In Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings, L.P., C.A. No.9813-CB (Del. Ch. Apr. 24, 2015, rev. Apr. 27, 2015), the Delaware Court of Chancery held that an exclusive remedy clause in a stock purchase agreement did not require the parties to submit their dispute over the accounting methodology used to calculate the net working capital of the seller at closing to a court for resolution under the indemnification provisions in the SPA. Rather, the Court held that an accounting firm must resolve the parties’ dispute under a separate exclusive remedy provision. The Court’s decision meant that the buyer had recourse to a larger pool of funds from which it could potentially satisfy its purchase price adjustment claim following closing.
In 2013, Alliant Techsystems Inc. (“Alliant”) acquired Bushnell Group Holdings, Inc. (“Bushnell”) from MidOcean Bushnell Holdings, L.P. (“MidOcean”) for approximately $985 million (including debt), subject to certain post-closing, purchase price adjustments under the terms of the SPA. The SPA contained two “sole and exclusive” remedy provisions. Specifically, Section 2.4 of the SPA (1) required the parties to use an independent accounting firm to resolve disputes concerning adjustments to the estimated purchase price, (2) capped claims relating to purchase price adjustments at approximately $12 million, and (3) provided that the “procedures set forth in this Section 2.4 for resolving disputes with respect to the Proposed Closing Date Calculations shall be the sole and exclusive method for resolving any Disputed Items….” On the other hand, Article IX governed claims for indemnification for breaches of representations and warranties, required such disputes to be submitted to a court of competent jurisdiction for resolution and imposed a lower cap of approximately $7 million on either party’s ability to recover damages for such breaches. Section 9.5 contained an exception for matters falling within Section 2.4’s purchase price adjustment procedures:
The sole and exclusive remedy of each Buyer Indemnified Party and Seller Indemnified Party as against any Indemnifying Party, with respect to all claims of any nature whatsoever relating to the Transactions, including any breach of any representation, warranty, covenant or agreement contained in this Agreement, shall be pursuant to and limited by the indemnification provisions set forth in this Article IX, it being understood that … nothing in this sentence shall operate to interfere with or impede the operation of the provisions of Section 2.4.
Slip op. at 8. One of the components of the purchase price subject to the SPA’s adjustment mechanism was Bushnell’s net working capital. After the acquisition closed, Alliant delivered to MidOcean its calculations of net working capital under which MidOcean owed Alliant approximately $26 million. The parties later agreed that the dispute was over $22 million. However, MidOcean took the position that Alliant’s claim for a purchase price adjustment arising from net working capital effectively constituted a claim that Bushnell breached its representations and warranties regarding the methodologies used by Bushnell in the preparation of its financial statements and had to be adjudicated by a court under the indemnification provisions in the SPA.
In this action, Alliant sought specific performance of MidOcean’s obligation to submit the dispute to an independent accounting firm in accordance with the SPA’s purchase price adjustment provisions. MidOcean counterclaimed and sought a declaration that the dispute must be adjudicated by a court under Section 9.5 of the SPA. The Court ruled in favor of Alliant and ordered MidOcean to submit the dispute to an independent accounting firm in accordance with the SPA’s purchase price adjustment provisions. In reaching its decision, the Court focused on the qualification in the indemnification provisions’ “exclusive remedy” clause that: “nothing [therein] shall operate to interfere with or impede the operation of the provisions of Section 2.4.” The Court read the qualification as requiring disputes over purchase price adjustment provisions to be resolved in accordance with Section 2.4 of the SPA even where the matters underlying the parties’ dispute could also form the basis for a claim under the SPA’s indemnification provisions.