__/__/____] (if executed) or, absent such agreement, the Parties shall promptly enter into a shotgun buy-sell in the form attached as Schedule B.

(b) Investment-Banker Auction. The Parties shall jointly engage a nationally recognized investment bank within thirty (30) days to conduct a confidential auction of 100% of the Company. The minimum reserve equals [____]% of FMV. Either Party may participate as a bidder. If no qualified bid exceeds the reserve within one hundred eighty (180) days of engagement, the Parties shall proceed to Mechanism (c).

(c) Statutory Dissolution. Either Party may file a petition under 8 Del. C. § 273 (or the comparable statute of the state of organization) for dissolution of the Company, or under 8 Del. C. § 226 (or comparable) for appointment of a custodian.

5.3 No Party May Block

Each Party expressly consents to the Forced Sale election made under this Article 5 and agrees that it will not frustrate the process by, among other things: (i) refusing to execute ordinary-course transaction documents; (ii) refusing to make standard reps and warranties; (iii) withholding consent to reasonable NDAs with prospective bidders; (iv) disparaging the Company to bidders; or (v) initiating competing transactions.

5.4 FMV Determination

"Fair Market Value" for purposes of this Article means the price at which a willing buyer would purchase 100% of the Company from a willing seller, neither under compulsion, assuming an arms-length transaction with full access to due-diligence materials. If the Parties cannot agree on FMV within twenty (20) days, each shall engage a Disinterested Expert at its own cost to deliver a written valuation within thirty (30) days; if the two valuations are within ten percent (10%), FMV is the average. Otherwise, the two experts shall jointly designate a third Disinterested Expert whose valuation within the range of the first two shall be binding. Fees of the third expert are shared equally.

ARTICLE 6. INTERIM GOVERNANCE DURING ESCALATION

6.1 Independent Director / Manager

The Parties may, by written agreement, appoint a temporary independent director (or manager) with limited authority to break deadlocks on specified ordinary-course matters during the pendency of the escalation. Such temporary appointment lapses automatically upon resolution of the Deadlock.

6.2 Preservation Covenants

During the escalation:

☐ Management shall prepare and circulate monthly flash reports;

☐ No material employment changes absent consent of both Parties;

☐ No settlements of litigation above $[AMOUNT] absent consent;

☐ No capital expenditures outside the existing budget above $[AMOUNT]; and

☐ No amendment of material contracts.

ARTICLE 7. LIMITS AND CARVE-OUTS

7.1 Fraud / Fiduciary-Duty Disputes

Claims alleging fraud, breach of fiduciary duty, willful misconduct, or misappropriation may be brought directly in arbitration under Article 4 without observing Articles 2 and 3, or, at the claimant's election, in a court of competent jurisdiction (in which case the other Party consents to jurisdiction and venue).

7.2 Statutory Dissolution Petitions Preserved

Nothing in this Agreement shall preclude a Party from filing a petition for statutory dissolution under 8 Del. C. § 273 (or the comparable statute) or for custodianship under 8 Del. C. § 226 (or comparable) if the Party reasonably believes that the Escalation Ladder will not produce a timely remedy.

7.3 Injunctive Relief

Either Party may seek interim injunctive relief in aid of arbitration from any court of competent jurisdiction, and such application shall not constitute a waiver of the arbitration agreement.

ARTICLE 8. GENERAL PROVISIONS

8.1 Governing Law. State of [STATE], without regard to conflict-of-laws rules.

8.2 Entire Agreement. This Agreement (with the JV Agreement and Schedules) is the entire agreement on the subject matter.

8.3 Amendments. Written amendment executed by all Parties.

8.4 Notices. As provided in the JV Agreement.

8.5 Assignment. Neither Party may assign except to a Permitted Transferee under the JV Agreement that executes a joinder.

8.6 Counterparts. May be executed in counterparts, including by electronic signature.

8.7 Survival. Articles 4 (arbitration), 5 (forced sale), 7 (carve-outs), and 8 (general) survive termination.

8.8 Severability. If any provision is invalid, the remainder remains in effect.

8.9 No Third-Party Beneficiaries. None.

SIGNATURE PAGE

[PARTY A NAME]

By: _____________________________________________
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

[PARTY B NAME]

By: _____________________________________________
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

[COMPANY NAME]

By: _____________________________________________
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

SCHEDULES

• Schedule A — Excluded Matters
• Schedule B — Form of Shotgun Buy-Sell (if not separately executed)
• Schedule C — Designated Senior-Executive Contacts
• Schedule D — Approved Mediators / Arbitrators

SOURCES AND REFERENCES

• Federal Arbitration Act — https://www.govinfo.gov/app/details/USCODE-2024-title9
• 8 Del. C. § 226 — https://delcode.delaware.gov/title8/c001/sc08/
• 8 Del. C. § 273 — https://delcode.delaware.gov/title8/c001/sc10/
• 6 Del. C. § 18-802 (LLC judicial dissolution) — https://delcode.delaware.gov/title6/c018/sc08/
• JAMS Comprehensive Arbitration Rules — https://www.jamsadr.com/rules-comprehensive-arbitration/
• AAA Commercial Arbitration Rules — https://www.adr.org/commercial
• CPR Mediation Procedure — https://www.cpradr.org/resource-center/rules/mediation
• Uniform Mediation Act — https://www.uniformlaws.org/committees/community-home?CommunityKey=45565a5f-0c57-4bba-bbab-fc7de9a59110
• Revised Uniform Arbitration Act — https://www.uniformlaws.org/committees/community-home?CommunityKey=a0ad71d6-085f-4648-857a-e9e893ae2736

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. Deadlock mechanics involve state-specific enforceability issues. Engage qualified counsel in the Company's jurisdiction before execution.