Delaware Law Updates
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Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings, L.P., C.A. No. 9813-CB (Del. Ch. Apr. 24, 2015) (Bouchard, C.)


In this memorandum opinion, the Court of Chancery granted a request for specific performance requiring a party to a stock purchase agreement to submit a dispute over accounting methodology relating to the calculation of net working capital under such agreement to an accounting firm pursuant to the purchase price adjustment procedures provided in the agreement.

In 2013, Alliant Techsystems Inc. (“Plaintiff”) agreed to purchase Bushnell Group Holdings, Inc. (the “Company”) from MidOcean Bushnell Holdings, L.P. (“Defendant”) for $985 million, subject to post-closing adjustments to be made in accordance with the terms of a stock purchase agreement (the “Agreement”).  The Agreement contained two “sole and exclusive” remedy provisions.  One required the parties to use an independent accounting firm to resolve disputes concerning adjustments to the estimated purchase price, including disputes concerning the calculation of net working capital.  The other provision governed claims for indemnification and required Defendant to indemnify Plaintiff for, among other things, breaches of any representation or warranty of the Company.

After the transaction closed, Plaintiff challenged Defendant’s estimate of net working capital and contended that the accounting treatment for such item did not comply with GAAP.  In response, Defendant argued that disputes over accounting methodology cannot be raised as part of the purchase price adjustment procedures, but rather must be raised pursuant to the indemnity provision in the Agreement. 

Focusing on the shared intent of the parties at the time they entered into the Agreement and the plain terms of the Agreement, the Court found that the dispute must be resolved by an accounting firm pursuant to the purchase price adjustment procedures.  In so holding, the Court focused on the definition of net working capital, which required the net working capital to be calculated not only in accordance with the Company’s historical accounting practices and methodologies, but also be “calculated in accordance with GAAP . . . .”  The Court noted that this evidenced the parties’ intent to allow challenges under GAAP to be part of the purchase price adjustment procedures.  The Court also focused on the provision governing the parties’ indemnification rights, and found that although the Agreement provided that the “sole and exclusive remedy” for any claim relating to the transaction must be governed and limited by the indemnification provision, the Agreement also provided for certain exceptions to this provision, one of which related to the purchase price adjustment procedures.  The Court, therefore, concluded that the exclusive remedy provision in the purchase price adjustment procedures trumped the exclusive remedy provision for indemnification claims and ordered Defendant to submit the dispute to an accounting firm for resolution in accordance with the purchase price adjustment procedures.

The full opinion is available here