IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ALLIANT TECHSYSTEMS, INC.,

Plaintiff,

v.

MIDOCEAN BUSHNELL

HOLDINGS, L.P.,

Defendant.

)

)

)

)

)

)

)

)

)

)

C.A. No. 9813-CB 

MEMORANDUM OPINION

Date Submitted: February 3, 2015

Date Decided: April 24, 2015

Revised: April 27, 2015

William M. Lafferty, Kevin M. Coen, and D. McKinley Measley of MORRIS, 

NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Thomas G. Rafferty and 

Antony L. Ryan of CRAVATH, SWAINE & MOORE LLP, New York, New York; 

Attorneys for Plaintiff.

David E. Ross of ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware;

Matthew Solum and David S. Flugman of KIRKLAND & ELLIS LLP, New York, New 

York; Attorneys for Defendant.

BOUCHARD, C.
I. INTRODUCTION

This action requires the Court to interpret the terms of a stock purchase agreement 

to determine whether a dispute over accounting methodology relating to the calculation 

of net working capital must be resolved by an accountant under a purchase price 

adjustment procedure or by a court as a claim for breach of a representation and warranty. 

In 2013, Alliant Techsystems Inc. (“ATK”) agreed to purchase Bushnell Group 

Holdings, Inc. (“Bushnell”) from MidOcean Bushnell Holdings, L.P. (“MidOcean”) 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 contains two 

“sole and exclusive” remedy provisions. One provision requires the parties to use an 

independent accounting firm of national reputation to resolve disputes concerning 

adjustments to the estimated purchase price, including disputes concerning the 

calculation of net working capital. It contains a specified cap. The other provision 

governs claims for indemnification. It imposes a lower cap on either party’s ability to 

recover from the other for any claims concerning the transaction, including any claim for 

breach of a representation or warranty, except in certain defined circumstances. One 

exception is for matters falling within the purchase price adjustment procedure.

After the transaction closed, ATK challenged a number of items underlying 

MidOcean’s estimate of net working capital on the ground that the accounting treatment 

for such items did not comply with United States generally accepted accounting 

principles (“GAAP”). MidOcean objected, asserting that disputes over accounting 

methodology cannot be raised as part of the purchase price adjustment procedure. The 

1
filing of this lawsuit followed. ATK seeks an order of specific performance requiring 

MidOcean to submit the current dispute to an accounting firm under the purchase price 

adjustment procedure. MidOcean seeks a declaration that claims asserting purported 

violations of GAAP must be resolved by a court in accordance with the provisions 

governing claims for indemnification. The net amount of the parties’ dispute stands at 

approximately $22 million, or a little over two percent of the estimated purchase price.

This Court and courts in other jurisdictions have reached different results in 

determining whether a dispute over accounting methodology may be resolved as part of a 

purchase price adjustment process.1

 This is not surprising. Claims of this nature are 

creatures of contract and counterparties to a transaction are free to contractually order 

their affairs as they wish. The critical issue for the Court to decide here is what the 

shared intentions of the contracting parties were when they entered the Agreement. 

For the reasons discussed below, I conclude based on the plain terms of the 

Agreement that the present dispute over the calculation of net working capital fairly may 

be raised under the purchase price adjustment procedure even though that dispute 

implicates issues of accounting methodology that also could form the basis of an 

1 Compare Matria Healthcare, Inc. v. Coral SR LLC, 2007 WL 763303, at *7 (Del. Ch. 

Mar. 1, 2007) (finding that the dispute over accounting methodology that could fit within 

both the AAA arbitration process for claims and the purchase price adjustment process 

before a settlement accountant must be resolved by the settlement accountant), with OSI 

Sys., Inc. v. Instrumentarium Corp., 892 A.2d 1086, 1095 (Del. Ch. 2006) (finding that a 

dispute over accounting methodology raised during the purchase price adjustment 

procedure that would have resulted in a 54% reduction of the purchase price constituted a 

disguised indemnity claim that must be resolved in legal arbitration and not by an 

accountant).

2

 
indemnification claim for breach of a representation and warranty. I further conclude that 

where a dispute could be brought either as part of the purchase price adjustment 

procedure or as an indemnification claim, the Agreement specifically provides that the 

exclusive remedy provision in the purchase price adjustment procedure trumps the 

exclusive remedy provision for indemnification claims. Accordingly, judgment is 

entered in ATK’s favor granting its request for specific performance and denying

MidOcean’s motion for summary judgment.

II. BACKGROUND2

A. The Parties

Plaintiff Alliant Techsystems Inc. is a Delaware corporation with its principal 

place of business in Arlington, Virginia. ATK is a developer and manufacturer of 

aerospace, defense, and sporting products.

Non-party Bushnell Group Holdings, Inc. is a Delaware corporation that sells 

branded sports optics, outdoor accessories, and performance eyewear. 

Together with its subsidiaries, Bushnell is referred to at times as the “Company.”

Defendant MidOcean Bushnell Holdings, L.P. is a Delaware limited partnership. 

2 Unless noted otherwise, the facts recited in this opinion are based on the well-pled facts 

admitted to be true in MidOcean’s Verified Answer (the “Answer”). See Warner 

Commc’ns Inc. v. Chris–craft Indus., Inc., 583 A.2d 962, 965 (Del. Ch. 1989), aff’d, 567 

A.2d 419 (Del. 1989) (TABLE). I also consider the unambiguous terms of the stock 

purchase agreement, which was attached to the complaint. See OSI Sys., Inc., 892 A.2d 

at 1089, 1095 (“The court also may consider the unambiguous terms of exhibits attached 

to the pleadings . . . .”) (granting judgment on the pleadings).

3

 
B. The Purchase Agreement

On September 4, 2013, ATK agreed to acquire Bushnell for $985 million

(including debt), subject to certain post-closing adjustments. The final Purchase Price 

was to be determined through a process (the “Purchase Price Adjustment Procedure”) that 

would take into account, among other things, whether any adjustment should be made for 

changes in Net Working Capital between the date of the Agreement and the Closing of 

the transaction.

3

 

Net Working Capital is defined as the sum of all current assets minus the sum of 

all current liabilities “calculated in accordance with GAAP and otherwise in a manner 

consistent with the practice and methodologies used in the preparation of” certain 

financial statements of the Company.

4

 The assumed amount of Net Working Capital in 

the Agreement is $188.1 million.5

 The Net Working Capital Adjustment is the amount 

by which Net Working Capital at Closing is greater or less than $188.1 million. 

1. Section 2.4 of the Agreement

As is common in stock purchase agreements, the Agreement contains a multi-step 

process to determine the final Purchase Price. That process is spelled out in Section 2.4.

3 Unless otherwise defined herein, all capitalized terms have the meaning given to them 

in the Purchase Agreement.

4 Compl. Ex. A § 1.1 (the “Purchase Agreement”) (definition of “Net Working Capital”). 

The relevant financial statements are the Company’s audited consolidated balance sheets

as of December 31, 2010, December 31, 2011, and December 31, 2012, and the related 

audited consolidated statements of income, cash flows and stockholders’ equity for each 

fiscal year of the Company then ended. See Purchase Agreement § 3.4(a)(i).

5 Purchase Agreement § 1.1 (definition of “Net Working Capital Adjustment”). 

4

 
First, no later than three business days before the Closing, MidOcean was required 

to deliver to ATK a statement setting forth reasonably detailed calculations of certain 

amounts from which an estimated Purchase Price would be computed.

6 Relevant here, 

MidOcean was required to provide its good faith estimate as of the Closing of the Net 

Working Capital of the Company and the related Net Working Capital Adjustment from 

the $188.1 million of Net Working Capital assumed in the Agreement. 

Second, no later than 60 days after the Closing, ATK (as the buyer now in 

possession of the business) was required to deliver to MidOcean reasonably detailed 

calculations of certain amounts (the “Proposed Closing Date Calculations”), including the

Net Working Capital of the Company as of the Closing and the related Net Working 

Capital Adjustment.

7

 

Third, after receiving the Proposed Closing Date Calculations from ATK, 

MidOcean had 45 days to review them and to deliver to ATK a written notice of dispute 

(the “Purchase Price Dispute Notice”) specifying “in reasonable detail those items or 

amounts in [ATK’s] calculation of the Proposed Closing Date Calculations as to which 

[MidOcean] disagrees (the ‘Disputed Items’) and the basis for such disagreement.”8

If MidOcean delivered to ATK a Purchase Price Dispute Notice, the parties were 

then required to “use their respective commercially reasonable efforts to reach agreement 

6 Id. § 2.4(a). 

7 Id. § 2.4(b)(i). 

8 Id. § 2.4(b)(ii).

5

 
on the Disputed Items set forth in the Purchase Price Dispute Notice in good faith during 

the 30-day period commencing on the date Buyer receives the applicable Purchase Price 

Dispute Notice from the Seller.”9

 If ATK and MidOcean were unable to agree upon a 

final resolution of the Disputed Items, they were required to submit the remaining 

Disputed Items immediately “to an independent accounting firm of national reputation 

mutually acceptable” to them (the “Accounting Firm”).10 

Under the Agreement, the Accounting Firm must act “as an expert, and not as an 

arbitrator” and may only issue determinations with respect to Disputed Items based “on 

the definitions and other applicable provisions of [the] Agreement.”11 The Agreement

limits the recovery for a Purchase Price adjustment to the amounts held in two escrow

accounts that were established at the Closing: the Adjustment Escrow Account ($5 

million) and the Indemnity Escrow Account ($7,387,500).

12 

The Agreement expressly states that the Purchase Price Adjustment Procedure is 

the sole and exclusive method for resolving the Disputed Items: “[T]he 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.”13

9 Id.

10 Id.

11 Id.

12 See Id. §§ 2.4(a)(i)-(ii), c(ii). 

13 Id. §2.4(b)(iv). 

6

 
2. Article IX of the Agreement

Article IX of the Agreement sets forth the parties’ indemnification rights. In 

Section 9.1, MidOcean agreed to indemnify and hold harmless ATK for, among other 

things, “any breach or default in performance by the Company or the Seller of any 

covenant or obligation of the Company or the Seller . . . [and] any breach of, or 

inaccuracy in, any representation or warranty of the Company or the Seller contained in 

this Agreement.”14 Among other things, the Company represented and warranted to 

ATK that its year-end 2010, 2011, and 2012 audited financial statements and its April 30, 

2013, unaudited financial statements were “prepared in accordance with GAAP applied 

on a consistent basis throughout the periods covered thereby.”15 

Section 9.3 of the Agreement imposes certain limitations on the parties’ 

indemnification rights. Specifically, Section 9.3(b)(ii) provides that MidOcean will not 

be required to indemnify ATK unless the aggregate of all claims “exceeds the Indemnity 

Threshold, and then only to the extent such Losses exceed the Indemnity Threshold,”16

which could be as high as $4,925,000.17 The parties also agreed to limit their respective 

liability for indemnity claims to the amount in the Indemnity Escrow Account.18 

14 Id. § 9.1(a)(i)-(ii).

15 Id. § 3.4(a).

16 Id. § 9.3(b)(ii). 

17 More precisely, the Indemnity Threshold is defined as “the greater of (i) zero and (ii) 

(a) $4,925,000 less (b) the Interim Loss Estimate Amount.” Id. § 1.1.

18 Id. § 9.3(c)(i) (“Seller shall not be required to indemnify any Buyer Indemnified Party 

and shall not have any liability under Section 9.1 for amounts in the aggregate in excess 

7

 
Section 9.5 of the Agreement provides that the “sole and exclusive remedy” for 

any claim relating to the transaction shall be governed and limited by the indemnification 

provisions in Article IX, with certain exceptions: 

Except as otherwise expressly provided in any Ancillary Document and, in 

the case of the Buyer Indemnified Parties as provided in the Representation 

and Warranty Insurance Policy, from and after the Closing, 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 (x) the 

foregoing limitations shall not apply in respect of a claim of fraud or for the 

remedies of injunctive relief or specific performance set forth herein and (y) 

nothing in this sentence shall operate to interfere with or impede the 

operation of the provisions of Section 2.4 or 6.2(e). Notwithstanding 

anything to the contrary set forth herein, but except as otherwise expressly 

provided in any Ancillary Document, (A) any amount to which any Buyer 

Indemnified Party is entitled pursuant to this Article IX (other than with 

respect to Interim Losses) shall be limited to, and solely satisfied from, the 

funds that remain in the Indemnity Escrow Account at the time . . . . 19

The language in proviso (y) of the first sentence emphasized above (“Proviso (y)”) is an 

exception to the sole and exclusive remedy limitation in Section 9.5 that carves out 

disputes falling within the operation of the Purchase Price Adjustment Procedure in 

Section 2.4.

of the Indemnity Escrow Amount (other than with respect to Interim Losses) and Seller 

shall not be required to indemnify any Buyer Indemnified Party and shall not have any 

liability under Section 9.1 other than out of the Indemnity Escrow Account (other than 

with respect to Interim Losses).”).

19 Id. § 9.5 (emphasis added).

8

 
To prevent double recoveries, the Agreement provides that the “amount of any 

Loss for which indemnification is provided” would be net of, among other things, “any 

actual cash payments, setoffs or cash recoupment of any payments . . . in each case 

actually received, realized or retained by the indemnified party as a result of any event 

giving rise to a claim for such indemnification.21 

3. Section 2.4 vs. Section 9.5

There are two significant differences between the exclusive remedy provisions in 

Sections 2.4 and 9.5 of the Agreement that bear on the parties’ dispute in this case. First, 

Purchase Price disputes under Section 2.4 are to be resolved by an Accounting Firm on a 

compressed schedule22 while indemnification claims under Section 9.5 are to be resolved 

in a judicial proceeding. Second, for a Purchase Price dispute, ATK can recover from 

MidOcean beginning with its first dollar of loss against the funds available in both the 

Adjustment Escrow and Indemnity Escrow Accounts, i.e., up to $12,387,500.23 For an 

indemnification claim, with certain exceptions not relevant here, ATK may only recover 

from MidOcean if its claim exceeds the Indemnity Threshold (up to $4,925,000) and any 

recovery from MidOcean is limited to the funds available in the Indemnity Escrow 

21 Id. § 9.3(d).

22 Id. § 2.4(b)(ii) (“The Accounting Firm shall be requested to render a written

determination of the Disputed Items . . . within 45 days after referral of the matter to such 

Accounting Firm . . . .”).

23 Id. §§ 2.4(a)(i)-(ii), (c)(ii).

9

 
Account, i.e., up to $7,387,500.

24 As reflected in the Agreement, an insurance policy 

provides ATK an additional potential source of recovery for certain indemnification 

claims.25 

C. Events Leading to the Present Dispute

On or about October 31, 2013, MidOcean delivered to ATK a statement of the 

estimated Purchase Price and its components, including its good faith estimate of Net 

Working Capital and the related Net Working Capital Adjustment.26 MidOcean’s 

estimate of Net Working Capital was $192,407,000. Because this estimate exceeded the 

assumed amount of $188.1 million in the Agreement, an upward adjustment to the 

Purchase Price was made in MidOcean’s favor relating to Net Working Capital in the 

amount of $4,307,000.

27 At the Closing, which occurred on or about November 1, 

2013, ATK paid the adjusted Purchase Price to MidOcean, less certain amounts that ATK 

paid into specified escrow accounts.28

On December 30, 2013, ATK delivered to MidOcean its Proposed Closing Date 

Calculations. ATK calculated that Net Working Capital as of Closing was $166,447,000. 

Based on this calculation, ATK asserted that MidOcean owed it a net amount of 

24 Id. §§ 1.1 (definition of “Indemnity Threshold”), 9.3(b)(ii), 9.3(c), 9.5.

25 See id. § 9.9 (“Seller and the Company acknowledge that Buyer is entering into the 

Representation and Warranty Insurance Policy . . . .”).

26 Answer ¶ 28. 

27 Compl. ¶ 28. The complaint states that the estimated Net Working Capital Adjustment 

was $4,317,800. I believe this is a typographical error, but the difference is immaterial. 

28 Answer ¶ 29.

10

 
$25,960,000 relating to Net Working Capital.29 In its cover letter, ATK expressly 

reserved its right to pursue claims under the indemnification provisions of the 

Agreement.

30 

On March 14, 2014, MidOcean gave a Purchase Price Dispute Notice to ATK in 

which it disputed, among other things, the accuracy of ATK’s calculation of Net Working 

Capital.31 According to MidOcean, its calculation deviated from ATK’s calculation 

because, among other reasons, ATK “ignored the requirement that the Proposed Closing 

Date Calculations are determined based on the practices and methodologies used by the 

Company in the preparation of the Financial Statements referenced in Section 3.4(a)(i) of 

the Agreement.”32 

Delivery of the Purchase Price Dispute Notice initiated the thirty-day period 

during which the parties were to use commercially reasonable efforts to resolve the 

Disputed Items.33 During this process, the parties resolved their disagreements over 

certain Disputed Items worth over $3.6 million,34 but approximately $22 million remains 

in dispute, all of which relates to the calculation of Net Working Capital.

29 In its Proposed Closing Date Calculations, ATK also disagreed with MidOcean’s 

estimate of Cash and Cash Equivalents. That dispute has been resolved. 

30 Answer Ex. C.

31 Answer Ex. D at 1.

32 Id. at 2.

33 See Purchase Agreement § 2.4(b)(ii).

34 Answer ¶ 39.

11

 
On May 15, 2014, MidOcean sent a letter to ATK advising that it would not 

submit the remaining Disputed Items to an Accounting Firm for final resolution.35 

MidOcean stated “that the discrepancy in the parties’ position is based largely, if not 

entirely,” on whether certain items “were accounted for in accordance with generally 

accepted accounting principles (see Agreement § 3.4) and in accordance with the 

inventory representation in the Agreement (see Agreement § 3.22).”36 MidOcean thus 

asserted that the dispute “cannot be resolved through the working capital arbitration 

process or by an accounting firm pursuant to Section 2.4(b)(ii) of the Agreement,” but 

instead had to be resolved in accordance with Article IX of the Agreement.

37

On May 23, 2014, ATK sent a letter to MidOcean disagreeing with its position. 

ATK openly acknowledged that the parties’ dispute involved whether ATK’s “Proposed 

Closing Date Calculations . . . were prepared in accordance with GAAP”38 and asserted 

that the dispute nonetheless should be resolved by an Accounting Firm under the 

Purchase Price Adjustment Procedure in Section 2.4 of the Agreement.

39 ATK proposed 

three accounting firms and asked MidOcean to identify which of those firms were 

35 Answer Ex. B.

36 Id. at 1.

37 Id. at 2.

38 Answer Ex. E at 3.

39 Id. at 1-2.

12

 
acceptable to it or to propose an alternative independent accounting firm of national 

reputation.40 

On May 30, 2014, MidOcean reiterated its position that ATK was alleging a 

breach of a representation and that “any claim for an alleged breach of a representation 

was limited to the indemnity process.”41 On June 24, 2014, ATK filed this lawsuit.

D. Procedural History

ATK’s complaint contains one count for specific performance seeking to direct 

MidOcean to submit the remaining Disputed Items immediately to an Accounting Firm

under Section 2.4(b)(ii) of the Agreement.

42 

On July 28, 2014, MidOcean filed its answer and a counterclaim. The 

counterclaim seeks a declaration that ATK’s claims asserting purported violations of 

GAAP must be resolved through the indemnity procedure set forth in Article IX.

43

On November 7, 2014, ATK filed a motion for judgment on the pleadings. On 

December 5, 2014, MidOcean filed a cross-motion for summary judgment. On February 

3, 2015, I heard oral argument on both motions.

40 Id. at 3.

41 Answer Ex. F at 2.

42 Compl. ¶ 50.

43 Answer ¶ 41.

13

 
III. LEGAL ANALYSIS

A. The Legal Standard

Under Court of Chancery Rule 12(c), ATK’s motion for judgment on the 

pleadings must be denied unless, accepting as true all well-pled facts admitted in the 

answer and drawing all reasonable inferences from those facts in MidOcean’s favor,44

“no material issue of fact exists and the movant is entitled to judgment as a matter of 

law.”45 Similarly, MidOcean’s motion for summary judgment will be granted only if it is 

able to demonstrate that there are no material facts in dispute and that it is entitled to 

judgment as a matter of law.46

Under Delaware law, which governs the Agreement,47 the “proper interpretation 

of language in a contract, while analytically a question of fact, is treated as a question of 

law both in the trial court and on appeal,”48 and “judgment on the pleadings . . . is a 

44 See Warner Commc’ns Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962, 965 (Del. Ch. 

1989), aff’d, 567 A.2d 419 (Del. 1989).

45 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 

1199, 1205 (Del. 1993) (“In determining a motion under Court of Chancery Rule 12(c) 

for judgment on the pleadings, a trial court is required to view the facts pleaded and the 

inferences to be drawn from such facts in a light most favorable to the non-moving 

party.”).

46 Ct. Ch. R. 56(c).

47 Purchase Agreement § 10.5.

48 Pellaton v. Bank of New York, 592 A.2d 473, 478 (Del. 1991) (quoting Klair v. Reese, 

531 A.2d 219, 222 (Del. 1987)).

14

 
proper framework for enforcing unambiguous contracts.”49 That the parties dispute how 

to interpret the Agreement does not render it ambiguous. Rather, under Delaware law, “a 

contract is ambiguous only when the provisions in controversy are reasonably or fairly 

susceptible of different interpretations or may have two or more different meanings.”50 

In my view, the present dispute can be resolved based on unambiguous provisions of the 

Agreement.

B. The Parties’ Contentions 

As discussed above, Section 2.4 of the Agreement sets forth the sole and exclusive 

remedy for resolving disputes over adjustments to the Purchase Price and Section 9.5 of 

the Agreement sets forth the sole and exclusive remedy for resolving indemnification 

claims. The fundamental issue to be decided in this case is which of these two exclusive 

remedy provisions governs the parties’ dispute over the calculation of Net Working 

Capital given that this dispute, as ATK admits, also could form the basis for an 

indemnification claim under Section 9.5 for breach of a representation or warranty in the 

Agreement.

51 

49 NBC Universal, Inc. v. Paxson Comm. Corp., 2005 WL 1038997, at *5 (Del. Ch. Apr. 

29, 2005).

50 Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 

1992).

51 As noted above, the Company represented and warranted to ATK that its year-end 

2010, 2011, and 2012 audited financial statements and its April 30, 2013 unaudited 

financial statements were “prepared in accordance with GAAP applied on a consistent 

basis throughout the periods covered thereby.” Purchase Agreement § 3.4(a). It is 

reasonably inferable that the amount of Net Working Capital assumed in the Purchase 

Agreement ($188.1 million) was derived from these financial statements. See Oral Arg. 

15

 
MidOcean argues that Sections 2.4 and 9.5 of the Agreement were intended to 

address different types of disputes. According to MidOcean, the “Accounting Firm 

dispute resolution process in [Section 2.4 of] the Agreement is limited deliberately to the 

‘items or amounts in Buyer’s calculation of the Proposed Closing Date Calculations as to

which the Seller disagrees’ ” and was never intended to “resolve questions over the 

proper interpretation of GAAP.”52 MidOcean further contends that, to the extent the 

provisions overlap, Section 9.5 provides the exclusive remedy for resolving disputes over 

GAAP.53

ATK argues based on the definition of Net Working Capital in the Agreement that 

certain (but not all) disagreements over compliance with GAAP relating to the calculation 

of Net Working Capital – including the ones at issue here – fall within the scope of 

matters that the Accounting Firm may resolve as part of the Purchase Price Adjustment 

Procedure in Section 2.4. ATK further argues that the Agreement contains a hierarchy 

requiring that such disputes, even though they also could form the basis of an 

indemnification claim under Section 9.5, be resolved by the Accounting Firm. In other 

words, MidOcean argues that the exclusive remedy provision in Section 2.4 trumps the 

exclusive remedy provision in Section 9.5 when the provisions overlap. 

Tr. 10 (Feb. 3, 2015). MidOcean’s estimate of Net Working Capital presumably was 

based on the same accounting methodology used in these financial statements, which 

ATK challenges in various respects as not being calculated in accordance with GAAP. 

52 MidOcean Op. Br. 21 (quoting Purchase Agreement § 2.4(b)(ii)).

53 MidOcean Reply Br. 16-18.

16

 
For the reasons discussed below, I agree with ATK’s interpretation.

C. The Present Dispute over Compliance with GAAP must be Resolved 

Under the Purchase Price Adjustment Procedure

In my opinion, the plain terms of the Agreement compel the conclusion that the 

parties’ disagreement over the calculation of Net Working Capital falls within the scope 

of the Purchase Price Adjustment Procedure in Section 2.4 of the Agreement even though 

that disagreement implicates issues concerning compliance with GAAP that could form 

the basis for an indemnification claim under Section 9.5. 

To begin, Section 2.4 provides a procedure to resolve disputes over “Disputed 

Items,” which consists of “those items or amounts in Buyer’s calculation of the Proposed 

Closing Date Calculations as to which the Seller disagrees.”54 Net Working Capital is 

one of the Proposed Closing Date Calculations to which MidOcean has disagreed. 

Net Working Capital is defined in the Agreement, in relevant part, as follows:

the sum of all current assets . . . of the Group Companies less the sum of all 

current liabilities . . . of the Group Companies, in each case determined on a 

consolidated basis without duplication as of 12:01 a.m. New York time on 

the Closing Date and calculated in accordance with GAAP and otherwise 

in a manner consistent with the practices and methodologies used in the 

preparation of the Financial Statements referenced in Section 3.4(a)(i) . . 

. .55

Importantly, the Agreement requires that MidOcean prepare its estimated Purchase Price, 

which includes its good faith estimate of Net Working Capital, in accordance with the

54 Purchase Agreement § 2.4(b)(ii).

55 Id. § 1.1 (definition of “Net Working Capital”) (emphasis added).

17

 
definitions in the Agreement.

56 It similarly requires that ATK prepare its Proposed 

Closing Date Calculations, including its calculation of Net Working Capital, in 

accordance with those same definitions,

57 and that the Accounting Firm’s determination 

ultimately be based on those same definitions.58

To be faithful to the definition of Net Working Capital in the Agreement quoted 

above, Net Working Capital had to be: “[i] calculated in accordance with GAAP and [ii] 

otherwise in a manner consistent with the practices and methodologies used in the 

preparation of the Financial Statements referenced in Section 3.4(a)(i).”59 GAAP is not a 

set of prescriptive rules. Instead, GAAP “tolerate[s] a range of ‘reasonable’ treatments, 

leaving the choice among alternatives to management.”60

Thus, applying the two parts built into the definition of Net Working Capital, if 

MidOcean was following GAAP when it submitted its good faith estimate of Net 

Working Capital, ATK could not seek to adjust Net Working Capital when it prepared its 

Proposed Closing Date Calculations by selecting another GAAP-compliant accounting 

56 Id. § 2.4(a) (requiring that the components of MidOcean’s estimated Purchase Price be 

“calculated in accordance with the terms of this Agreement (including the applicable 

definitions set forth herein)”). 

57 Id. § 2.4(b)(i) (requiring that ATK prepare a reasonably detailed calculation of Net 

Working Capital “in a manner consistent with the definitions thereof and otherwise in 

accordance with the terms of [the] Agreement.”).

58 Id. 2.4(b)(ii) (Accounting Firm’s determination “must be based solely on definitions 

and other applicable provisions of [the] Agreement”).

59 Id. § 1.1 (definition of “Net Working Capital”).

60 Thor Power Tool Co. v. Comm’r, 439 U.S. 522, 544 (1979). 

18

 
treatment different from Bushnell’s historical accounting practices and methodologies. 

ATK concedes as much.61 On the other hand, if MidOcean was not following GAAP

when it submitted its good faith estimate of Net Working Capital, then in my view 

Section 2.4 of the Agreement permitted ATK to put forward a calculation of Net 

Working Capital it believes complies with GAAP when it prepared its Proposed Closing 

Date Calculations. 

To construe Section 2.4 otherwise and require ATK to calculate Net Working 

Capital in the same manner Bushnell had done historically, even if that methodology did 

not comply with GAAP, would be to read the words “calculated in accordance with 

GAAP” out of the definition of Net Working Capital and to ignore the multiple 

requirements in Section 2.4 to adhere to the definitions in the Agreement in connection 

with the Purchase Price Adjustment Procedure. Such an interpretation would contravene 

basic principles of contract construction requiring that contracts be read as a whole and 

that meaning be given to all the provisions of the contract whenever possible.62 

Had the parties intended to proscribe ATK from challenging whether MidOcean’s 

estimate of Net Working Capital was based on calculations compliant with GAAP as part 

of the Purchase Price Adjustment Procedure, they logically would have defined the 

61 See ATK Op. Br. 20.

62 See, e.g., Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (“We will 

not read a contract to render a provision or term ‘meaningless or illusory.’ ”) (citation 

omitted); Northwestern Nat.’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996) 

(“Contracts must be construed as a whole, to give effect to the intention of the parties.”) 

(citing E.I. DuPont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 

1985)). 

19

 
method of calculating Net Working Capital for purposes of Section 2.4 to require the 

application of the same accounting methodologies Bushnell had used historically in 

preparing its financial statements – period – without additionally requiring that those 

calculations be made in accordance with GAAP.

63 They did not do so and thus left open 

the possibility that ATK could challenge MidOcean’s proposed Net Working Capital 

Adjustment based on a failure to comply with GAAP.

MidOcean has not advanced a textual interpretation of the term Net Working 

Capital that compels a different conclusion. To the contrary, MidOcean readily 

acknowledges that it “was required by Section 2.4 to provide to ATK its ‘good faith 

estimate of Net Working Capital,’ which, by definition had to be ‘calculated in 

accordance with GAAP.’ ”64 

MidOcean asserts as a general proposition that “it is not unusual for an accounting 

firm’s role in dispute resolution to be limited to determining whether calculations are 

correct based only on the accounting principles implemented by a seller in preparing 

financial statements” because the “ ‘purpose of a post-closing purchase price adjustment 

63 In resolving a similar purchase price adjustment dispute, this Court entered an order 

explicitly limiting the authority of an independent accounting firm in this manner based 

on the terms of the contract at dispute in that case. See Gen. Dynamics Corp. v. Orbital 

Scis. Corp., 2011 WL 552342 (Del. Ch. Feb. 15, 2011) (ORDER) (“The authority of the 

Independent Accounting Firm shall be limited strictly . . . [to determining certain 

amounts] based on the application of the same accounting principles” that were used in 

the preparation of financial statements and net working capital exhibits set forth in the 

purchase agreement).

64 MidOcean Reply Br. 13 (quoting Purchase Agreement §§ 2.4(a), 1.1 (definition of 

“Net Working Capital”)).

20

 
is to account for changes in the Seller’s financial position between the pre-closing 

balance sheet date and the closing date balance.’ ”65 That would be a commercially 

sensible and logical way for a buyer and seller to structure a stock purchase transaction. 

The difficulty for MidOcean, however, is that is not what the parties here agreed to do. 

Rather, as discussed above, the definition of Net Working Capital they chose leaves open 

the possibility that ATK may challenge MidOcean’s estimate of Net Working Capital as 

not being compliant with GAAP, and the Agreement explicitly requires that the Purchase 

Price Adjustment Procedure adhere to this and the other definitions in the Agreement. 

The parties also explicitly agreed that recourse to the Accounting Firm would be 

the “sole and exclusive method for resolving any Disputed Items”66 and that this remedy 

would trump in the event of a conflict with the exclusive remedy provision in Section 9.5. 

The trumping provision is found in Proviso (y) in Section 9.5, quoted below:

[T]he 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 . . . (y) nothing in this sentence shall operate to interfere with or 

impede the operation of the provisions of Section 2.4 or 6.2(e).

67

65 MidOcean Reply Br. 22, 22 n.12 (quoting Basil Imburgia and Brian Ong, Accounting 

& Financial Due Diligence—Post M&A Disputes, Practicing Law Institute Corporate 

Law and Practice Course Handbook Series, June 2009, at 6).

66 Purchase Agreement § 2.4(b)(iv).

67 Id. § 9.5 (emphasis added).

21

 
The inclusion of Proviso (y) confirms that the parties contemplated that there could be 

circumstances in which a claim covered by the indemnification provisions in Article IX 

also could be the subject of a dispute under the Purchase Price Adjustment Procedure

governed by Section 2.4. If that were not the case, there would have been no reason to 

include Proviso (y) in Section 9.5. 

Read in that context, Section 9.5 establishes a hierarchy for resolving disputes in 

the event of an overlap between the Purchase Price Adjustment Procedure in Section 2.4 

and the indemnification provisions in Section 9.5. In such event, the Agreement requires 

that disputes falling within the ambit of the Purchase Price Adjustment Procedure in 

Section 2.4 must be resolved by the Accounting Firm.68 Thus, because the present 

dispute over Net Working Capital is encompassed by Section 2.4 for the reasons 

discussed above, that dispute must be resolved by the Accounting Firm. 

D. MidOcean’s Interpretation of the Agreement is Without Merit

Apart from making the general observation that it is not unusual for parties to limit 

an accounting firm’s role to applying the same accounting principles used by a seller, 

which I find did not occur here for the reasons discussed above, MidOcean advances two 

textual arguments that the parties never intended to have the Accounting Firm resolve 

disputes over compliance with GAAP. I address each in turn. 

68 In this sense, the Purchase Agreement operates similarly to the one at issue in Matria 

Healthcare, 2007 WL 763303, at *2, where the Court held that the parties had agreed to a 

hierarchy for resolving disputes that “could . . . fit within both the arbitration provision 

[for resolving misrepresentation claims] and the arbitration provision for adjustments to 

be made by the Settlement Accountant.” 

22

 
First, MidOcean contends that the intent of the Agreement was to limit the 

Accounting Firm to considering questions of “pure mathematics.”69 It bases this 

argument on the fact that the definition of Disputed Items in Section 2.4(b)(ii) refers to 

“items or amounts” and that Section 2.4 requires the Accounting Firm to act “as an expert 

and not as an arbitrator.”70 In my opinion, the use of those terms in Section 2.4 does not 

support such a restrictive view of the role of the Accounting Firm.

According to commonly used dictionaries,71 the word “item” means “[a] single 

article or unit in a collection” or “[a]n entry in an account”72 and the word “amount” 

means “[t]he total of two or more quantities” or “[a] number; a sum.”73 Thus, the phrase 

“items or amounts” as used in Section 2.4 is sufficiently broad in my view to encompass 

accounting methodology, i.e., that the Accounting Firm may make an expert 

determination of each component of Net Working Capital (“items”) as well as the 

quantity, or dollar value, of those entries (“amounts”). To that end, this and other courts 

69 MidOcean Op. Br. 6.

70 MidOcean Op. Br. 6-7, 21-23; MidOcean Reply Br. 21-22, 25.

71 See Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006) 

(“Delaware courts look to dictionaries for assistance in determining the plain meaning of 

terms which are not defined in a contract.”); see also Nationwide Emerging Managers, 

LLC v. NorthPointe Hldgs., LLC, — A.3d —, 2015 WL 1317705, at *11 (Del. Mar. 18, 

2015, revised Mar. 27, 2015) (citing Lorillard, 903 A.2d at 738).

72 American Heritage Dictionary of the English Language 932 (5th ed. 2011).

73 Id. 60.

23

 
have construed similar language to permit accounting firms to settle disputes over 

accounting methodology when resolving purchase price adjustment disputes.

74

Limiting the Accounting Firm to resolving purely math questions would be 

inconsistent in my view with the directive in the Agreement that the Accounting Firm 

serve as an “expert” since little, if any, accounting expertise would be required simply to 

perform mathematical calculations. Although the Agreement specifically provides that 

the function of the Accounting Firm is not to serve as an “arbitrator,” that does not rule 

out that it fairly may be called upon to apply normal accounting principles (i.e., GAAP) 

when serving the function of an expert. One of primary cases upon which MidOcean 

relies, the Seventh Circuit’s decision in Omni Tech Corp. v. MPC Solutions Sales, LLC,

75

supports this conclusion. There, the court found that the phrase “act as an expert and not 

as an arbitrator means that [the accounting firm] will resolve the dispute as accountants 

do—by examining the corporate books and applying normal accounting principles plus 

any special definitions the parties have adopted—rather than by entertaining arguments 

from lawyers and listening to testimony.”76 

74 See Matria Healthcare, 2007 WL 763303, at *2, *6-8 (finding that settlement 

accountant could consider accounting methodology in resolving adjustments or disputes 

over “amounts or items”); see also HBC Solutions Inc. v. Harris Corp., 2014 WL 

6982921, at *2-3, *7-9 (S.D.N.Y. Dec. 10, 2014) (finding use of purchase price 

adjustment before an accountant to be proper where dispute notice set forth “each 

disputed item or amount”); Severstal U.S. Hldgs., LLC v. RG Steel, LLC 865 F.Supp.2d 

430, 434-36, 444 (S.D.N.Y. 2012) (allowing settlement accountant to consider 

accounting methodology to resolve disputes over “any items” in protest notice).

75 432 F.3d 797 (7th Cir. 2005). 

76 Id. at 799 (emphasis added).

24

 
To be sure, in taking on this role, the Accounting Firm may be confronted by some 

level of argumentation akin to the type of adversarial process of an arbitration or judicial 

proceeding. But, in my view, the parties would not have selected an “independent 

accounting firm of national reputation” to serve as an “expert” if all they wanted that firm 

to do was to engage in a bean-counting exercise. Instead, such a selection supports the 

notion that they intended the expert to consider each side’s position77 and to apply 

genuine expertise to resolve purchase price adjustment disputes promptly. When it 

comes to deciding questions of GAAP in that context, accounting firms are particularly 

well-positioned to do so. 

Second, MidOcean argues that “any claim that could be brought as an 

indemnification claim must be brought as an indemnification claim”78 on the theory that 

the second sentence of Section 9.5 operates, in effect, as the ultimate trumping provision 

in the Agreement because it states, in relevant part, that “[n]otwithstanding anything to 

the contrary set forth herein ... any amount to which any Buyer Indemnified Party is 

entitled pursuant to this Article IX . . . shall be limited to, and solely satisfied from, the 

funds that remain in the Indemnity Escrow Account at the time.”79 MidOcean similarly 

asserts that any failure on its part to comply with the requirement in Section 2.4 to 

77 The Purchase Agreement contemplates two rounds of written submissions for this 

purpose – an opening presentation and a response from each side. Purchase Agreement § 

2.4(b)(ii).

78 MidOcean Op. Br. 19.

79 Purchase Agreement § 9.5 (emphasis added).

25

 
calculate its good faith estimate of Net Working Capital in accordance with GAAP 

should be asserted as a claim for breach of a covenant, recovery for which also would be 

limited to the funds available in the Indemnity Escrow Account.

80

The flaw in MidOcean’s argument is that the second sentence of Section 9.5 

simply provides that if a claim is properly brought as indemnification claim, then the 

funds available as a remedy for such a claim are limited to the funds in the Indemnity 

Escrow Account. This sentence does not address whether a claim that could fall within 

either Section 2.4 or Section 9.5 must be resolved under one provision or the other. That 

question is resolved by Proviso (y) in the first sentence of Section 9.5 which, as discussed 

above, provides that the sole and exclusive remedy in Section 2.4 for resolving Disputed 

Items in the Purchase Price Adjustment Procedure trumps the indemnification provision 

in Section 9.5 when the two provisions overlap. Reading the two sentences of Section 

9.5 together in this manner gives complete meaning to both sentences, whereas 

MidOcean’s interpretation would render meaningless the inclusion of Proviso (y) in the 

first sentence of Section 9.5.

Finally, in arguing for a different result, MidOcean relies primarily on two cases in 

which courts have held that disputes over accounting methods must be resolved under an 

indemnity provision rather than a purchase price adjustment provision: then-Vice 

Chancellor Strine’s decision in OSI Systems, Inc. v. Instrumentarium Corp.,

81 and the 

80 MidOcean Reply Br. 13.

81 892 A.2d 1086 (Del. Ch. 2006).

26

 
New York Court of Appeals’ decision in Westmoreland Coal Co. v. Entech, Inc.82 Both 

cases are distinguishable for the simple reason that the purchase agreements in those 

cases operated differently than the Agreement here.

In particular, in both OSI Systems and Westmoreland, the court found that the 

buyer was required to apply the same accounting principles during the purchase price 

adjustment process that the seller had used historically.83 By contrast, as discussed 

above, I interpret Section 2.4 of the Agreement here to operate differently to permit ATK 

to challenge MidOcean’s estimate of Net Working Capital as failing to comply with 

GAAP in connection with the Purchase Price Adjustment Procedure.

OSI Systems also is distinguishable because the purchase agreement in that case 

did not contain a remedy hierarchy similar to the one in the Agreement here, which 

expressly provides that the Purchase Price Adjustment Procedure shall be the “sole and 

exclusive remedy” for disputes falling within its ambit and shall trump the “sole and 

exclusive remedy” provision for indemnification claims. Although the agreement in 

Westmoreland provided that “the remedies set forth in the indemnification provisions 

were the parties’ ‘exclusive remedies’ for misrepresentation or breach of any warranty 

82 794 N.E.2d 667 (N.Y. 2003).

83 OSI Sys., Inc., 892 A.2d at 1091 (finding that purchase price adjustment procedure 

“appears on its face to simply contemplate the use of an Independent Accounting Firm if 

there are differences of opinion about the amount of Modified Working Capital as of the 

Closing Date when applying the same Transaction Accounting Principles used in the 

Reference Statement in a consistent manner”) (emphasis added); Westmoreland Coal Co., 

794 N.E.2d at 670 (“The purchase price adjustment provisions [required the seller] to 

prepare the closing date certificate ‘on a basis consistent with the preparation of the 

Interim Financial Statements.’ ”).

27

 
contained in the Agreement,”84 that agreement did not contain an exception like Proviso 

(y) in this case. Other courts also have distinguished Westmoreland on this basis.

85

* * *

Nothing in this opinion should be read to suggest that I have reached any 

conclusion that ATK or MidOcean failed to comply with GAAP in calculating Net 

Working Capital. Rather, this opinion simply concludes that, under the terms of the 

Agreement, the parties’ present dispute is to be resolved by an Accounting Firm.

IV. CONCLUSION

For the foregoing reasons, ATK’s motion for judgment on the pleadings under 

Court of Chancery Rule 12(c) is GRANTED and MidOcean’s motion for summary 

judgment is DENIED. MidOcean is ordered to immediately submit all of the remaining 

Disputed Items to an Accounting Firm for resolution in accordance with Section 

2.4(b)(ii) of the Agreement. An implementing Order of Final Judgment accompanies this 

Memorandum Opinion.

84 Id. at 669.

85 See HBC Solutions Inc. v. Harris Corp., 2014 WL 6982921, at *7 (S.D.N.Y. Dec. 10, 

2014) (distinguishing Westmoreland where the agreement at issue “explicitly carves out”

purchase price adjustment disputes from the “sole and exclusive remedy” provision); 

Violin Entm’t Acquisition Co. v. Virgin Entm’t Hldgs., Inc., 871 N.Y.S.2d 613, 613-14 

(N.Y. App. Div. 2009) (distinguishing Westmoreland where the indemnification 

provision “can only be interpreted, consistent with the accounting arbitration provision, 

to exclude financial misrepresentations or deviations from GAAP that are contained in 

the final Net Working Capital schedule, that affect that schedule, and that can be resolved 

by a purchase price adjustment”). 

28