## Facts

- In 1991, Exide Technologies sold substantially all of its industrial battery business to EnerSys for about $135 million through multiple contemporaneous agreements treated as a single integrated agreement governed by New York law.
- The integrated agreement granted EnerSys a perpetual, exclusive, worldwide, royalty-free license to use the “Exide” trademark in the industrial battery business; Exide retained trademark rights outside that field.
- Around 2000, Exide sought to reenter the North American industrial battery market and attempted to regain the industrial-battery trademark rights; EnerSys refused.
- Exide filed for Chapter 11 bankruptcy in 2002 and sought to reject the integrated agreement under 11 U.S.C. § 365(a) to eliminate the trademark license.
- EnerSys objected, arguing the agreement was not executory because EnerSys had substantially performed and had no remaining material obligations.

## Issues

1. Whether the integrated asset-sale and trademark-license agreement was an “executory contract” under 11 U.S.C. § 365(a) as of the bankruptcy petition date.
2. Whether EnerSys’s remaining duties (e.g., use restrictions, quality-control, indemnity, further assurances) were material obligations whose nonperformance would excuse Exide’s performance under the Countryman test.

## Decision

- The Third Circuit vacated the district court’s affirmance of the bankruptcy court’s rejection order and remanded for further proceedings.
- The court held the integrated agreement was not executory because EnerSys had substantially performed and lacked unperformed material obligations as of the petition date.
- Because the agreement was not executory, Exide could not reject it under § 365(a), and EnerSys retained the perpetual, exclusive trademark license.

## Legal Principles

- Under the Countryman test, a contract is executory only if both parties have unperformed obligations such that failure by either would be a material breach excusing the other’s performance.
- Substantial performance by one party generally defeats executory status on that side because remaining obligations are not material to the bargain.
- Post-closing or contingent duties (including many indemnity provisions and general “further assurances” clauses) do not, without more, make an agreement executory if they are incidental rather than essential.
- Ongoing negative covenants (e.g., field-of-use restrictions on a trademark license) and quality-control provisions may be insufficient to create executory status where they do not amount to material, affirmative performance obligations (including where the licensor never provided actionable quality standards).
- In a concurrence, Judge Ambro stated that even if a trademark license were executory and rejected, rejection operates as a breach, not rescission, and should not automatically terminate the licensee’s usage rights (leaving damages as the principal remedy).

## Conclusion

The Third Circuit limited § 365(a) rejection to truly executory agreements by holding that an integrated asset-sale and perpetual trademark-license arrangement was non-executory where the buyer/licensee had substantially performed and any remaining duties were not material; the debtor therefore could not use bankruptcy to reclaim the trademark rights it had previously conveyed.


In re Exide Techs., 607 F.3d 957 (3d Cir. 2010)